-----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, JmCOS5EzF/2XhT6akMxrpE0erd1Zp/PaX2tkoCJGPgdnLDYqrj//krTxLnWxCMNQ cdxh18ZjWDApQ+ht13tTuw== 0000775483-98-000021.txt : 19981118 0000775483-98-000021.hdr.sgml : 19981118 ACCESSION NUMBER: 0000775483-98-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: SEC FILE NUMBER: 001-01196 FILM NUMBER: 98749785 BUSINESS ADDRESS: STREET 1: 515 S FLOWER ST CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134863511 10-Q 1 ARCO 3RD QT 1998 FORM 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, 1998 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, 1998: 321,220,031. 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, ------------------ ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- (Restated) (Restated) (Millions except per share amounts) Revenues Sales and other operating revenues. $ 2,655 $ 3,494 $ 7,755 $10,920 Other revenues. . . . . . . . . . . 146 110 346 358 ------ ------ ------ ------ 2,801 3,604 8,101 11,278 ------ ------ ------ ------ Expenses Trade purchases . . . . . . . . . . 1,039 1,581 3,096 5,036 Operating expenses. . . . . . . . . 919 808 2,013 2,035 Selling, general and administrative expenses . . . . . 187 213 572 597 Depreciation, depletion and amortization. . . . . . . . . . . 546 360 1,334 1,047 Exploration expenses (including undeveloped leasehold amortization) . . . . . . . . . . 135 113 410 329 Taxes other than income taxes . . . 121 147 397 487 Interest. . . . . . . . . . . . . . 123 114 326 246 ------ ------ ------ ------ 3,070 3,336 8,148 9,777 ------ ------ ------ ------ Income (loss) before income taxes, minority interest and extraordinary item. . . . . . . . . (269) 268 (47) 1,501 Provision (benefit) for taxes on income. . . . . . . . . . . . . . . (138) 52 (128) 463 Minority interest in earnings of subsidiaries. . . . . . . . . . . . 7 9 21 31 ------ ------ ------ ------ Income (loss) from continuing operations before extraordinary item. . . . . . . . . . . . . . . . (138) 207 60 1,007 Income (loss) from discontinued operations, net of income taxes of $97 and $186 (1998) and $(22) and $45 (1997). . . . . . . . (78) 18 98 209 Gain on disposition of ARCO Chemical stock, (net of income taxes of $1,540). . . . . . . . . . 1,088 - 1,088 - Gain on disposition of Lyondell Petrochemical stock (net of income taxes of $342) . . . . . . . - 291 - 291 ------ ------ ------ ------ Income before extraordinary item . . 872 516 1,246 1,507 Extraordinary loss on extinguishment of debt (net of income taxes of $74). . . . . . . . - - - (118) ------ ------ ------ ------ Net income. . . . . . . . . . . . . . $ 872 $ 516 $ 1,246 $ 1,389 ====== ====== ====== ====== Earned per Share Basic Continuing operations . . . . . . $ (0.43) $ .65 $ 0.18 $ 3.13 Discontinued operations . . . . . 3.14 .96 3.70 1.56 Extraordinary loss. . . . . . . . - - - (.37) ------ ------ ------ ------ Net income . . . . . . . . . . . $ 2.71 $ 1.61 $ 3.88 $ 4.32 ====== ====== ====== ====== Diluted Continuing operations . . . . . . $ (0.42) $ .64 $ .18 $ 3.08 Discontinued operations . . . . . 3.09 .93 3.63 1.52 Extraordinary loss. . . . . . . . - - - (.36) ------ ------ ------ ------ Net income. . . . . . . . . . . . $ 2.67 $ 1.57 $ 3.81 $ 4.24 ====== ====== ====== ====== Cash Dividends Paid per Share of Common Stock. . . . . . . . . . . . $ .7125 $ .7125 $2.1375 $2.1125 ====== ====== ====== ======
The accompanying notes are an integral part of these statements. - 1 -
ATLANTIC RICHFIELD COMPANY CONSOLIDATED BALANCE SHEET September 30, December 31, 1998 1997 ------------- ------------ (Restated) (Millions) Assets Current assets: Cash and cash equivalents. . . . . . . . . . . $ 1,070 $ 434 Short-term investments . . . . . . . . . . . . 232 222 Accounts receivable. . . . . . . . . . . . . . 975 929 Inventories. . . . . . . . . . . . . . . . . . 502 456 Prepaid expenses and other current assets. . . 307 204 ------ ------ Total current assets . . . . . . . . . . . . . 3,086 2,245 ------ ------ Investments and long-term receivables: Investments accounted for on the equity method. . . . . . . . . . . . . . . . 1,339 763 Other investments and long-term receivables. . 742 1,820 ------ ------ 2,081 2,583 ------ ------ Net property, plant and equipment. . . . . . . . 19,499 13,560 Net assets of discontinued operations. . . . . . 188 2,777 Deferred charges and other assets. . . . . . . . 1,376 1,260 ------ ------ Total assets . . . . . . . . . . . . . . . . . . $26,230 $22,425 ====== ======
The accompanying notes are an integral part of these statements. - 2 -
ATLANTIC RICHFIELD COMPANY CONSOLIDATED BALANCE SHEET September 30, December 31, 1998 1997 ------------- ------------ (Restated) (Millions) Liabilities and Stockholders' Equity Current liabilities: Notes payable . . . . . . . . . . . . . . . . . $ 1,180 $ 1,456 Accounts payable. . . . . . . . . . . . . . . . 1,058 948 Long-term debt due within one year. . . . . . . 126 164 Taxes payable. . . . . . . . . . . . . . . . . 1,893 308 Other . . . . . . . . . . . . . . . . . . . . . 1,046 953 ------ ------ Total current liabilities . . . . . . . . . . . 5,303 3,829 ------ ------ Long-term debt. . . . . . . . . . . . . . . . . . 4,511 3,619 Deferred income taxes . . . . . . . . . . . . . . 3,605 2,661 Other deferred liabilities and credits. . . . . . 3,997 3,396 Minority interest . . . . . . . . . . . . . . . . 257 240 Stockholders' equity: Preference stocks . . . . . . . . . . . . . . . 1 1 Common stock. . . . . . . . . . . . . . . . . . 815 807 Capital in excess of par value of stock . . . . 851 640 Retained earnings . . . . . . . . . . . . . . . 7,612 7,054 Treasury stock. . . . . . . . . . . . . . . . . (348) (170) Accumulated other comprehensive income (loss) . (374) 348 ------ ------ Total stockholders' equity. . . . . . . . . . . 8,557 8,680 ------ ------ Total liabilities and stockholders' equity. . . . $26,230 $22,425 ====== ======
The accompanying notes are an integral part of these statements. - 3 -
ATLANTIC RICHFIELD COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS Nine Months Ended September 30, ----------------- 1998 1997 ---- ---- (Restated) (Millions) Cash flows from operating activities: Income from continuing operations. . . . . . . . . . . . $ 60 $ 889 Adjustments to reconcile income to net cash provided by operating activities: Extraordinary loss on extinguishment of debt . . . . . - 118 Depreciation, depletion and amortization . . . . . . . 1,334 1,047 Dry hole expense and undeveloped leasehold amortization 194 131 Net gain on asset sales. . . . . . . . . . . . . . . . (56) (42) Income from equity investments . . . . . . . . . . . . (53) (10) Dividends from equity investments. . . . . . . . . . . 9 15 Minority interest in earnings of subsidiaries. . . . . 21 31 Noncash provisions greater than cash payments. . . . . 85 20 Changes in working capital accounts. . . . . . . . . . (217) (137) Other. . . . . . . . . . . . . . . . . . . . . . . . . 5 (111) ------ ------ Net cash provided by operating activities. . . . . . 1,382 1,951 ------ ------ Cash flows from investing activities: Union Texas Petroleum acquisition. . . . . . . . . . . (2,707) - Additions to fixed assets (including dry hole costs) . (2,477) (1,742) Net cash (used) provided by short-term investments . . (7) 549 Investment in LUKARCO. . . . . . . . . . . . . . . . . - (201) Proceeds from sale of ARCO Chemical stock. . . . . . . 4,593 - Proceeds from asset sales. . . . . . . . . . . . . . . 1,169 60 Investments and long-term receivables. . . . . . . . . (149) (98) Other. . . . . . . . . . . . . . . . . . . . . . . . . (166) (31) ------ ------ Net cash provided (used) by investing activities . . 256 (1,463) ------ ------ Cash flows from financing activities: Repayments of long-term debt . . . . . . . . . . . . . (235) (1,511) Proceeds from issuance of long-term debt . . . . . . . 215 110 Net cash (used) provided by notes payable. . . . . . . (347) 695 Dividends paid . . . . . . . . . . . . . . . . . . . . (688) (680) Treasury stock purchases . . . . . . . . . . . . . . . (31) (205) Other. . . . . . . . . . . . . . . . . . . . . . . . . 48 39 ------ ------ Net cash (used) by financing activities. . . . . . . (1,038) (1,552) Cash flows from discontinued operations. . . . . . . . . 37 293 Effect of exchange rate changes on cash. . . . . . . . . (1) (7) ------ ------ Net increase (decrease) in cash and cash equivalents . . 636 (778) Cash and cash equivalents at beginning of period . . . . 434 1,326 ------ ------ Cash and cash equivalents at end of period . . . . . . . $ 1,070 $ 548 ====== ======
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 1998. 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. Comprehensive Income. Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130 established new rules for the reporting of comprehensive income and its components. Comprehensive income comprises net income plus all other changes in equity from nonowner sources. ARCO's comprehensive income for the three- and nine-month periods ended September 30, 1998 and 1997 was as follows:
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- (Millions) Net income . . . . . . . . . . . $ 872 $ 516 $1,246 $1,389 After-tax changes in: Net unrealized gain (loss) on investments (a) . . . . . (198) 189 (717) 454 Foreign currency translation adjustment . . . . . . . . . 38 (34) (12) (131) Minimum pension liability. . . 7 - 7 - ----- ----- ----- ----- Comprehensive income . . . . . . $ 719 $ 671 $ 524 $1,712 ===== ===== ===== ===== (a) Primarily related to changes in the fair value of ARCO's investment in LUKOIL, which had a fair value of approximately $161 million at September 30, 1998, compared to a fair value of approximately $1.3 billion and $678 million at December 31, 1997 and 1996, respectively. The unrealized pretax loss on the LUKOIL investment at September 30, 1998 was $182 million.
The new disclosure had no impact on ARCO's net income, financial position, stockholders' equity or cash flows. Accumulated nonowner changes in equity (accumulated other comprehensive income) at September 30, 1998 and December 31, 1997 were as follows:
September 30, December 31, 1998 1997 ------------- ------------ (Millions) Net unrealized gain (loss) on investments. . . $(111) $ 606 Foreign currency translation adjustment. . . . (216) (204) Minimum pension liability. . . . . . . . . . . (47) (54) ---- ---- Accumulated other comprehensive income (loss) $(374) $ 348 ==== ====
- 5 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE C. Interim Segment Information.
Three Months Ended September 30, 1998 Other Exploration Refining & Oper- Unallocated (Millions) & Production Marketing ations Items Total ------------ ---------- ------ ----------- ----- Sales and other operating revenues . . $ 1,518 $1,386 $ 39 $ 3 $ 2,946 Intersegment revenues . (268) - (20) (3) (291) ------ ----- ----- ----- ------ Total . . . . . . . . . $ 1,250 $1,386 $ 19 $ - $ 2,655 ====== ===== ===== ===== ====== Income (loss) from continuing operations. $ (56) $ 108 $ 45 $ (235) $ (138) Income from discontinued operations*. . . . . . - - - 1,010 1,010 ------ ----- ----- ----- ------ Net income. . . . . . . $ (56) $ 108 $ 45 $ 775 $ 872 ====== ===== ===== ===== ====== Segment assets. . . . . $18,762 $3,808 $1,190 $2,470 $26,230 ====== ===== ===== ===== ====== December 31, 1997 (Restated) Segment assets. . . . . $ 13,269 $3,565 $1,149 $4,442 $22,425 ======= ===== ===== ===== ====== Three Months Ended September 30, 1997 (Restated) Other Exploration Refining & Oper- Unallocated (Millions) & Production Marketing ations Items Total ------------ ---------- ------ ----------- ----- Sales and other operating revenues . . $ 2,144 $1,783 $ 42 $ 5 $ 3,974 Intersegment revenues . (459) - (17) (4) (480) ------- ----- ----- ----- ------ Total . . . . . . . . . $ 1,685 $1,783 $ 25 $ 1 $ 3,494 ======= ===== ===== ===== ====== Income from continuing operations . . . . . . $ 288 $ 136 $ 20 $ (237) $ 207 Income from discontinued operations*. . . . . . - - - 309 309 ------- ----- ----- ----- ------ Net income. . . . . . . $ 288 $ 136 $ 20 $ 72 $ 516 ======= ===== ===== ===== ====== _____________ * Includes gains on disposition of discontinued operations of $1,088 million and $291 million for the periods ended September 30, 1998 and 1997, respectively.
- 6 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE C. Interim Segment Information (Continued).
Nine Months Ended September 30, 1998 Other Exploration Refining & Oper- Unallocated (Millions) & Production Marketing ations Items Total ------------ ---------- ------ ----------- ----- Sales and other operating revenues . . $ 4,424 $ 4,170 $ 118 $ 19 $ 8,731 Intersegment revenues . (892) (12) (60) (12) (976) ------ ------ ----- ----- ------ Total . . . . . . . . . $ 3,532 $ 4,158 $ 58 $ 7 $ 7,755 ====== ====== ===== ===== ====== Income from continuing operations . . . . . . $ 143 $ 224 $ 98 $ (405) $ 60 Income from discontinued operations*. . . . . . - - - 1,186 1,186 ------ ------ ----- ----- ------ Net income. . . . . . . $ 143 $ 224 $ 98 $ 781 $ 1,246 ====== ====== ===== ===== ====== Nine Months Ended September 30, 1997 (Restated) Other Exploration Refining & Oper- Unallocated (Millions) & Production Marketing ations Items Total ------------ ---------- ------ ----------- ----- Sales and other operating revenues . . $ 7,390 $ 5,106 $ 135 $ 13 $12,644 Intersegment revenues . (1,653) - (59) (12) (1,724) ------ ------ ----- ----- ------ Total . . . . . . . . . $ 5,737 $ 5,106 $ 76 $ 1 $10,920 ====== ====== ===== ===== ====== Income from continuing operations . . . . . . $ 1,061 $ 250 $ 57 $ (361) $ 1,007 Income from discontinued operations*. . . . . . - - - 500 500 Extraordinary item. . . - - - (118) (118) ------ ------ ----- ----- ------ Net income. . . . . . . $ 1,061 $ 250 $ 57 $ 21 $ 1,389 ====== ====== ===== ===== ====== _______________ * Includes gains on disposition of discontinued operations of $1,088 million and $291 million for the periods ended September 30, 1998 and 1997, respectively.
As discussed in Note J, the Company's coal and chemical operations and investment in Lyondell Petrochemical Company ("Lyondell") have been reported as discontinued operations. The income from and net assets of discontinued operations are included with unallocated items in the segment presentation above. At December 31, 1997, coal operations and ARCO's investment in Lyondell were included as part of "Other Operations" for segment purposes and chemical operations were shown as a separate segment. The prior period has been restated to conform to the current presentation. - 7 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE D. Acquisition of Union Texas Petroleum Holdings, Inc. On June 16, 1998, ARCO announced the completion of its tender offer for all outstanding shares of Union Texas Petroleum Holdings, Inc.'s ("UTP") common stock. ARCO purchased the outstanding common stock of UTP for approximately $2.5 billion, or $29 per share in cash. ARCO also purchased in a tender offer 1,649,500 shares of UTP's 7.14% Series A Cumulative Preferred Stock for approximately $200 million, or $122 per share in cash. UTP was a U.S.-based, non-integrated oil and gas company with substantially all of its oil and gas producing operations conducted outside of the U.S. in the United Kingdom sector of the North Sea, Indonesia and Pakistan. The acquisition is being accounted for as a purchase. The results of operations of UTP are included in the consolidated financial statements of ARCO as of July 1, 1998. The cost of the acquisition was allocated on the basis of the estimated fair value of the assets acquired and liabilities assumed. The following unaudited pro forma summary presents information as if UTP had been acquired as of the beginning of the Company's fiscal years 1997 and 1998. The pro forma amounts include certain adjustments, primarily to recognize depreciation, depletion and amortization based on the allocated purchase price of UTP assets, and do not reflect any benefits from economies which might be achieved from combining operations. The pro forma information does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined companies:
Nine Months Ended September 30, ----------------- 1998 1997 ---- ---- (Restated) (Millions) Sales and other operating revenues . . . . . . . . . $8,022 $11,456 ===== ====== Income from continuing operations before extraordinary item. . . . . . . . . . . . . . . . . 13 1,081 Income from discontinued operations* . . . . . . . . 1,186 526 Extraordinary loss . . . . . . . . . . . . . . . . . - (118) ----- ------ Net income . . . . . . . . . . . . . . . . . . . . . $1,199 $ 1,489 ===== ====== Earned per Share Basic Continuing operations. . . . . . . . . . . . . . $ .03 $ 3.36 Discontinued operations. . . . . . . . . . . . . 3.70 1.64 Extraordinary loss . . . . . . . . . . . . . . . - (.37) ----- ------ Net income . . . . . . . . . . . . . . . . . . . $ 3.73 $ 4.63 ===== ====== Diluted Continuing operations. . . . . . . . . . . . . . $ .04 $ 3.30 Discontinued operations. . . . . . . . . . . . . 3.62 1.61 Extraordinary loss . . . . . . . . . . . . . . . - (.36) ----- ------ Net income . . . . . . . . . . . . . . . . . . . $ 3.66 $ 4.55 ===== ====== _______________ * Includes gains on disposition of discontinued operations of $1,088 million and $291 million for the periods ended September 30, 1998 and 1997, respectively.
- 8 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE E. Investments. At September 30, 1998 and 1997, investments in debt securities were primarily composed of U.S. Treasury securities and corporate debt instruments and were included in short-term investments and other investments and long-term receivables. Maturities generally ranged from one day to 10 years. Investments in LUKOIL common stock and Zhenhai Refining and Chemical Company convertible bonds were included in other investments and long-term receivables. At September 30, 1998, all investments were classified as available-for-sale; there were no investments considered held-to-maturity. 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 September 30:
1998 1997 ---- ---- (Millions) Aggregate fair value . . . . . . . . . . . $ 951 $2,017 Gross unrealized holding losses. . . . . . 200 1 Gross unrealized holding gains . . . . . . (19) (1,104) ----- ----- Amortized cost . . . . . . . . . . . . . . $1,132 $ 914 ===== =====
Investment activity for the nine-month periods ended September 30 was as follows:
1998 1997 ---- ---- (Millions) Gross purchases. . . . . . . . . . . . . . $14,493 $5,175 Gross sales. . . . . . . . . . . . . . . . 339 1,637 Gross maturities . . . . . . . . . . . . . 13,935 4,494
Gross realized gains and loss were determined by the specific identification method and for the three- and nine-month periods ended September 30, 1998 and 1997, were insignificant. NOTE F. Inventories. Inventories at September 30, 1998 and December 31, 1997 comprised the following:
September 30, December 31, 1998 1997 ------------- ------------ (Restated) (Millions) Crude oil and petroleum products . . . . . . $ 235 $ 247 Other products . . . . . . . . . . . . . . . 24 24 Materials and supplies . . . . . . . . . . . 243 185 ------- ------- Total. . . . . . . . . . . . . . . . . . . $ 502 $ 456 ======= =======
- 9 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE G. Capital Stock. Detail of the Company's capital stock was as follows:
September 30, December 31, 1998 1997 ------------- ------------ (Thousands) $3.00 Cumulative convertible preference stock, par $1 . . . . . . . . . . . . . . . $ 52 $ 56 $2.80 Cumulative convertible preference stock, par $1 . . . . . . . . . . . . . . . 580 616 Common stock, par $2.50 . . . . . . . . . . . 814,582 806,800 ------- ------- Total . . . . . . . . . . . . . . . . . . . $815,214 $807,472 ======= =======
NOTE H. Capitalization of Interest. Interest expense excluded capitalized interest of $29 million and $11 million, respectively, for the three-month periods ended September 30, 1998 and 1997, and $66 million and $25 million, respectively, for the nine- month periods ended September 30, 1998 and 1997. NOTE I. Income Taxes. Provision (benefit) for taxes on income:
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- (Restated) (Restated) (Millions) Federal: Current . . . . . . . . . . . . $ (41) $125 $ (86) $398 Deferred. . . . . . . . . . . . (66) (87) (17) (78) ---- --- ---- --- (107) 38 (103) 320 ---- --- ---- --- Foreign: Current . . . . . . . . . . . . 19 18 44 89 Deferred. . . . . . . . . . . . (40) (22) (76) (34) ---- --- ---- --- (21) (4) (32) 55 ---- --- ---- --- State: Current. . . . . . . . . . . . . 6 35 17 105 Deferred . . . . . . . . . . . . (16) (17) (10) (17) ---- --- ---- --- (10) 18 7 88 ---- --- ---- --- Total. . . . . . . . . . . . . $(138) $ 52 $(128) $463 ==== === ==== ===
- 10 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED Note I. Income Taxes (continued). Reconciliation of provision for taxes on income with tax at federal statutory rate:
Three Months Ended September 30, ------------------ 1998 1997 ----------------- ----------------- Percent Percent of of Pretax Pretax Amount Income Amount Income ------ ------- ------ ------- (Restated) (Millions) Income (loss) before income taxes, minority interest and extraordinary item. . . . . . . . $(269) 100.0 $ 268 100.0 ==== ===== ===== ===== Tax at federal statutory rate. . . $ (94) (35.0) $ 93 35.0 Increase (reduction) in taxes resulting from: Subsidiary stock transactions. . (7) (2.6) (11) (4.1) Taxes on foreign income in excess of statutory rate. . . . 4 1.5 (9) (3.4) State income taxes (net of federal effect) . . . . . . . . (6) (2.2) 11 4.1 Tax credits. . . . . . . . . . . (28) (10.4) (26) (9.7) Other. . . . . . . . . . . . . . (7) (2.6) (6) (2.5) ---- ----- ----- ----- Provision (benefit) for taxes on income . . . . . . . . . . . . $(138) (51.3) $ 52 19.4 ==== ===== ===== =====
Nine Months Ended September 30, ----------------- 1998 1997 ----------------- ----------------- Percent Percent of of Pretax Pretax Amount Income Amount Income ------ ------- ------ ------- (Restated) (Millions) Income (loss) before income taxes, minority interest and extraordinary item. . . . . . . . . $ (47) 100.0 $1,501 100.0 ==== ===== ===== ===== Tax at federal statutory rate. . . . $ (16) (35.0) $ 525 35.0 Increase (reduction) in taxes resulting from: Subsidiary stock transactions. . . (64) (136.2) (55) (3.7) Taxes on foreign income in excess of statutory rate. . . . . 44 93.6 24 1.6 State income taxes (net of federal effect) . . . . . . . . . 5 10.6 57 3.8 Tax credits. . . . . . . . . . . . (87) (185.1) (77) (5.1) Other. . . . . . . . . . . . . . . (10) (20.2) (11) (0.8) ---- ----- ---- ----- Provision (benefit) for taxes on income. . . . . . . . . . . . . . . $(128) (272.3) $ 463 30.8 ==== ===== ==== =====
- 11 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE J. Discontinued Operations. On June 1, 1998, ARCO disposed of its U.S. coal operations in a transaction with Arch Coal. Operations disposed of included the Black Thunder and Coal Creek mines in Wyoming, the West Elk mine in Colorado, and ARCO's 65% interest in three mines in Utah. The Colorado and Utah mines were sold outright. ARCO contributed its Wyoming coal operations and Arch Coal transferred various of its coal operations into a new joint venture that is 99% owned by Arch Coal and 1% owned by ARCO. The Company expects to dispose of its Australian coal operations as well. In the third quarter of 1998 ARCO recorded a $90 million provision for the estimated loss on the disposal of the U.S. and Australian coal assets. Net proceeds from the sale of U.S. operations have been deferred in net assets of discontinued operations until the disposition of Australian coal assets is completed and the actual net loss can be determined. In July 1998, ARCO tendered its 80,000,001 shares of ARCO Chemical Company common stock to Lyondell for $57.75 per share, or total cash proceeds of approximately $4.6 billion. ARCO recorded an after-tax gain of approximately $1.1 billion in the third quarter of 1998 from the sale of the shares. In September 1997, ARCO disposed of its 49.9% equity interest in Lyondell. The petrochemical business of UTP will be disposed of and has been reported as a discontinued operation as well. Revenues and net income from discontinued operations was as follows:
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- Revenues: ARCO Chemical . . . . . . . . . $290 $928 $1,990 $2,783 Coal operations . . . . . . . . $ 61 $135 $ 293 $ 497 UTP petrochemical . . . . . . . $ 23 $ - $ 23 $ - Net income: ARCO Chemical . . . . . . . . . $ 12 $(31) $ 178 $ 37 Coal operations* . . . . . . . (90) 6 (80) 53 Lyondell. . . . . . . . . . . . - 43 - 119 UTP petrochemical . . . . . . . - - - - --- --- ----- ----- $(78) $ 18 $ 98 $ 209 === === ===== ===== _______________ * The amount for the three-months ended September 30, 1998 is a provision for loss on disposal of coal assets.
- 12 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE K. Earned Per Share. The information necessary for the calculation of earned per share is as follows:
Three Months Ended Three Months Ended September 30, 1998 September 30, 1997 ------------------ ------------------ Income Shares Per share Income Shares Per share ------ ------ --------- ------ ------ --------- (Millions, except per share amounts) Income from continuing operations . . . . . . . $ (138) $207 Less: Preference stock dividends* . . . . . . . - - ----- --- Income from continuing operations available to common stockholders - basic EPS. . . . . . . . (138) 321.2 $(0.43) 207 320.7 $0.65 ===== ===== Income from discontinued operations . . . . . . . 1,010 321.2 3.14 309 320.7 0.96 ----- ===== ----- --- ===== ---- Net income available to common stockholders - basic EPS. . . . . . . . 872 321.2 $ 2.71 516 320.7 $1.61 ===== ==== Effect of dilutive securities: Contingently issuable shares (primarily options) . . . . . . . . 2.5 3.0 Convertible preference stock. . . . . . . . . . - 3.5 - 3.8 ----- ----- --- ----- Net income available to common stockholders and assumed conversions - diluted EPS. . . . . . . 872 327.2 $ 2.67 516 327.5 $1.57 ===== ===== Less: income from discon- tinued operations. . . . 1,010 327.2 3.09 309 327.5 0.93 ----- ===== ----- --- ===== ---- Income from continuing operations available to common stockholders and assumed conversions - diluted EPS . . . . . . $ (138) 327.2 $(0.42) $207 327.5 $0.64 ===== ===== ===== === ===== ==== _______________ * Dividend rounds to zero for the three-month periods presented.
- 13 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE K. Earned Per Share (continued).
Nine Months Ended Nine Months Ended September 30, 1998 September 30, 1997 ------------------ ------------------ Income Shares Per share Income Shares Per share ------ ------ --------- ------ ------ --------- (Millions, except per share amounts) Income from continuing operations . . . . . . $ 60 $1,007 Less: Preference stock dividends. . . . . . . (2) (2) ----- ----- Income from continuing operations available to common stockholders - basic EPS. . . . . . . 58 320.9 $0.18 1,005 321.3 $3.13 ===== ===== Income from discontinued operations . . . . . . 1,186 320.9 3.70 500 321.3 1.56 ===== ---- ===== Income before extraordinary item available to common stockholders - basic EPS. . . . . . . 1,244 1,505 Extraordinary item. . . - (118) 321.3 (0.37) ----- ----- ===== ---- Net income available to common stockholders - basic EPS. . . . . . . 1,244 320.9 $3.88 1,387 321.3 $4.32 ==== ==== Effect of dilutive securities: Contingently issuable shares (primarily options) . . . . . . . 2.8 2.0 Convertible preference stock. . . . . . . . . 2 3.6 2 3.9 ----- ----- ----- ----- Net income available to common stockholders and assumed conver- sions - diluted EPS. . 1,246 327.3 $3.81 1,389 327.2 $4.24 ===== ===== Extraordinary item. . . - 118 327.2 0.36 Income before ----- ----- ===== ---- extraordinary item available to common stockholders and assumed conversions - diluted EPS. . . . . . 1,246 1,507 Less: Income from dis- continued operations . 1,186 327.3 3.63 500 327.2 1.52 ----- ===== ---- ----- ===== ==== Income from continuing operations available to common stockholders and assumed conversions - diluted EPS. . . . . . $ 60 327.3 $0.18 $1,007 327.2 $3.08 ===== ===== ==== ===== ===== ====
- 14 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE L. Supplemental Income Statement Information. Taxes other than income taxes comprised the following:
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- (Restated) (Restated) (Millions) Production/severance . . . . . $ 54 $ 82 $173 $268 Property . . . . . . . . . . . 39 37 109 107 Other. . . . . . . . . . . . . 28 28 115 112 --- --- --- --- Total. . . . . . . . . . . . $121 $147 $397 $487 === === === ===
NOTE M. Supplemental Cash Flow Information. Following is supplemental cash flow information for the nine months ended September 30, 1998 and 1997:
Nine Months Ended September 30, ----------------- 1998 1997 ---- ---- (Restated) (Millions) Gross sales and maturities of short-term investments . $ 171 $ 1,696 Gross purchases of short-term investments. . . . . . . (178) (1,147) ------- ------- Net cash (used) provided by short-term investments . . $ (7) $ 549 ======= ======= Gross proceeds from issuance of notes payable. . . . . $ 12,096 $ 5,300 Gross repayments of notes payable. . . . . . . . . . . (12,443) (4,605) ------- ------- Net cash (used) provided by notes payable . . . . . . $ (347) $ 695 Gross noncash provisions charged to income . . . . . . $ 416 $ 393 Reserve reversal from partial tax audit settlements. . - (145) Cash payments of previously accrued items. . . . . . . (331) (228) ------- ------- Noncash provisions greater than cash payments. . . . . $ 85 $ 20 ======= =======
Interest paid during the nine-month periods ended September 30, 1998 and 1997 was $318 million and $450 million, respectively. Income taxes paid during the nine-month periods ended September 30, 1998 and 1997 were $169 million and $669 million, respectively. - 15 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE M. Supplemental Cash Flow Information (continued). Excluded from the Consolidated Statement of Cash Flows for the nine months ended September 30, 1998 was the issuance of 2,725,030 shares of ARCO common stock to a consolidated subsidiary in exchange for certain property, plant and equipment owned by the subsidiary. The transaction was recorded at fair market value. In conjunction with the acquisition of UTP, liabilities were assumed as follows:
(Millions) Fair value of assets acquired . . . . . . $3,745 Cash paid . . . . . . . . . . . . . . . . 2,707 ----- Liabilities assumed . . . . . . . . . . $1,038 =====
Excluded from the Consolidated Statement of Cash Flows for the nine months ended September 30, 1997 was ARCO's use of Lyondell common stock to redeem its 9% Exchangeable Notes with an outstanding principal amount of $988 million. Changes in working capital accounts for the nine-month periods ended September 30, 1998 and 1997 were as follows:
Nine Months Ended September 30, ----------------- 1998 1997 ---- ---- (Restated) (Millions) Changes in working capital - Increase (decrease) to cash: Accounts receivable. . . . . . . . . . . . . . . $ 71 $ 396 Inventories. . . . . . . . . . . . . . . . . . . (18) (73) Accounts payable . . . . . . . . . . . . . . . . 22 (310) Other working capital. . . . . . . . . . . . . . (292) (150) ---- ---- Total. . . . . . . . . . . . . . . . . . . . . $(217) $(137) ==== ====
NOTE N. 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. - 16 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE N. Other Commitments and Contingencies (continued). ARCO and former producers of lead pigments have been named as defendants in cases filed by a municipal housing authority, two 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 $767 million based on alleged injuries to natural resources resulting from mining and mineral processing operations formerly operated by Anaconda. ARCO and the State have lodged with the court an agreement to settle for $135 million the State's natural resource damages at all but three sites. That agreement is contingent upon court approval of that agreement and a related settlement agreement between the State, ARCO, the federal government and the Salish and Kootenai Tribes. ARCO is subject to other loss contingencies pursuant to federal, state and local environmental laws and regulations. These require ARCO to remove or mitigate the effects on the environment of the disposal or release of certain chemical, mineral and petroleum substances at various sites, perform certain restoration work on these sites and to pay 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 restoration of natural resources and damages for loss of use and non-use values. The amount of 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. 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, 1998, the environmental remediation accrual was $882 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 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 133 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 accrual. ARCO's future costs at these sites could exceed the amount accrued by as much as $500 million. - 17 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE N. Other Commitments and Contingencies (continued). Approximately 55% 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. 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 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. Note O. Subsequent Event. On October 31, 1998, the Company sold to Vastar Resources, Inc. ("Vastar") 100% of the capital stock of Vastar Offshore, Inc. ("VOI"), formerly known as Western Midway Company for approximately $170 million in cash and the assumption of $300 million of VOI's existing indebtedness by Vastar. The purchase price has been subsequently reduced by approximately $35 million to reflect post-closing adjustment items. ARCO owns an 82.2% interest in Vastar. - 18 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter 1998 vs. Third Quarter 1997 Consolidated Earnings Net income increased in the 1998 third quarter to $872 million, up from the $516 million reported in the third quarter of 1997. However, operating results excluding special items declined to $73 million, compared to $431 million in the 1997 third quarter. This decline primarily reflected lower crude oil prices. The 1998 third quarter included a net after-tax benefit of $799 million for special items, consisting of a gain of $1,088 million from the sale of ARCO's interest in ARCO Chemical Company ("ARCO Chemical"), partially offset by various charges. The charges were for future environmental remediation and reclamation related to both current operations and to natural resource damage liabilities in the state of Montana associated with previously discontinued mining operations, a provision for estimated net loss on divestment of coal operations and an impairment writedown of California heavy crude oil properties. The 1997 third quarter included a net after-tax benefit of $85 million for special items. Special item benefits included an after-tax gain of approximately $291 million from the settlement of 9% Notes due September 15, 1997, with Lyondell Petrochemical Company ("Lyondell") common stock, in addition to tax-related adjustments. The benefits were partially offset by charges for restructuring and other actions at ARCO Chemical of $95 million, net of tax and minority interest, and charges of approximately $140 million after tax for future environmental remediation and reclamation related to both current operations and to natural resource damage liabilities in the state of Montana associated with previously discontinued mining operations. After-tax Segment Earnings
1998 1997 (Restated) ---------------------------- --------------------------- Less: Less: Special Special Items Items Net (Charge) Operating Net (Charge) Operating Income Benefit Results Income Benefit Results ------ -------- --------- ------ -------- --------- (Millions) Exploration and production. . . . $ (56) $ (94) $ 38 $288 $ 22 $266 Refining and marketing . . . . 108 - 108 136 - 136 Other operations . 45 17 28 20 (3) 23 Interest expense . (92) - (92) (78) - (78) Other unallocated expenses. . . . . (143) (122) (21) (159) (125) (34) ----- ----- --- --- ---- --- Income (loss) from continuing operations. . . . (138) (199) 61 207 (106) 313 Income (loss) from discontinued operations. . . . (78) (90) 12 18 (100) 118 Gain on disposition of stock* . . . . 1,088 1,088 - 291 291 - ----- ----- --- --- ---- --- Net income . . . $ 872 $ 799 $ 73 $516 $ 85 $431 ===== ===== === === ==== === *1998: Approximate 82% interest in ARCO Chemical; 1997: 49.9% interest in Lyondell.
- 19 - As the result of the sale of ARCO's 80 million shares of ARCO Chemical common stock in July 1998, the 1998 results from operations reflect the chemical operations as discontinued along with the worldwide coal operations discontinued in the first quarter 1998. In September 1997, ARCO disposed of its 49.9% interest in Lyondell. The 1997 results have been restated to reflect all of these operations as discontinued. Exploration and Production ARCO's operating results from worldwide oil and gas exploration and production operations in 1998 were significantly impacted by lower crude oil prices. While the Union Texas Petroleum ("UTP") properties purchased in 1998 contributed to an 11% increase in production volumes, the revenues from that production were more than offset by the depreciation, depletion and operating costs associated with those properties. The 1998 third quarter included special items primarily related to the writedown of the California heavy oil holdings. The 1997 third quarter included a net benefit from special items related to a United Kingdom tax rate change and a gain on asset sale, partially offset by a leasehold writedown. Average Oil and Gas Prices
1998 1997 ---- ---- U.S. Petroleum liquids - per barrel (bbl) Alaska . . . . . . . . . . . . . . . . . . . . $ 7.84 $13.26 Lower 48, including Vastar . . . . . . . . . . $10.47 $15.77 Composite average price. . . . . . . . . . . . $ 8.76 $14.10 Natural gas - per thousand cubic feet (mcf). . . $ 1.75 $ 1.87 International Petroleum liquids - per bbl. . . . . . . . . . . $10.96 $17.30 Natural gas - per mcf. . . . . . . . . . . . . . $ 2.29 $ 2.51 Indonesia liquefied natural gas (LNG)- per mcf . $ 2.29 $ -
Petroleum Liquids and Natural Gas Production
1998 1997 ---- ---- Net Production* U.S. Petroleum liquids - bbl/day Alaska . . . . . . . . . . . . . . . . . . . 334,600 359,200 Vastar . . . . . . . . . . . . . . . . . . . 44,800 49,600 Other Lower 48 . . . . . . . . . . . . . . . 136,400 130,800 --------- --------- Total. . . . . . . . . . . . . . . . . . . 515,800 539,600 Natural gas - mcf/day. . . . . . . . . . . . . 1,163,500 1,066,700 Barrels of oil equivalent - (BOE)/day. . . . . 709,700 717,400 International Petroleum liquids - bbl/day. . . . . . . . . . 165,500 80,800 Natural gas - mcf/day. . . . . . . . . . . . . 883,500 760,200 BOE/day. . . . . . . . . . . . . . . . . . . . 312,800 207,500 Total net production - BOE/day . . . . . . . . 1,022,500 924,900 __________ * Includes ARCO's share of production from equity affiliates. For BOE calculation, natural gas is converted at the ratio of 6 mcf to 1 barrel of liquid.
- 20 - The increase in international petroleum liquids and natural gas production primarily reflected 120,100 barrels of oil equivalent per day contributed from UTP properties purchased at the end of the second quarter of 1998. In addition, petroleum liquids production increased at the Rhourde el Baguel field in Algeria. Production from United Kingdom natural gas fields decreased by approximately 90 million cubic feet per day, as a result of the timing of gas takes. The decline in U.S. petroleum liquids production primarily reflected a 24,600 barrel-per-day decrease in Alaskan production due to natural field decline. The increase in U.S. natural gas production primarily reflected a 10% increase in Vastar Resources, Inc. ("Vastar") production levels from offshore and onshore fields. In a transaction consummated in October 1998, ARCO exchanged California heavy crude oil properties currently producing approximately 37,000 barrels per day for Gulf of Mexico exploration acreage and properties, production from which is expected to average 180 million cubic feet of gas equivalent, net of divestitures, in 1999. Refining and Marketing The decline in earnings in 1998 primarily resulted from lower light product margins. Margins were lower because West Coast gasoline prices fell more than crude oil prices in the 1998 third quarter. The increased gasoline sales volumes reflected increased volumes at existing ARCO retail outlets. The decline in jet fuel sales reflected both a change in the production mix and a turnaround at ARCO's Cherry Point refinery during third quarter 1998. West Coast Petroleum Products Sales
1998 1997 ---- ---- Volumes (Barrels/day) Gasoline. . . . . . . . . . . . . . . . . . . . . 304,900 298,800 Jet . . . . . . . . . . . . . . . . . . . . . . . 97,100 118,400 Distillate. . . . . . . . . . . . . . . . . . . . 83,500 76,100 Other . . . . . . . . . . . . . . . . . . . . . . 75,400 79,300 ------- ------- Total . . . . . . . . . . . . . . . . . . . . . . 560,900 572,600 ======= ======= Other Operations The 1998 and 1997 results included earnings from Lower 48 pipeline and aluminum operations. The increase in 1998 earnings included special items of $17 million from the sale of pipeline assets. The improved operating results primarily reflected increased earnings from the Seaway pipeline joint venture. Discontinued Operations After-tax earnings from discontinued operations in the 1998 third quarter totaled $12 million before provision of $90 million for an estimated loss on the divestment of coal properties. Discontinued operations included ARCO's interest in ARCO Chemical for part of the quarter and Australian coal operations. - 21 - In the 1997 third quarter, ARCO's discontinued operations earned $118 million before provision of $100 million in restructuring charges for ARCO Chemical and coal operations. Discontinued operations included ARCO's interest in ARCO Chemical and Lyondell, as well as domestic and Australian coal operations. Gain on Disposition of ARCO Chemical Stock In the third quarter of 1998, ARCO sold its entire interest in ARCO Chemical (80,000,001 shares of common stock) to Lyondell, an unrelated third party, for $4.6 billion and recorded a net after-tax gain of $1,088 million. Previously, the Company entered into a ten-year purchase agreement with ARCO Chemical providing for the delivery of fixed quantities of methyl tertiary butyl ether ("MTBE") at a fixed price approximating the then-market price. Over the last several years the spot market price of MTBE has declined; however, provision for loss on the contract was not required since ARCO Chemical was a consolidated, majority-owned subsidiary of the Company. The above-market MTBE contract value was reflected in the sale price of the Company's interest in ARCO Chemical. As a result, ARCO has deferred $313 million of the pre-tax gain on sale of the ARCO Chemical interest. This deferral represents the estimated discounted present value of the difference over the remaining term of the contract between the contract price and the spot market price for MTBE. The deferral will be amortized over the remaining term of the contract on a straight-line basis. The amortization and recognition of imputed interest will have a net favorable impact of approximately $17 million before tax per quarter on earnings of the Refining and marketing segment through the end of the contract in 2001. Consolidated Revenues
1998 1997 ---- ---- (Restated) (Millions) Sales and other operating revenues Exploration and production . . . . . . . . . . . $1,518 $2,144 Refining and marketing . . . . . . . . . . . . . 1,386 1,783 Other. . . . . . . . . . . . . . . . . . . . . . 42 47 Intersegment eliminations. . . . . . . . . . . . (291) (480) ----- ----- Total. . . . . . . . . . . . . . . . . . . . . $2,655 $3,494 ===== =====
The decline in exploration and production sales revenues resulted primarily from lower petroleum liquids prices and lower natural gas marketing activity, partially offset by an 11% increase in production volumes. Effective September 1, 1997, Vastar contributed the majority of its natural gas marketing operations to a joint venture with the Southern Company. Primarily as a result of the transfer of those operations, total natural gas sales volumes decreased to 2.5 billion cubic feet per day in the 1998 third quarter, down from 3.6 billion cubic feet per day in the 1997 third quarter. Refining and marketing sales revenues primarily decreased because of lower light product prices. - 22 - Consolidated Expenses Trade purchases were lower primarily as a result of the Vastar- Southern joint venture and lower crude oil prices. Natural gas purchase volumes decreased to .5 billion cubic feet per day in the 1998 third quarter, down from 1.8 billion cubic feet per day in the 1997 third quarter. Operating expenses were higher in 1998 primarily as a result of the inclusion of UTP operations in the third quarter 1998 results and higher charges for future environmental remediation, compared to the same period in 1997. Selling, general and administrative expenses in 1998 primarily reflected lower personnel expenses at corporate headquarters. Higher depreciation, depletion and amortization in 1998 reflected the writedown of the California heavy oil holdings and the inclusion of UTP operations in the third quarter 1998 results, compared to the third quarter of 1997. The lower taxes other than income taxes in 1998 primarily resulted from the impact of lower crude oil prices on U.S. production taxes. Income Taxes The Company had a tax benefit in the 1998 third quarter reflecting the Company's loss from continuing operations in the current period. The Company had an effective tax rate of 19.4% in the 1997 third quarter. An effective tax rate in 1997 lower than the statutory rate primarily reflected various tax credits and other benefits. Nine-Month Period Ended September 30, 1998 vs. Same Nine-Month Period 1997 Consolidated Earnings Net income decreased to $1,246 million, down from the $1,389 million reported for the first nine months of 1997. Operating results excluding special items declined to $505 million, compared to $1,304 million for the first nine months of 1997. The decline in earnings primarily reflected lower crude oil prices. Special items for the first nine months of 1998 included the net after- tax benefit of $799 million included in the third quarter 1998 results, as well as net charges of $58 million for special items in the first two quarters of 1998. Special items for the first nine months of 1997 included the net after- tax benefit of $85 million included in the third quarter 1997 results. In addition, the first nine months of 1997 included an extraordinary loss of $118 million after tax related to early retirement of debt. The impact of the extraordinary loss was offset by the reversal of reserves for taxes and related interest which resulted primarily from the partial resolution of certain federal and state income tax audits. - 23 - After-tax Segment Earnings
1998 1997 (Restated) --------------------------- --------------------------- Less: Less: Special Special Items Items Net (Charge) Operating Net (Charge) Operating (Millions) Income Benefit Results Income Benefit Results ------ --------- --------- ------ --------- --------- (s) Exploration and production . . . $ 143 $ (169) $312 $1,061 $ 22 $1,039 Refining and marketing. . . . 224 - 224 250 - 250 Other operations. 98 17 81 57 (9) 66 Interest expense. (236) - (236) (176) 89 (265) Other unallocated expenses . . . . (169) (117) (52) (185) (90) (95) ----- ----- --- ----- --- ----- Income (loss) from continuing operations . . . 60 (269) 329 1,007 12 995 Income (loss) from discontinued operations . . . 98 (78) 176 209 (100) 309 Gain on disposition of stock* . . . 1,088 1,088 - 291 291 - Extraordinary item - - - (118) (118) - ----- ----- --- ----- --- ----- Net income. . . $1,246 $ 741 $505 $1,389 $ 85 $1,304 ===== ===== === ===== === ===== *1998: Approximate 82% interest in ARCO Chemical; 1997: 49.9% interest in Lyondell.
Consolidated Revenues
1998 1997 ---- ---- (Restated) (Millions) Sales and other operating revenues Exploration and production . . . . . . . . . . . $ 4,424 $ 7,390 Refining and marketing . . . . . . . . . . . . . 4,170 5,106 Other. . . . . . . . . . . . . . . . . . . . . . 137 148 Intersegment eliminations. . . . . . . . . . . . (976) (1,724) ------ ------ Total. . . . . . . . . . . . . . . . . . . . . $ 7,755 $10,920 ====== ======
The decline in exploration and production sales revenues for the first nine months of 1998 resulted primarily from lower petroleum liquids prices and natural gas marketing activity. Effective September 1, 1997, Vastar contributed the majority of its natural gas marketing operations to a joint venture with the Southern Company. Primarily as a result of the transfer of those operations, total natural gas sales volumes decreased to 2.4 billion cubic feet per day for the first nine months of 1998, down from 4.1 billion cubic feet per day for the same period in 1997. For the first nine months of 1998 refining and marketing sales revenues primarily decreased because of lower refined products prices. - 24 - Consolidated Expenses Trade purchases for the nine months ended September 30, 1998 were lower primarily as a result of lower crude oil prices and the Vastar- Southern joint venture. Natural gas purchase volumes decreased to .5 billion cubic feet per day in 1998, down from 2.2 billion cubic feet per day in the same period in 1997. Operating expenses declined during the first nine months of 1998, compared to the same period in 1997 primarily as a result of decreased natural gas marketing activity and other cost reductions in the exploration and production operations of the Company. The increased depreciation, depletion and amortization expense for the first nine months of 1998 included a writedown of the California heavy oil holdings, a writedown of a North Sea natural gas field and the inclusion of UTP operations in the third quarter 1998. The higher exploration expense for the first nine months of 1998 reflected increased geological and geophysical and dryhole expense in international operations and higher dryhole expense at Vastar. The lower taxes other than income taxes in 1998 primarily resulted from the impact of lower crude oil prices on U.S. production taxes. For the nine months ended September 30, 1998, the higher interest expense reflected the absence of the reversal of reserves for tax-related interest in the second quarter of 1997. Excluding the prior year reserve reversal, interest expense was down almost $65 million in the first nine months of 1998 as a result of debt retirements and capitalized interest. Income Taxes The Company had a tax benefit for the first nine months of 1998 reflecting the Company's loss from continuing operations for the first nine months of 1998. The Company had an effective tax rate of 30.8% for the first nine months of 1997. An effective tax rate in 1997 lower than the statutory rate primarily reflected various tax credits and the net effect of affiliate stock transactions. Average Oil and Gas Prices
Nine Months Ended September 30, ----------------- 1998 1997 ---- ---- U.S. Petroleum liquids - per bbl Alaska . . . . . . . . . . . . . . . . . . . $ 8.59 $15.36 Lower 48, including Vastar. . . . . . . . . . $11.31 $17.03 Composite average price . . . . . . . . . . . $ 9.55 $15.90 Natural gas - per mcf . . . . . . . . . . . . . $ 1.85 $ 1.97
Nine Months Ended September 30, ----------------- 1998 1997 ---- ---- International Petroleum liquids - per bbl . . . . . . . . . . $11.62 $18.36 Natural gas - per mcf . . . . . . . . . . . . . $ 2.51 $ 2.64 Indonesia liquid natural gas. . . . . . . . . . $ 2.29 $ -
- 25 - Petroleum Liquids and Natural Gas Production
1998 1997 ---- ---- Net Production* U.S. Petroleum liquids - bbl/day Alaska . . . . . . . . . . . . . . . . . . . 346,100 377,300 Vastar . . . . . . . . . . . . . . . . . . . 48,600 51,100 Other Lower 48 . . . . . . . . . . . . . . . 138,500 127,600 --------- --------- Total. . . . . . . . . . . . . . . . . . . 533,200 556,000 Natural gas - mcf/day. . . . . . . . . . . . . 1,125,000 1,058,700 Barrels of oil equivalent - (BOE)/day. . . . . 720,700 732,400 International Petroleum liquids - bbl/day. . . . . . . . . . 111,500 76,800 Natural gas - mcf/day. . . . . . . . . . . . . 793,100 830,800 BOE/day. . . . . . . . . . . . . . . . . . . . 243,700 215,300 Total net production - BOE/day . . . . . . . . 964,400 947,700 _______________ * Includes ARCO's share of production from equity affiliates. For BOE calculation, natural gas is converted at the ratio of 6 mcf to 1 barrel of liquid.
Liquidity and Capital Resources
1998 ---- (Millions) Cash flow provided (used) by: Operations. . . . . . . . . . . . . . . . . . . . . $ 1,392 Investing activities. . . . . . . . . . . . . . . . $ 256 Financing activities. . . . . . . . . . . . . . . . $(1,038)
The net cash used by investing activities in the first nine months of 1998 included expenditures of $4.6 billion from the disposition of ARCO Chemical stock and the proceeds from other net asset sales, primarily U.S. coal assets, of $1.1 billion offset by expenditures for the purchase of UTP for $2.7 billion and additions to fixed assets of $2.5 billion. The net cash provided by financing activities in the first nine months of 1998 primarily included a decrease of $347 million in the Company's short-term debt position offset by dividend payments of $688 million. Cash and cash equivalents and short-term investments totaled $1.3 billion and short-term borrowings were $1.2 billion at the end of the third quarter of 1998. Primarily as a result of the income taxes payable associated with the sale of ARCO Chemical stock, the Company is in a working capital deficit position of approximately $2.2 billion at September 30, 1998. It is expected that future cash requirements for working capital, capital expenditures, dividends and debt repayments will come from cash generated from operating activities, existing cash balances, short- term borrowing and future financings. - 26 - Impact of the Year 2000 Issue The Year 2000 issue arises from computer programs and embedded computer chips being unable to distinguish between the year 1900 and the year 2000, resulting in system failures or miscalculations that cause operational disruptions. In addressing the Year 2000 issue, ARCO divided the project into three components: (1) computing integrity, which covers all information technology systems, including telecommunications/network support (software and hardware) and third-party hardware and software not in ARCO's plant facilities, (2) plant integrity, which covers all hardware and software responsible for the movement of product in ARCO's various plant facilities, and (3) commercial integrity, which covers all external third-party relationships, non-ARCO operated joint ventures and third-party operated production, including the Trans Alaska Pipeline System ("TAP"). ARCO is managing the project internally and is working to assure Year 2000 integrity by conducting internal audits. The Company has also hired outside con- sultants to do certain minor audits. The Company's implementation of the Year 2000 Project has not impacted other technology projects. The Company has developed the following guidelines to achieve Year 2000 compliance: (1) Inventory preparation - the Company will first prepare an inventory of items for each material asset covering the components; (2) Prioritize inventory - the Company will then evaluate each item for its potential to interfere with critical operations such that failure would result in a material adverse effect on ARCO's operations; (3) Option assess- ment - the Company will evaluate various remediation strategies to mitigate Year 2000 effects including repair, replacement and retirement; (4) Implement appropriate options - the Company will execute the appropriate selected remediation strategy; (5) Continued monitoring - the Company will institute processes after remediation has been completed for ensuring continued Year 2000 compliance. The criticality of Year 2000 inventory items is evalulated, in descending order, based on the following considerations: if a failure attributable to the Year 2000 were to occur, a determination will be made of its impact on (1) health and safety of ARCO employees; (2) the environ- ment; (3) ARCO's revenues; and/or (4) ARCO's business relationships. In addition, these Year 2000 items are being evaluated in the context of ARCO's existing business interruption plans, which contain provisions for opera- tional disruptions caused by disasters such as earthquakes and hurricanes which may have effects comparable to those that may be caused by Year 2000 failures. At the date hereof, the Company estimates that it will have achieved the percentage completion of remediation of material Year 2000 items affecting its exploration and production and refining and marketing segments as follows: (1) Computing integrity is expected to be 90% completed by year end 1998, with 100% achieved during the second quarter of 1999. (2) Plant integrity is expected to be 50% completed by year end 1998, with 100% achieved during the second quarter of 1999. (3) Commercial integrity is expected to be 25% completed by year end 1998, with 100% achieved by the end of the second quarter of 1999. In the event that these completion goals are not met, or the remediation work is unsuccessful in avoiding material Year 2000 problems, the Company believes that its existing business disruption plans will adequately cover any material business interruptions resulting from material non-compliant Year 2000 items. The total cost associated with required modifications to achieve Year 2000 compliance is not expected to be material to the Company's financial position. The approximate total cost of the Year 2000 project is $25 million. This estimate does not include ARCO's potential share of Year 2000 costs that may be incurred by partnerships and joint ventures in which the Company participates but is not the operator. The total amount expended through September 30, 1998 was approximately $14 million. - 27 - The failure to correct a material Year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such failures could materially and adversely impact the Company's results of operations or financial condition. As a result of the general uncertainty inherent in the Year 2000 problem, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on the Company's results of operations or financial condition. Completion of the Company's Year 2000 compliance guidelines, if implemented as scheduled, is expected to reduce the possibility of material disruptions of normal operations. The foregoing "Impact of the Year 2000 Issue" contains forward-looking statements that should be read in conjunction with the disclosures under the heading "Safe Harbor Cautionary Statement." Safe Harbor Cautionary Statement ARCO desires to take advantage of the "safe harbor" provisions contained in Section 27A of the Securities Act of 1933, as amended (the "1933 Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is including this statement herein in order to do so. The discussion above contains forward-looking statements (which may come within the meaning of Section 27A of the 1933 Act and Section 21E of the 1934 Act). Readers are cautioned that these statements are based upon certain assumptions, including but not limited to assumptions as to the availability of trained personnel and the ability to timely identify and locate all relevant Year 2000 issues which might affect the Company and the assumption that representations by third parties are correct. The Company also assumes that the Company's repair and replacement programs will be timely completed and that certain vendors and contractors will timely perform as promised. Actual results could differ materially if the Company's assumptions are incorrect. Due to the general uncertainty as to the Year 2000 readiness of third parties and the interconnection of business, the Company cannot ensure its ability to resolve its Year 2000 problems in a timely and cost effective manner. The failure to do so could affect the Company's operations and business or expose it to third-party liability. Statements of Financial Accounting Standards Not Yet Adopted In March 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. SOP 98-1 establishes criteria for determining which costs of developing or obtaining internal-use computer software should be charged to expense and which should be capitalized. The Company has determined that the adoption of SOP 98-1 will not have a material effect on ARCO's financial position or results of operations. In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-up Activities." SOP 98-5 is effective for financial statements for fiscal years beginning after December 15, 1998. SOP 98-5 states that costs of start-up activities, including organization costs, should be expensed as incurred. The Company has determined that the adoption of SOP 98-5 will not have a material effect on ARCO's financial position or results of operations. - 28 - In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires companies to adopt its provisions for all fiscal quarters of all fiscal years beginning after June 15, 1999. Earlier application of all of the provisions of SFAS No. 133 is permitted, but the provisions cannot be applied retroactively to financial statements of prior periods. SFAS standardizes the accounting for derivative instruments by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. The Company has not yet completed evaluating the impact of the provisions of SFAS No. 133. _______________________________ 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. - 29 - PART II. OTHER INFORMATION Item 1. Legal Proceedings. 1. Reference is made to the disclosure on page 12 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (hereinafter, the "1997 Form 10-K Report"), on page 21 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998 (the "First Quarter Form 10-Q Report") and on page 28 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998 (the "Second Quarter Form 10-Q Report") regarding Montana v. ARCO (Case No. CV-83-317-HLN-PGH). On June 19, 1998, ARCO and the State lodged with the court a conditional consent decree to settle for $135 million all but a portion of the State's natural resource damage ("NRD") claims and for $80 million claims for cleanup at the Stream Side Tailings Operable Unit ("SSTOU"). The NRD claims of the State not settled are for restoration at three sites for which a final cleanup plan has not been ordered. As part of the settlement, ARCO, the State, the United States, and the Tribes expect to lodge with the court a second consent decree setting forth the terms of the settlement of claims for cleanup and also settling claims for past costs and a civil penalty at the SSTOU. That consent decree will also provide for settlement of United States and Tribal NRD claims in the Clark Fork Basin. All of these settlements are subject to court approval. 2. Reference is made to the disclosure on page 12 of the Company's 1997 Form 10-K Report and on page 28 of the Second Quarter Form 10-Q Report regarding the case of U.S. v. ARCO, et al. (Case No. CV-89-039-BU- PGH). The proposed settlements in Montana v. ARCO, described above, will resolve the claims and counterclaims in U.S. v. ARCO pertaining to the SSTOU and will provide a framework for possible future settlements of the remaining claims. 3. Reference is made to the disclosure on pages 12 and 13 of the Company's 1997 Form 10-K Report regarding a complaint entitled In re Hanford Nuclear Reservation Litigation (CY-91-3015-AAM). On August 21, 1998, the court issued a ruling that, if upheld on appeal, should result in the dismissal of ARCO and its subsidiary, Atlantic Richfield Hanford Company, from the case. 4. Reference is made to the disclosure on page 14 of the Company's 1997 Form 10-K Report and on page 28 of the Second Quarter Form 10-Q Report regarding Siemens Solar Industries v. Atlantic Richfield Company (Case No. 94-109092). On October 27, 1998, the New York Court of Appeals denied Siemens' motion for leave to appeal the summary judgment, concluding this lawsuit in ARCO's favor. 5. Reference is made to the disclosure on page 14 of the Company's 1997 Form 10-K Report and on page 21 of the First Quarter Form 10-Q Report" regarding ARCO, et al. v. UNOCAL (Case No. 95-2379-KMW-JRx). On September 29, 1998, the court issued a judgment in favor of UNOCAL for $10.3 million (including prejudgment interest) against ARCO for infringing gallons during the first five months of production and for $1.5 million joint and several against ARCO and the other five refiners for UNOCAL's attorneys fees. ARCO has appealed the decision to the Court of Appeals for the Federal Circuit. 6. Reference is made to the disclosure on page 28 of the Company's Second Quarter Form 10-Q Report regarding ARCO's receipt of a Finding of Violation from EPA Region IX for alleged violations at the Los Angeles Refinery of the federal New Source Performance Standards established for refineries under the Clean Air Act. Settlement discussions with EPA continue. - 30 - Item 1. Legal Proceedings (continued). 7. On June 7, 1994, a purported class action was filed by several individuals in United States District Court in Pittsburgh, Pennsylvania against ARCO and Babcock & Wilcox Company ("B & W") on behalf of persons "estimated to be in the thousands" who lived or worked in Apollo and Parks Township, Pennsylvania, and areas downwind of those places, from 1957 to the present. The suit, Hall, et al. v. Babcock & Wilcox Company, et al. (Case No. 94-0951), claims that the plaintiffs and alleged class members were exposed to releases of radioactive and other toxic substances from two nuclear materials processing facilities that have contaminated the air, soil, and surface and ground water in those communities. The suit seeks damages for death and personal injury, diminution in property values, costs of decontamination of property, injunctive relief requiring defendants to establish a fund for medical monitoring, and punitive damages. ARCO has been sued as the former owner of Nuclear Materials and Equipment Corporation ("NUMEC"), the original owner and operator of the Apollo and Parks Township facilities from March 1967 to November 1971. On September 17, 1998, the jury in a trial of eight "test-case" plaintiffs' claims returned a verdict of $33.7 million jointly and severally against ARCO and B & W and another $2.8 million just against B & W. On September 24, 1998, these eight test-case plaintiffs withdrew their claim for punitive damages against ARCO. ARCO and B & W have filed motions for judgment in their favor or for a new trial. The claims of other plaintiffs remain for trial or other disposition. 8. On October 22, 1998, ARCO was served with a complaint filed in the Superior Court of California for the County of Sacramento entitled Cal-Tex Citrus Juice, et al. v. Atlantic Richfield Company, et al. (Case No. 98AS05227). The complaint is purportedly on behalf of a class of all direct or indirect purchasers of California diesel fuel between March 19, 1996 and December 31, 1997 against all California refiners of California diesel fuel. The complaint alleges violations of various state statutes by the defendants' alleged conspiracy to fix prices of California diesel fuel and seeks treble damages and restitution. 9. Reference is made to the Company's 1997 Form 10-K Report for information on other legal proceedings matters reported herein. - 31 - Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 10.1 Amendment No. 4 to the Atlantic Richfield Company Supplementary Executive Retirement Plan, effective as of August 1, 1997, filed herewith. 10.2 Amendment No. 4 to the Atlantic Richfield Company Executive Deferral Plan, effective as of January 1, 1997, filed herewith. 10.3 Amendment No. 5 to the Atlantic Richfield Company Annual Incentive Plan, effective as of July 28, 1997, filed herewith. 10.4 Amendment No. 6 to the Atlantic Richfield Company Annual Incentive Plan, effective as of July 28, 1997, filed herewith. 10.5 Amendment No. 10 to the Atlantic Richfield Company 1985 Executive Long-Term Incentive Plan, effective as of July 28, 1997, filed herewith. 10.6 Amendment No. 11 to the Atlantic Richfield Company 1985 Executive Long-Term Incentive Plan, effective as of July 28, 1997, filed herewith. 10.7 Amendment No. 6 to Atlantic Richfield Company Special Termination Allowance Plan which contains the current change of control provisions applicable to the Company's executive management team, including its five most highly compensated executive officers. 27 Financial Data Schedule. (b) Reports on Form 8-K The following Current Reports on Form 8-K were filed during the quarter ended September 30, 1998 and through the date hereof. Date of Report Item No. Financial Statements -------------- -------- -------------------- September 30, 1998 5 None - 32 - 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 10, 1998 ____________________________ (signature) Allan L. Comstock Vice President and Controller (Duly Authorized Officer and Principal Accounting Officer) - 33 - EX-10.1 2 AMEND. NO. 4 TO SUPPLEMENTARY EXEC RETIREMENT PLAN AMENDMENT NO. 4 TO ATLANTIC RICHFIELD COMPANY SUPPLEMENTARY EXECUTIVE RETIREMENT PLAN __________________________ Pursuant to the power of amendment reserved therein, the following amendment is hereby made to the Atlantic Richfield Company Supplementary Executive Retirement Plan (the "Plan") effective as of August 1, 1997. Article IX, Section 6 of the Plan is amended to read as follows: "Section 6. Change of Control 6.1 During an Anticipatory Change of Control as defined in the Supplemental Executive Benefit Plans Trust Agreement between Atlantic Richfield Company and State Street Bank and Trust Company, as adopted on July 1, 1994 and amended from time-to- time thereafter, and incorporated herein by reference, notwithstanding any other provision to the contrary in this Plan, the following provisions shall apply: (a) No new participants or beneficiaries may commence participation in the Plan; and (b) No new elections of distribution options or any other participant elections may be made. 6.2 Upon the occurrence of a Change of Control as defined in the Supplemental Executive Benefit Plans Trust Agreement between Atlantic Richfield Company and State Street Bank and Trust Company, as adopted on July 1, 1994 and amended from time- to-time thereafter, and incorporated herein by reference, notwithstanding any other provision to the contrary in this Plan, the following provisions shall apply: (a) The Plan shall be terminated with respect to all Participants who were employed on or after October 1, 1990 and who either are in receipt of an annuity or who are entitled to a benefit, a portion of which is attributable to the Supplemental Benefit calculated under Article II of the Plan. (b) Benefits of Participants described in Subparagraph (a) shall be treated as follows: (1) With respect to any Participant or Beneficiary in receipt of an annuity form of payment, such annuity shall be converted to an Actuarial Equivalent Lump Sum in accordance with actuarial factors established by the Independent Plan Administrator, with verification by an independent actuary. - 1 - (2) With respect to any Participant who is not in receipt of an annuity and a portion of whose benefit is attributable to the Supplemental Benefit calculated under Article II of the Plan, the total accrued benefit under the Plan as of the date of the Change of Control shall be calculated by the Independent Plan Administrator, based upon records and information, including benefit calculations, provided by the Company prior to a Change of Control, and the Participant shall be entitled to such accrued benefit. (3) The Actuarial Equivalent Lump Sum value of the accrued benefit calculated under the preceding subparagraph shall also be calculated using the actuarial factors established under Subparagraph (1) above with respect to Participants: (i) Who were employed by the Company on the date of the Change of Control or were employed by the Company on or after October 1, 1990; and (ii) Who have yet to commence a distribution. (c) Participants and Beneficiaries described under Subparagraph (a) shall be permitted to elect disposition of the benefit, in accordance with procedures established by the Independent Plan Administrator, as follows: (1) Single payment of the Actuarial Equivalent Lump Sum value calculated under Subparagraph (b) above in cash as soon as possible following the Change of Control; or (2) Transfer of benefit obligations from the Plan equaling the Actuarial Equivalent Lump Sum value calculated under Subparagraph (b) above to the Atlantic Richfield Executive Deferral Plan as soon as possible following the Change of Control, under which such benefit obligations shall be maintained as a new deferral account, payable in accordance with an election made pursuant to procedures established by the Independent Plan Administrator under the Atlantic Richfield Executive Deferral Plan. (d) The Independent Plan Administrator appointed pursuant to the Trust Agreement described above shall assume full responsibility of the Plan Administrator under Article VII of the Plan, subject to any approvals, concurrences or authority reserved to the Advisory and Claims Committee established under the Trust Agreement described above." Executed this 5th day of November, 1998. ATTEST: ATLANTIC RICHFIELD COMPANY BY: /s/ Armineh Simonian BY: /s/ JOHN H. KELLY --------------------- ------------------------ John H. Kelly Senior Vice President Human Resources - 2 - EX-10.2 3 AMEND. NO. 4 TO EXECUTIVE DEFERRAL PLAN AMENDMENT NO. 4 TO ATLANTIC RICHFIELD COMPANY EXECUTIVE DEFERRAL PLAN __________________________ Pursuant to the power of amendment reserved therein, the following amendment is hereby made to the Atlantic Richfield Company Executive Deferral Plan (the "Plan") effective as of January 1, 1997, except as otherwise indicated. 1. Article I, Section 3.1 of the Plan is amended to read as follows: "3.1 Account or Deferred Compensation Account means a separate bookkeeping account maintained by the Company for each Employee and which measures and determines the amounts to be paid to the Employee under the Plan for each component of Deferred Compensation. Separate subaccounts will be established for separate components of Deferred Compensation, as applicable, deferred by an Employee." 2. Article II, Section 1 of the Plan is amended to read as follows: "Section 1. Eligibility and Participation 1.1 Eligibility. Eligibility to make a Deferral Commitment shall be limited to Employees who (a) (i) are eligible to receive an Award, and (ii) either are classified in the executive payroll grade structure of the Company, or are Grades 7, 8, 9 or 10 in the regular payroll grade structure of the Company, (b) are a Participant in the Executive Supplementary Savings Plan or (c) have been designated as eligible by a specific resolution of the Administrative Committee upon recommendation of the Senior Vice President, Human Resources of the Company." 3. Article III, Section 3(b) of the Plan is amended to read as follows: "(b) Guaranteed Interest Rate. Absent a Change of Control, in no event will the Interest Rate applicable to (i) a Participant's Account during the Participant's lifetime (including any Transferred Accounts from the Atlantic Richfield Annual Incentive Plan) be less than the Citibank Base Rate, or (ii) Transferred Accounts from the Atlantic Richfield Executive Supplementary Savings Plan be less than the Money Market Rate of interest under the Capital Accumulation Plan for the period of time commencing on the date of transfer and ending on the date the Accounts are paid." - 1 - 4. Effective August 1, 1997, Section 11 of Article IV of the Plan is amended to read as follows: "Section 11. Change Of Control 11.1 (a) During an Anticipatory Change of Control, as defined in the Supplemental Executive Benefit Plans Trust Agreement between Atlantic Richfield Company and State Street Bank and Trust Company, as adopted on July 1, 1994 and amended from time-to-time thereafter, and incorporated herein by reference, notwithstanding any other provision to the contrary in this Plan, the following provisions shall apply: (i) No new participants or beneficiaries may commence participation in the Plan; and (ii) No new elections of distribution options or any other participant elections may be made. (b) Subject to the provisions of Section 11.1(c) hereof, upon a Change of Control as defined in the Supplemental Executive Benefit Plans Trust Agreement between Atlantic Richfield Company and the State Street Bank and Trust Company, as adopted on July 1, 1994 and amended from time-to-time thereafter, and incorporated herein by reference, notwithstanding any other provision to the contrary in this Plan, the following provisions shall apply: (i) The Independent Plan Administrator appointed under the Trust Agreement shall assume all responsibilities relating to Administration under Article Vl of the Plan with the exception that the disposition of any claim for benefits by a Participant or Beneficiary, following an initial determination by the Independent Plan Administrator, shall be the sole responsibility of the Advisory and Claims Committee established under the Trust Agreement, described above. (ii) No individual may commence participation following the Change of Control. (iii) No deferrals relating to previously elected Deferral Commitments may be made following the Change of Control, except that any Salary or Executive Supplementary Savings Plan amounts earned through the date of the Change of Control during the relevant Plan year shall be credited in accordance with the prior deferral election. - 2 - (iv) Any amounts determined by the Independent Plan Administrator to be transferable to this Plan from the Atlantic Richfield Company Supplementary Executive Retirement Plan pursuant to an eligible Participant's election under such plan following a Change of Control shall be accepted by the Independent Plan Administrator and credited to the affected Participant's Deferral Account. (c) Time and form of distribution of Deferred Compensation Accounts following a Change of Control: (i) Following a Change of Control, any prior elections with respect to the form of payment of any Deferred Compensation Account shall be canceled and the Participant will be given the option to elect, in accordance with procedures established by the Independent Plan Administrator, including the time and manner of election, distribution of the Participant's Deferred Compensation Account in one of the following forms. (1) Single payment, constituting all or a portion (selected in percentages and/or amounts prescribed by the Independent Plan Administrator) of the Deferred Compensation Account, as elected by the Participant. If a portion of the Deferred Compensation Account is distributed in a single payment, the remainder will be distributed under one of the following installment methods, as elected by the Participant: (2) Five annual installments (3) Ten annual installments (4) Fifteen annual installments (5) Twenty annual installments Absent such election within the time period determined by the Independent Plan Administrator, the Deferred Compensation Account will be distributed to the Participant in a single payment. (ii) Following a Change of Control, any prior elections with respect to the time of payment of any Deferred Compensation Account shall be canceled and the Participant will be given the option to elect, in accordance with procedures established by the Independent Plan Administrator, described above, distribution of the Deferred Compensation Account elected under Subparagraph (ii), at one the following times: (1) A single payment will be distributed to the Participant as soon as possible following the Change of Control; - 3 - (2) The Participant may elect commencement of any of the installment schedules elected under Subparagraph (i) above in the January immediately following the Change of Control or any succeeding January, provided that in no event may distributions continue after the end of the 20th calendar year following a Change of Control." Executed this 5th day of November, 1998. ATTEST: ATLANTIC RICHFIELD COMPANY BY: /s/ Armineh Simonian BY: /s/ JOHN H. KELLY -------------------- ----------------------- JOHN H. KELLY Senior Vice President Human Resources - 4 - EX-10.3 4 AMEND. NO. 5 TO ANNUAL INCENTIVE PLAN AMENDMENT NO. 5 TO ATLANTIC RICHFIELD COMPANY ANNUAL INCENTIVE PLAN ___________________________ Pursuant to authority contained in resolutions adopted by the Board of Directors on July 28, 1997, the following amendment is hereby made to the Atlantic Richfield Company Annual Incentive Plan (the "Plan"), effective July 28, 1997. 1. Paragraphs 2(m), 2(y) and 2(z) of the Plan are amended to read as follows: "(m) "Company" means ARCO and its Subsidiaries. (y) "Salary Grade" means the classification assigned to an Employee by ARCO. (z) "Subsidiary" means any corporation, the majority of the voting stock of which, or any partnership or joint venture, the majority of the profits interest or capital interest of which, is owned directly or indirectly by ARCO or a Corporation, as applicable." 2. Subsections (bb), (cc), (dd), (ee), (ff), (gg), (hh), (ii) and (jj) are added to Section 2 of the Plan to read as follows: "(bb) "Anticipatory Change of Control" means (1) the execution of an agreement or a written document which, if the subject thereof were consummated, would result in a Change of Control; (2) a public announcement by any Person, including ARCO, of an intent to take an action(s) which, if consummated, would result in a Change of Control; or (3) the delivery of a signed, written statement to the Trustee of the Change of Control Trust and ARCO's Independent Auditor by the Chief Financial Officer of ARCO and General Counsel of ARCO that an Anticipatory Change of Control is in effect, provided that, with respect to any of the above three circumstances, the Anticipatory Change of Control shall not be effective until approved by either the Board or the Executive Committee of the Board. (cc) "ARCO" means Atlantic Richfield Company, its successors and assigns. (dd) "Benefit Trigger Window" means the 24-month period commencing on the date that a Change of Control occurs. (ee) "Change of Control" means: - 1 - (1) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of ARCO (a "Business Combination"), unless, in each case, following such Business Combination: (i) All or substantially all of the individuals and entities who were the beneficial owners, respectively, of the then outstanding shares of common stock (the "Outstanding Common Stock") of ARCO and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors (the "Outstanding Voting Securities") of ARCO immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60 percent of, respectively, the then Outstanding Common Stock and the combined voting power of the then Outstanding Voting Securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which, as a result of such transaction, owns ARCO or all or substantially all of ARCO's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Common Stock and Outstanding Voting Securities, as the case may be; (ii) No Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of ARCO or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25 percent or more of, respectively, the then Outstanding Common Stock of such corporation resulting from such Business Combination or the combined voting power of the then Outstanding Voting Securities of such corporation, except to the extent that such ownership existed immediately prior to the Business Combination; and (iii) At least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (2) The acquisition by any Person of beneficial ownership (within the meaning of Rule 13d-3 or Rule 13d-5 promulgated under the Exchange Act) of 25 percent or more of either (i) the Outstanding Common Stock of ARCO or (ii) the Outstanding Voting Securities of ARCO; provided, however, that for purposes of this Subsection (2), the following shall not constitute a Change of Control: (A) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by ARCO or any corporation controlled by ARCO; (B) any acquisition by ARCO or any increase in beneficial ownership resulting solely from an acquisition by ARCO; (C) any acquisition by any corporation pursuant to a Business Combination which complies with clauses (i), (ii) and (iii) of Subsection (1); or (D) any acquisition directly from ARCO pursuant to a transaction (other than a Business Combination) approved by the Board after July 28, 1997; and provided, further, that in any event, without regard to the manner in which the level of ownership is attained, the ownership by - 2 - any Person of 40 percent or more of the Outstanding Common Stock of ARCO or Outstanding Voting Securities of ARCO shall constitute a Change of Control; or (3) Individuals who, as of July 28, 1997, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to such date whose election, or nomination for election by ARCO's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, except that any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person shall not be considered an Incumbent Director; or (4) Approval by the stockholders of ARCO of a complete liquidation or dissolution of ARCO. (ff) "Change of Control Trust" means the trust established by ARCO to provide for the payment of any benefits, in whatever form is required, under this Plan on and after a Change of Control. (gg) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (hh) "Person" means any individual, corporation, firm, partnership, governmental body, entity or group and shall include any person within the meaning of 13(d)(3) or 14(d)(2) of the Exchange Act. (ii) "Special Plan Administrator" means the entity designated in the Change of Control Trust, which shall have full administrative powers under Section 3 of this Plan on and after a Change of Control, including, but not limited to, all interpretive and decision powers reserved to the Committee or the Subcommittee prior to a Change of Control. (jj) "Surviving Entity" means the entity which exists following a Change of Control and which employs the individuals who were Employees eligible for participation under Subsection 2(v) and Section 4 immediately prior to the Change of Control." 3. Sections 6 through 10 are renumbered as Sections 7 through 11 and a new Section 6 is added to the Plan to read as follows: "Section 6. Change of Control (a) If an Employee in Grade classification E0 through 9 (or the equivalent thereof) as of the date of a Change of Control terminates employment from - 3 - the Surviving Entity after the Change of Control under any of the circumstances described in Subsection 6(b), a cash payment shall be made to such Employee as described in Subsection 6(c). (b) Termination of Employment shall mean termination of employment during the Benefit Trigger Window by the Surviving Entity, other than for cause, and with respect to Grades E0 through E3 shall also mean the Employee's voluntary termination following the Surviving Entity's request to accept a (1) demotion to a lesser job, (2) reduction in Base Salary plus Salary Grade Target Award described under Subsection 5(b) of ten percent or more, or (3) relocation of the principal place of work which would constitute a deductible moving expense under 217 of the Internal Revenue Code. With respect to Grades E4, 10 and 9, only Clauses (2) and (3) shall apply. (c) In the event of a Termination of Employment under Subsection 6(b), as soon as possible following such termination, the Employee will be paid an Award equal to the Salary Grade Target Award described under Subsection 5(b) multiplied by a fraction, the numerator of which is the number of months (or fraction thereof) the Employee was employed during the Performance Year prior to termination of employment in conjunction with the Change of Control and the denominator of which is twelve." 4. Subsection 9(a) of the Plan is amended to read as follows: "(a) ARCO intends to establish a grantor trust to aid in accumulating the amounts necessary to pay any amount awarded to a Participant for a Performance Year, or an Award deferred pursuant to Section 7 or any interest credited thereon. All Awards, and any interest credited thereon, shall be paid from the general funds of the Company to the extent not paid from the grantor trust. Under no circumstances shall a Participant or other person have any interest whatsoever in any particular property or assets of the Company as a result of this Plan or an Award made thereunder." 5. Section 10 of the Plan is amended to read as follows: "Section 10. Amendment, Suspension or Termination (a) Except as provided under Subsections 10(b) and (c), the Board may suspend, terminate or amend the Plan. Amendment, suspension or termination of the Plan shall not alter the amount or payment of an Award made prior to such amendment, suspension or termination. (b) The Plan may not be amended during an Anticipatory Change of Control, except that the Board may amend the Plan during such a period as it may deem reasonably necessary, upon advice of counsel, to further the interest of the Company and its shareholders regarding any legal requirements and, provided further, that any such amendment which reduces, or could reduce, the value of any - 4 - benefit of a Participant, as determined in the sole discretion of the Special Plan Administrator, shall provide substantially equivalent value in replacement thereof to the Participant. (c) The Plan may not be amended or terminated on or after a Change of Control until all payments that may be due pursuant to Subsection 6(c) of the Plan, as determined in the sole discretion of the Special Plan Administrator of the Change of Control Trust, have been made." Executed this 27th day of March, 1998 ATTEST ATLANTIC RICHFIELD COMPANY /s/ ARMINEH AIMONIAN /s/ JOHN H. KELLY BY: ______________________ BY: _________________________ John H. Kelly Senior Vice President Human Resources EX-10.4 5 AMEND. NO. 6 TO ANNUAL INCENTIVE PLAN AMENDMENT NO. 6 TO ATLANTIC RICHFIELD COMPANY ANNUAL INCENTIVE PLAN ___________________________ Pursuant to the power of amendment reserved therein, the following amendment is hereby made to the Atlantic Richfield Company Annual Incentive Plan (the "Plan") effective as of July 28, 1997. 1. Section 2, Subsections (f), (j), (l), (bb), (ff) and (ii) of the Plan are amended to read as follows: "(f) "Award" means an annual award to a participant pursuant to Section 7 of the Plan." "(j) "Board" means the Board of Directors of ARCO established by the Articles of Incorporation of ARCO." "(l) "Committee" means the Organization and Compensation Committee of the Board." "(bb) "Anticipatory Change of Control" means (1) the execution of an agreement or a written document which, if the subject thereof were consummated, would result in a Change of Control; (2) a public announcement by any Person, including ARCO, of an intent to take an action(s) which, if consummated, would result in a Change of Control; or (3) the delivery of a signed, written statement to the Trustee of the Change of Control Trust and ARCO's Independent Auditor by the Chief Financial Officer of ARCO and General Counsel of ARCO that an Anticipatory Change of Control is in effect, provided that, with respect to any of the above three circumstances, the Anticipatory Change of Control shall not be effective until approved by either the Board or the Executive Committee of the Board." "(ff) "Change of Control Trust" means the trust established by ARCO to provide for the payment of any benefits, in whatever form is required, under this Plan on and after a Change of Control." "(ii) "Special Plan Administrator" means the entity designated in the Change of Control Trust, which shall have full administrative powers under Section 3 of this Plan on and after a Change of Control, including, but not limited to, all interpretive and decision powers reserved to the Committee prior to a Change of Control." 2. Section 2, Subsection (jj) is deleted and a new Subsection (jj) is added to Section 2 of the Plan to read as follows: (jj) "Executive Committee" means the Executive Committee of the Board as established by the Board of Directors of ARCO." - 1 - 3. Section 6, Subsections (a) and (b) of the Plan are amended to read as follows: "(a) If an Employee in Grade classification E0, E1, E2, E3, E4,10 and 9 (or the equivalent thereof) as of the date of a Change of Control terminates employment during the Benefit Trigger Window under any of the circumstances described in Subsection 6(b), a cash payment shall be made to such Employee as described in Subsection 6(c). (b) Termination of Employment shall mean termination of employment during the Benefit Trigger Window, other than due to voluntary termination or for cause, and with respect to Grades E0, E1, E2 and E3 shall also mean the Employee's voluntary termination following management's request to accept a (1) demotion to a lesser job, (2) reduction in Base Salary plus Salary Grade Target Award described under Subsection 5(b) of ten percent or more, or (3) relocation of the principal place of work which would constitute a deductible moving expense under 217 of the Internal Revenue Code. With respect to Grades E4, 10 and 9, only Clauses (2) and (3) shall apply." Executed this 5th day of November, 1998 ATTEST ATLANTIC RICHFIELD COMPANY /s/ ARMINEH SIMONIAN /s/ JOHN H. KELLY BY:______________________ BY: _________________________ John H. Kelly Senior Vice President Human Resources EX-10.5 6 AMEND. NO. 10 TO EXEC LONG-TERM INCENTIVE AMENDMENT NO. 10 TO ATLANTIC RICHFIELD COMPANY 1985 EXECUTIVE LONG-TERM INCENTIVE PLAN ___________________________ Pursuant to authority contained in resolutions adopted by the Board of Directors on July 28, 1997, the following amendment is hereby made to the Atlantic Richfield Company 1985 Executive Long- Term Incentive Plan (the "Plan"), effective July 28, 1997. 1. Article I, Sections 2(b) and 2(e) of the Plan are amended to read as follows: "(b) "Change of Control" means: (i) Consummation (F1) of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of ARCO (a "Business Combination"), unless, in each case, following such Business Combination: (1) All or substantially all of the individuals and entities who were the beneficial owners, respectively, of the then outstanding shares of common stock (the "Outstanding Common Stock") of ARCO and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors (the "Outstanding Voting Securities") of ARCO immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60 percent of, respectively, the then Outstanding Common Stock and the combined voting power of the then Outstanding Voting Securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which, as a result of such transaction, owns ARCO or all or substantially all of ARCO's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Common Stock and Outstanding Voting Securities, as the case may be; (2) No Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of ARCO or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25 percent or more of, respectively, the then Outstanding Common Stock of such corporation resulting from such Business Combination or the combined voting power of the then Outstanding Voting - ------------ (F1) In the case of the vesting of Restricted Stock and Performance- Based Restricted Stock under Article III, Section 4(c) and the vesting of Stock Options under Article II, Section 2(f), "approval by the shareholders of the Company" shall be substituted for "consummation" and the exceptions under clause (1) thru (3) shall not apply. - 1 - Securities of such corporation, except to the extent that such ownership existed immediately prior to the Business Combination; and (3) At least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (ii) The acquisition by any Person of beneficial ownership (within the meaning of Rule 13d-3 or Rule 13d-5 promulgated under the Exchange Act) of 25 percent (F2) or more of either (A) the Outstanding Common Stock of ARCO or (B) the Outstanding Voting Securities of ARCO; provided, however, that for purposes of this Subsection (ii), the following shall not constitute a Change of Control: (aa) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by ARCO or any corporation controlled by ARCO; (bb) any acquisition by ARCO or any increase in beneficial ownership resulting solely from an acquisition by ARCO; (cc) any acquisition by any corporation pursuant to a Business Combination which complies with clauses (1), (2) and (3) of Subsection (i); or (dd) any acquisition directly from ARCO pursuant to a transaction (other than a Business Combination) approved by the Board after July 28, 1997; and provided, further, that in any event, without regard to the manner in which the level of ownership is attained, the ownership by any Person of 40 percent or more of the Outstanding Common Stock of ARCO or Outstanding Voting Securities of ARCO shall constitute a Change of Control; or (iii) Individuals who, as of July 28, 1997, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to such date whose election, or nomination for election by ARCO's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, except that any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person shall not be considered an Incumbent Director (F3); or - -------------------- (F2) This percentage shall be 40% in the case of the Vesting of Prospective Dividend Share Credits under Article IV, Section 4 of the Plan and the Pro Rata Payment of Contingent Restricted Stock under Article III, Section b(v) of the Plan. (F3) This provision shall not apply in the case of the Vesting of Prospective Dividend Share Credits under Article IV, Section 4 of the Plan and the Pro Rata Payment of Contingent Restricted Stock under Article III, Section b(v) of the Plan. - 2 - (iv) Approval by the stockholders of ARCO of a complete liquidation or dissolution of ARCO." "(e) "Company" means ARCO and its Subsidiaries." 2. Sections (aa), (bb), (cc), (dd), (ee), (ff) and (gg) are added to Article I, Section 2 of the Plan to read as follows: (aa) "Anticipatory Change of Control" means (i) the execution of an agreement or a written document which, if the subject thereof were consummated, would result in a Change of Control; (ii) a public announcement by any Person, including ARCO, of an intent to take an action(s) which, if consummated, would result in a Change of Control; or (iii) the delivery of a signed, written statement to the Trustee of the Change of Control Trust and ARCO's Independent Auditor by the Chief Financial Officer and General Counsel of ARCO that an Anticipatory Change of Control is in effect, provided that, with respect to any of the above three circumstances, the Anticipatory Change of Control shall not be effective until approved by either the Board or the Executive Committee of the Board. (bb) "ARCO" means Atlantic Richfield Company, its successors and assigns. (cc) "Change of Control Trust" means the trust established by ARCO to provide for the payment of any benefits, in whatever form is required, under this Plan on and after a Change of Control. (dd) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (ee) "Person" means any individual, corporation, firm partnership, governmental body, entity or group and shall include any person within the meaning of 13(d)(3) or 14(d)(2) of the Exchange Act. (ff) "Prospective Dividend Share Credits" means the amount of Dividend Share Credits which would be earned with respect to a Stock Option during the period commencing on the date of a Change of Control and concluding on the expiration date of the term of the Stock Option, assuming (i) no exercise of the Option; (ii) a fixed Fair Market Value of a share of Common Stock, and (iii) a fixed dividend, on such Common Stock. Both Fair Market Value and the dividend rate shall be determined as of the record date of the quarterly dividend on such Common Stock immediately preceding the Change of Control. (gg) "Special Plan Administrator" means the entity designated in the Change of Control Trust as having full Administrative powers under Article I, Section 3 of the Plan on and after a Change of Control, including, but not limited - 3 - to, all interpretive and decision powers reserved to the Committee or the Subcommittee prior to a Change of Control." 3. Article I, Section 3 of the Plan is amended to read as follows: "Section 3. Administration of the Plan (a) Prior to a Change of Control, the Plan shall be administered by the Committee or, where specified herein, by the Subcommittee. The Committee or Subcommittee, as applicable, is authorized to interpret the Plan, to adopt such rules and regulations as may from time to time be deemed necessary for the effective operation of the Plan, and to act upon all matters relating to the granting of awards under the Plan. Any determination, interpretation, construction or other action made or taken pursuant to the provisions of the Plan by or on behalf of the Committee or Subcommittee, as applicable, shall be final, binding and conclusive for all purposes and upon all persons including, without limitation, the Company, the Company's shareholders and Eligible Employees and their respective successors in interest. (b) On and After a Change of Control the Plan shall be administered by the Special Plan Administrator which shall have all powers of the Committee and Subcommittee described under Subsection 3(a). (c) No member of the Committee or Subcommittee, or the Special Plan Administrator, as applicable, shall be personally liable by reason of any contract or other instrument executed by such member, or on such member's behalf, in such member's capacity as a member of the Committee or Subcommittee nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee or Subcommittee, as applicable, and each other officer, employee or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Committee or Subcommittee) arising out of any act or omission in connection with the Plan unless arising out of such person's own fraud or bad faith. (d) Subject to the terms and limitations of Subsection 1(a) of Article II and Section 1 of Article III of the Plan, the Committee or Subcommittee or Special Plan Administrator, as applicable, may at the time of the annual grants, make adjustments within the Total Investment Value applicable to all Eligible Employees provided that any reallocation resulting from changes in individual grants may be made only to Eligible Employees in the same Salary Grade Level as the affected individuals, so that the Total Investment Value by Salary Grade Level may not be exceeded." - 4 - 4. Article II, Section 2(d)(i) of the Plan is amended to read as follows: "(i) If an optionee's Employment is terminated prior to entitlement to exercise all or a portion of a grant of Stock Options, the optionee will immediately be entitled to exercise all of his or her outstanding Stock Options during the remainder of the term of the Stock Options, if the optionee's termination is due to (1) total and permanent disability, (2) termination, other than for cause, with a right to an immediate allowance under a retirement plan of the Company, or (3) involuntary termination, other than for cause." 5. Article II, Section 2(f) of the Plan is re-lettered as Section 2(g) and a new Article II, Section 2(f) is added to read as follows: "(f) Change of Control. Upon the occurrence of a Change of Control, a Participant shall be entitled to exercise any outstanding Stock Options which are not otherwise exercisable immediately preceding such a Change of Control." 6. Article III, Section 3(b)(iii) of the Plan is amended to read as follows: "(iii) If a grantee's Employment is terminated within 24 months following the grant of Performance-Based Restricted Stock due to (1) total and permanent disability; (2) involuntary termination, other than for cause; (3) termination, other than for cause, with a right to an immediate retirement allowance under a retirement plan of the Company; or (4) death, such stock shall be deemed vested on the day the grantee's employment is terminated." 7. Article III, Section 3(b)(v) is added to the Plan to read as follows: "(v) (1) If a Change of Control occurs following any grant of Contingent Restricted Stock, any actual award of Performance-Based Restricted Stock to which the grantee would otherwise be entitled in respect of such Contingent Restricted Stock, based on the Company's Performance Ranking for the year of the Performance Period on the date of the Change of Control under the applicable Restricted Stock Payment Schedule, shall be satisfied by the grant of shares of Common Stock. The number of shares shall be determined by multiplying the Contingent Restricted Stock by a fraction, the numerator of which is the number of completed months (or fraction thereof) in the Performance Period as of the date of the Change of Control and the denominator of which is the number of months in such Performance Period. (2) If a Change of Control under Article I, Section 2(e)(i), other than by reason of the application of Footnote 1, occurs, and a grantee of Contingent Restricted Stock is terminated by the Company prior to a Person attaining an ownership level of 40 percent or more of the Outstanding Shares of Stock of the Company or the corporation resulting from a Business Combination, - 5 - as defined in Article I, Section 2(e)(i), any actual award of Performance-Based Restricted Stock to which the grantee would otherwise be entitled, based on the Company's performance ranking as of the earlier of (A) the end of the Performance Period, or (B) the occurrence of a Change of Control by reason of the application of Footnote 1 to such subsection, shall be multiplied by a fraction, the numerator of which is the number of completed months (or fraction thereof) of the Performance Period as of the grantee's date of termination and the denominator of which is the number of months in such Performance Period, with payment to be made in shares of Common Stock." 8. Article III, Section 4 of the Plan is amended to read as follows: "Section 4. Waiver and Lapse of Restrictions (a) Restrictions upon vesting and transferability of Restricted Stock may be permitted to lapse as originally provided by the Subcommittee at the time of grant, as provided in the Plan or otherwise as the Subcommittee may determine in its sole discretion. (b) Restrictions upon vesting and transferability of Performance-Based Restricted Stock shall lapse as provided in Section 3 of this Article III. (c) All shares of Restricted Stock and Performance-Based Restricted Stock shall be deemed vested upon the occurrence of a Change of Control." 9. Article III, Section 5(b) of the Plan is amended to read as follows: "(b) If, prior to the end of a Performance Period, a grantee of Contingent Restricted Stock terminates Employment due to (i) total and permanent disability; (ii) involuntary termination, other than for cause; or (iii) termination, other than for cause, with a right to an immediate retirement allowance under a retirement plan of the Company, the grantee shall be paid the value determined under Subsection 5(a) of this Article III as of the date of the grantee's termination, with payment to be made in shares of Common Stock at the end of the Performance Period." 10. Article IV, Section 4 is added to the Plan to read as follows: "Section 4. Prospective Dividend Share Credits (a) Upon the occurrence of a Change of Control, the Prospective Dividend Share Credits allocable to an optionee, as of the date of the Change of Control, shall be credited to the account of the optionee, as described in Subsection (b), and no further Dividend Share Credits shall accrue with respect to such optionee. - 6 - (b) As of the date of a Change of Control, the Dividend Share Credits that would be earned under each outstanding Stock Option for the remaining term of the Stock Option shall be calculated, assuming no further exercises of the Stock Option and using the dividend rate and the Fair Market Value of a Share of Common Stock as of the most recent dividend record date relating to Common Stock. The resulting number of Dividend Share Credits shall be added to the Dividend Share Credits held in the Participant's account as of the date of the Change of Control and all such Dividend Share Credits shall be treated as credited under Article I, Subsection 2(n) of the Plan, and the Participant shall be entitled to payment in shares of Common Stock of the number of Dividend Share Credits relating to an exercise of Stock Options in accordance with Article IV of the Plan." 11. Article V, Section 2 of the Plan is amended to read as follows: "Section 2. Adjustment in Terms of Award In the event of a reorganization, recapitalization, stock split, stock dividend, distribution of assets other than pursuant to a normal cash dividend, combination of shares, merger, consolidation, rights offering, split-up, split-off, spin-off or any other change in the corporate structure or shares of the Company (other than a Change of Control), the Committee may, in its discretion, after consultation with the Chairman of the Board and the President of ARCO, make appropriate adjustments to reflect such event in respect of (a) the limitation in Section 1 of this Article V on the maximum number of shares of Common Stock upon which Stock Options may be granted or which may be the subject of a grant of Restricted Stock or Performance-Based Restricted Stock, (b) the number of shares of Common Stock covered by, and the exercise price per share applicable to, outstanding Stock Options, (c) the number of shares of Common Stock covered by outstanding awards of Restricted Stock or Performance-Based Restricted Stock, and (d) the number of outstanding Dividend Share Credits allocated to optionees' accounts. In the event that the Committee, after consultation with the Chairman of the Board and the President of ARCO, determines that, because of a change (other than a Change of Control) in the Company's business, operations, corporate structure, capital structure, assets or manner in which it conducts business, which it deems to be extraordinary and material, the terms of awards theretofore made are no longer suitable to the objectives which the Committee sought to achieve when it made such awards, it may modify the terms of any or all of such awards in such manner as it may decide is advisable; provided, however, that no award may be modified in a manner which would be inconsistent with the intent of Subsection 1(b) or Section 9 of this Article V, or which would result in an increase in the shares of Performance-Based Restricted Stock." 12. Article V, Section 9 of the Plan is amended to read as follows: - 7 - "Section 9. Amendment and Discontinuance of the Plan The Board may amend or discontinue the Plan as it shall from time to time consider desirable, provided that: (a) Except as provided under Subsection (c) hereof, no amendment shall, without further approval by the holders of a majority of the shares which are represented in person or by proxy and entitled to vote on the subject at a meeting of shareholders of ARCO, change the terms of the Plan so as to increase the maximum number of shares upon which Stock Options may be granted or which may be issued upon a grant of Restricted Stock or Performance-Based Restricted Stock or the payment of Dividend Share Credits from the amounts described in Subsections 1(a) and (b) of this Article V, reduce the minimum Stock Option price, or extend the maximum Stock Option period. (b) Except as provided under Subsection (c) hereof, no amendment, discontinuance or termination shall deprive persons who hold shares of Contingent Restricted Stock, Restricted Stock or Performance-Based Restricted Stock, or who are entitled to exercise Stock Options, or to receive a settlement of Dividend Share Credits pursuant to the terms and provisions of the Plan, of their rights with respect thereto. (c) No amendment may be made during the period of an Anticipatory Change of Control, except that the Board may amend the Plan during such a period as it may deem necessary, upon advice of counsel, to further the interest of the Company, its shareholders and the Plan participants regarding any legal requirements that may be applicable to a Change of Control, including, without limitation, satisfaction of any requirements relating to accomplishing "Pooling" treatment under applicable accounting rules, and any Securities Exchange Act rules or tax rules. (d) The Plan may not be amended or terminated on or after a Change of Control until all Outstanding Stock Options have been exercised or expired and all payments of Contingent Restricted Stock under the Plan have been made." 13. Article V, Section 11 of the Plan is amended to read as follows: "Section 11. Term of Plan No Stock Options or Contingent Restricted Stock, Restricted Stock or Performance-Based Restricted Stock may be granted after February 24, 2007." - 8 - Executed this 27th day of March, 1998. ATTEST ATLANTIC RICHFIELD COMPANY /s/ ARMINEH SIMONIAN /s/ JOHN H. KELLY BY: ______________________ BY:_________________________ John H. Kelly Senior Vice President Human Resources -9 - EX-10.6 7 AMEND. NO. 11 TO EXEC LONG-TERM INCENTIVE AMENDMENT NO. 11 TO ATLANTIC RICHFIELD COMPANY 1985 EXECUTIVE LONG-TERM INCENTIVE PLAN ______________________________________ Pursuant to the power of amendment reserved therein, the following amendment is hereby made to the Atlantic Richfield Company 1985 Executive Long-Term Incentive Plan (the "Plan"), effective as of July 28, 1997. 1. Article I, Subsections 2(c), (d), (s), (w), (aa), (cc) and (gg) of the Plan are amended to read as follows: "(c) "Committee" means the Organization and Compensation Committee of the Board." "(d) "Common Stock" means the common stock of ARCO having a par value of $2.50 per share." "(s) "Restriction Period" means the period specified by the Subcommittee at the time of grant of Restricted Stock during which the restriction and forfeitability conditions described under Section 2 of Article III apply." "(w) "Subsidiary" means any corporation, the majority of the voting stock of which, or any partnership or joint venture, the majority of the profits interest or capital interest of which, is owned directly or indirectly by ARCO or a member of the Comparison Group, as applicable." "(aa) "Anticipatory Change of Control" means (i) the execution of an agreement or a written document which, if the subject thereof were consummated, would result in a Change of Control; (ii) a public announcement by any Person, including ARCO, of an intent to take an action(s) which, if consummated, would result in a Change of Control; or (iii) the delivery of a signed, written statement to the Trustee of the Change of Control Trust and ARCO's Independent Auditor by the Chief Financial Officer of ARCO and General Counsel of ARCO that an Anticipatory Change of Control is in effect, provided that, with respect to any of the above three circumstances, the Anticipatory Change of Control shall not be effective until approved by either the Board or the Executive Committee of the Board." "(cc) "Change of Control Trust" means the trust established by ARCO to provide for the payment of any benefits, in whatever form is required, under this Plan on and after a Change of Control." "(gg) "Special Plan Administrator" means the entity designated in the Change of Control Trust as having full Administrative powers under Article I, Section 3 of this Plan on and after a Change of Control, including, but not limited - 1 - to, all interpretive and decision powers reserved to the Committee or the Subcommittee prior to a Change of Control." 2. Article I, Subsections 2(hh) and 2(ii) are added to the Plan to read as follows: "(hh) "Board" means the Board of Directors of ARCO established by the Articles of Incorporation of ARCO. (ii) "Executive Committee" means the Executive Committee of the Board as established by the Board of Directors of ARCO." 3. Article I, Subsections 3(c) and (d) of the Plan are amended to read as follows: "(c) No member of the Committee or Subcommittee, as applicable, shall be personally liable by reason of any contract or other instrument executed by such member, or on such member's behalf, in such member's capacity as a member of the Committee or Subcommittee nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee or Subcommittee, as applicable, and each other officer, employee or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Committee or Subcommittee) arising out of any act or omission in connection with the Plan unless arising out of such person's own fraud or bad faith. (d) Subject to the terms and limitations of Subsection 1(a) of Article II and Section 1 of Article III of the Plan, the Committee or Subcommittee, as applicable, may at the time of the annual grants, make adjustments within the Total Investment Value applicable to all Eligible Employees provided that any reallocation resulting from changes in individual grants may be made only to Eligible Employees in the same Salary Grade Level as the affected individuals, so that the Total Investment Value by Salary Grade Level may not be exceeded." 4. Article II, Section 2(d)(i) of the Plan is amended to read as follows: "(i) If an optionee's Employment is terminated prior to entitlement to exercise all or a portion of a grant of Stock Options, the optionee will be entitled to exercise all of his or her outstanding Stock Options during the remainder of the term of the Stock Options, if the optionee's termination is due to (1) total and permanent disability, (2) termination, other than for cause, with a right to an immediate allowance under a retirement plan of the Company, or (3) involuntary termination, other than for cause." 5. Article III, Subsection 5(c) of the Plan is amended to read as follows: "(c) If, prior to the end of a Performance Period, a grantee of Contingent Restricted Stock terminates Employment due to death, the designated beneficiary - 2 - of the grantee or, absent a beneficiary designation, his or her estate, shall be paid the value determined under Subsection 5(a) of this Article III based on the Company's Performance Ranking for the year of the Performance Period which ends closest to the grantee's death, with payment to be made in shares of Common Stock as soon as practicable following the end of such year of the Performance Period." 6. Article V, Section 1 of the Plan is amended to read as follows: "(a) The number of shares of Common Stock upon which Stock Options may be granted or which may be the subject of a grant of Restricted Stock or Performance-Based Restricted Stock during a calendar year shall be eight-tenths of one percent (0.8%) of the total issued and outstanding shares of Common Stock as of December 31 of the immediately preceding calendar year. Any shares of Common Stock available for grant that are not made the subject of a grant during a calendar year, or portion thereof, will be available for grant in any subsequent year, or portion thereof, until the end of the term of the Plan. The number of available shares described in the preceding sentences is subject to adjustment as provided in Section 2 of this Article V. The shares shall be made available from authorized Common Stock, issued or unissued, or from Common Stock issued and held in the treasury of the Company as shall be determined by the Committee. Shares of Common Stock subject to Stock Options, shares of Restricted Stock and shares of Performance-Based Restricted Stock that are canceled pursuant to Subsection 2(d) of Article II, Section 2 of Article III or Section 5 of Article III of the Plan may be reallocated under the Plan. (b) No individual may be granted more than 500,000 shares of Restricted Stock, Performance-Based Restricted Stock and/or Stock Options, regardless of the combination, in any calendar year." 7. Article III, Subsection 3(b)(v)(2) of the Plan is amended to read as follows: "(2) If a Change of Control under Article I, Section 2(b)(ii), other than by reason of the application of Footnote 2, occurs, and a grantee of Contingent Restricted Stock is terminated by the Company after a Person attains an ownership level of 25 percent but before a Change of Control occurs for any other reason or any Person attains an ownership level of 40 percent or more of the Outstanding Shares of Stock of the Company or the corporation resulting from a Business Combination, as defined in Article I, Section 2(b)(i), any actual award of Performance-Based Restricted Stock to which the grantee would otherwise be entitled, based on the Company's performance ranking as of the earlier of (A) the end of the Performance Period, or (B) the occurrence of a Change of Control by reason of the application of Footnote 2 to Article I, Section 2(b)(ii), shall be multiplied by a fraction, the numerator of which is the number of completed months (or fraction thereof) of the Performance Period as of the grantee's date of termination and the denominator of which is the number of - 3 - months in such Performance Period, with payment to be made in shares of Common Stock." Executed this 5th day of November, 1998. ATTEST ATLANTIC RICHFIELD COMPANY /s/ ARMINEH SIMONIAN /s/ JOHN H. KELLY BY: ______________________ BY: _________________________ John H. Kelly Senior Vice President Human Resources - 4 - EX-10.7 8 AMEND. NO. 6 TO SPECIAL TERMINATION PLAN The following Amendment No. 6 to the Atlantic Richfield Special Terminiation Allowance Plan contains the current change of control provisions applicable to the Company's executive management team, including its five most highly compensated executed officers. AMENDMENT NO. 6 TO ATLANTIC RICHFIELD SPECIAL TERMINATION ALLOWANCE PLAN _____________________________ Pursuant to the power of amendment reserved therein, the Atlantic Richfield Special Termination Allowance Plan (the "Plan") is hereby amended effective as of July 28, 1997. 1. Section 3, Paragraphs 3.15, 3.19 and 3.20 of the Plan are amended to read as follows: "3.15 "Anticipatory Change of Control" means (a) the execution of an agreement or a written document which, if the subject thereof were consummated, would result in a Change of Control; (b) a public announcement by any Person, including ARCO, of an intent to take an action(s) which, if consummated, would result in a Change of Control; or (c) the delivery of a signed, written statement to the Trustee of the Change of Control Trust and ARCO's Independent Auditor by the Chief Financial Officer of ARCO and General Counsel of ARCO that an Anticipatory Change of Control is in effect, provided that, with respect to any of the above three circumstances, the Anticipatory Change of Control shall not be effective until approved by either the Board or the Executive Committee of the Board." "3.19 "Change of Control Trust" means the trust established by ARCO to provide for the payment of any benefits, in whatever form is required, under this Plan on and after a Change of Control." "3.20 "Special Plan Administrator" means the entity designated in the Change of Control Trust, which shall have full administrative powers under this Plan on and after a Change of Control, including, but not limited to, all interpretive and decision powers reserved to the Administrator prior to a Change of Control." 2. Section 3, Paragraph 3.21 of the Plan is deleted and Paragraph 3.22 is renumbered as Paragraph 3.21. New Paragraphs 3.22, 3.23 and 3.24 are added to the Plan to read as follows: - 1 - "3.22 "Board" means the Board of Directors of ARCO established by the Articles of Incorporation of ARCO. 3.23 "Executive Committee" means the Executive Committee of the Board as established by the Board of Directors of ARCO. 3.24 "Severance Plan" means the Special Termination Allowance Plan, Enhanced Retirement Plan (i.e., an improvement over the basic retirement allowance applicable for a limited period of time such as the "5+5" Enhanced Retirement Plan benefit under the Atlantic Richfield Retirement Plan II effective October 2, 1998) and/or such other severance plan generally applicable to Employees involuntarily terminated by the Company, as such plan or plans may be in effect on the date immediately preceding a Change of Control." 3. Section 6 of the Plan is amended to read as follows: "SECTION 6 ALLOWANCES PAYABLE FOLLOWING A CHANGE OF CONTROL 6.1 Notwithstanding any other provision of the Plan, if an Employee is terminated from employment under any of the circumstances described under Paragraph 6.2, during the Benefit Trigger Window, the Employee will be paid a single cash allowance as described in Paragraph 6.3, as soon as possible following such termination. 6.2 Notwithstanding any other provision of this Plan, Termination of Employment shall mean termination of employment, other than due to voluntary termination or for cause, during the Benefit Trigger Window and shall include such additional circumstances of termination as described in footnote 4 of Paragraph 6.3. 6.3 Following Termination of Employment of a Participant, as described in Paragraph 6.2, a cash payment, as chosen by the Participant, shall be made as prescribed under the following payment schedule: - 2 - PARTICIPANT CHOICES: (1) Multiple of Covered EMPLOYEE Compensation (F1); or CONSTRUCTIVE GRADE (2) Severance Plan (F2) TERMINATION (F3) -------- ------------------------ ---------------- EO & E1 3 x CC or Severance Yes E2 3 x CC or Severance Yes E3 2 x CC or Severance Yes E4 1-1/2 x CC or Severance Limited 10 & 9 1 x CC or Severance Limited 8 & below 1/2 x CC or Severance Limited 6.4 Special Tax Allowance (a) A special cash allowance shall be paid to each Employee in Grades E0, E1, E2 and E3 as soon as possible following the end of the Benefit Trigger Window in an amount equal to any excise tax which has been assessed (or, in the sole discretion of the Special Plan Administrator will be assessed) against the Employee under 4999 ("Golden Parachute Payments") of the Internal Revenue Code (the "Code"). (b) As to all Employees Grade E4 or below, the Special Plan Administrator shall, in its sole discretion, review the value of all benefits paid and which may become payable to a Participant from time-to-time and determine whether (i) the total amount should be frozen at the amount which constitutes a "Parachute Payment" under 2806(b)(2) of the Code, and if so, the allocation of payments to achieve such result or (ii) the total amount should be continued to be paid to the Participant pursuant to plan provisions without regard to the application of 2806 and 4999 of the Code. If the amount under Subparagraph (i) exceeds the amount paid under Subparagraph (ii) after assessment of any applicable taxes - ---------------- (F1) Covered Compensation ("CC") is the amount equal to the sum of (a) annualized Pay and the average of any lump sum merit adjustments of Pay for each of the prior 3 years, plus (b) either (i) the average of the non-Atlantic Richfield Annual Incentive Plan (AIP) bonus for each of the prior 3 years, or (ii) the greater of the AIP Award for each of the prior 3 years or the current year Target AIP Award (as defined in the AIP). (F2) Severance Plan ("Severance") means the Severance Plan as defined in Section 3.22 of this Plan. (F3) Constructive termination means an Employee's election to terminate following management's request to (a) accept a demotion to a lesser job, (b) accept a reduction in Pay plus the Target AIP Award (as defined in the AIP) by 10% or more, or (c) accept a new principal place of work which would qualify for deduction of moving expenses under Section 217 of Internal Revenue Code. For all Employees below Grade E3, constructive termination is limited as follows: Only provisions (b) and (c) apply and for Employees Grade 8 or below, provision (b) shall apply only to Pay. - 3 - under Section 4999 of the Code, the excess amount shall be paid to the Participant as soon as possible following such determination by the Special Plan Administrator." 4. Section 9, Paragraph 9.3(a) of the Plan is amended to read as follows: "9.3 (a) During an Anticipatory Change of Control the Plan may not be amended, except to the extent required to comply with legal requirements, upon advice of Counsel, and in any event, such amendment may be adopted only by the Board. Any such amendment during a period of an Anticipatory Change of Control which reduces benefits or otherwise adversely affects the payment of benefits to which an Employee would otherwise be eligible or would have been eligible upon termination of employment following a Change of Control, as determined in the sole discretion of the Special Plan Administrator, shall provide substantially equivalent value in replacement thereof to the Participant." Executed this 5th day of November, 1998. ATTEST ATLANTIC RICHFIELD COMPANY /s/ ARMINEH SIMONIAN /s/ JOHN H. KELLY BY: ______________________ BY: ____________________________ JOHN H. KELLY Senior Vice President Human Resources - 4 - EX-27 9 FINANCIAL DATA SCHEDULE TO SEPT 1998 10-Q
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-31-1998 SEP-30-1998 $1,070 232 975 0 502 3,086 38,437 (18,938) 26,230 5,303 4,511 0 1 815 7,741 26,230 7,755 8,101 6,840 7,250 0 0 326 (47) (128) 60 1,186 0 0 1,246 $3.88 $3.81
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