-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, r4qialr/HiIbyXnmFt+T5ghVkHuLC5KbnHF83HkuSF7RhVVUaKN/vsIM7zoV9KuK iRR/tOstOaXYfkmQg297ag== 0000898430-94-000142.txt : 19940304 0000898430-94-000142.hdr.sgml : 19940304 ACCESSION NUMBER: 0000898430-94-000142 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940302 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC RICHFIELD CO /DE CENTRAL INDEX KEY: 0000775483 STANDARD INDUSTRIAL CLASSIFICATION: 2911 IRS NUMBER: 230371610 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-01196 FILM NUMBER: 94514367 BUSINESS ADDRESS: STREET 1: 515 S FLOWER ST CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134863511 10-K 1 FORM 10-K 1993 --------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1993 Commission file number 1--1196 [ARCO LOGO] ATLANTIC RICHFIELD COMPANY (Exact name of registrant as specified in its charter) Delaware 23-0371610 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 515 South Flower Street, Los Angeles, California 90071 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (213) 486-3511 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered ------------------- ----------------------- Common Stock ($2.50 par value) New York Stock Exchange Pacific Stock Exchange Basel Stock Exchange Geneva Stock Exchange Zurich Stock Exchange London Stock Exchange $3.00 Cumulative Convertible Preference Stock New York Stock Exchange ($1 par value) Pacific Stock Exchange $2.80 Cumulative Convertible Preference Stock New York Stock Exchange ($1 par value) Pacific Stock Exchange Thirty year 5 5/8% Debentures Due May 15, 1997 New York Stock Exchange Thirty year 7.70% Debentures Due December 15, 2000 New York Stock Exchange Thirty year 7 3/4% Debentures Due December 15, 2003 New York Stock Exchange Ten year 10 3/8% Notes Due July 15, 1995 New York Stock Exchange Twenty year 10 7/8% Debentures Due July 15, 2005 New York Stock Exchange Thirty year 9 7/8% Debentures Due March 1, 2016 New York Stock Exchange Twenty-five year 9 1/8% Debentures Due March 1, 2011 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None 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 [_]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by nonaffiliates of the registrant on December 31, 1993, based on the closing price on the New York Stock Exchange composite tape on that date, was $17,095,095,972. Number of shares of Common Stock, $2.50 par value, outstanding as of December 31, 1993: 159,953,980. DOCUMENTS INCORPORATED BY REFERENCE The registrant's definitive proxy statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1993 (incorporated by reference under Part III). TABLE OF CONTENTS PART I
ITEM PAGE ---- ---- 1. and 2. Business and Properties....................................... 1 General Development of Business............................... 1 Financial Information about Industry Segments................. 1 Summary Description of Business............................... 1 Recent Developments........................................... 2 Resources..................................................... 2 Oil and Gas................................................... 2 Coal.......................................................... 8 Products...................................................... 8 Refining and Marketing........................................ 8 Transportation................................................ 11 Intermediate Chemicals and Specialty Products................. 12 Equity Interest in Lyondell................................... 13 Capital Program............................................... 14 Patents....................................................... 14 Competition................................................... 14 Human Resources............................................... 15 Research and Development...................................... 15 Environmental Matters......................................... 15 3. Legal Proceedings............................................. 20 4. Submission of Matters to a Vote of Security Holders........... 22 ---------------- Executive Officers of the Registrant.......................... 23 Description of Capital Stock.................................. 26 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters...................................................... 30 6. Selected Financial Data....................................... 30 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 31 8. Financial Statements and Supplementary Data................... 37 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................... 58 PART III 10. Directors and Executive Officers of the Registrant............ 58 11. Executive Compensation........................................ 58 12. Security Ownership of Certain Beneficial Owners and Management................................................... 58 13. Certain Relationships and Related Transactions................ 58 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................................................... 58
(i) PART I ITEMS 1. AND 2. BUSINESS AND PROPERTIES GENERAL DEVELOPMENT OF BUSINESS Atlantic Richfield Company ("ARCO," the "Company" or the "Corporation") was incorporated in 1870 under the laws of Pennsylvania as The Atlantic Refining Company. Atlantic Petroleum Storage Company, a predecessor to The Atlantic Refining Company, began operations in 1866. The Company's principal executive offices are at 515 South Flower Street, Los Angeles, California 90071 (Telephone (213) 486-3511). ARCO's present name was adopted subsequent to the merger of Richfield Oil Corporation into The Atlantic Refining Company in 1966. In 1969, Sinclair Oil Corporation was merged into ARCO. In 1977, The Anaconda Company was merged into a wholly owned subsidiary of ARCO and, on December 31, 1981, that subsidiary was merged into ARCO. On May 7, 1985, ARCO was reincorporated in the State of Delaware. Unless indicated otherwise, the terms "ARCO," the "Company" or the "Corporation" as used herein refer to Atlantic Richfield Company or Atlantic Richfield Company and one or more of its consolidated subsidiaries. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Reference is made to Note 4 of Notes to Consolidated Financial Statements on page 43 for segment information concerning sales and other operating revenues, earnings, total assets and additional information for certain operations of the Company. SUMMARY DESCRIPTION OF BUSINESS ARCO, including its subsidiaries, constitutes one of the largest integrated enterprises in the petroleum industry, with its principal operations conducted in the United States. ARCO conducts operations in two business segments: resources and products. ARCO also owns a 49.9 percent equity interest in Lyondell Petrochemical Company ("Lyondell"), which operates petrochemical and petroleum processing businesses. ARCO's resources segment includes the exploration, development and production of petroleum, which includes petroleum liquids (crude oil, condensate and natural gas liquids ("NGLs")) and natural gas, the purchase and sale of petroleum liquids and natural gas, and the mining and sale of coal. The exploration, development and production of all of ARCO's oil and gas interests in the State of Alaska and surrounding offshore waters are conducted through a wholly owned subsidiary, ARCO Alaska, Inc. ("ARCO Alaska"). The exploration, development and production of ARCO's oil and gas interests in foreign countries are conducted through the ARCO International Oil and Gas division ("ARCO International"). The mining and marketing of coal from surface and underground mines located in the western United States and in Australia are conducted through the ARCO Coal division ("ARCO Coal"). In October 1993, ARCO reorganized the ARCO Oil and Gas division, which operated ARCO's Lower 48 exploration, development, production and marketing activities. The cornerstone of ARCO's program to reorganize its Lower 48 operations is Vastar Resources, Inc. ("Vastar"), which on a stand alone basis is one of the largest independent (non-integrated) oil and gas companies in the United States. Vastar is engaged in the exploration for and the development and production of natural gas and, to a lesser extent, crude oil in selected major producing basins in the Gulf of Mexico, the Gulf Coast, the San Juan Basin and the Mid-Continent areas. ARCO conducts its other operations in the Lower 48 through its ARCO Permian business unit ("ARCO Permian"), which exploits long-lived producing fields in the Permian and East Texas basins; its ARCO Western Energy business unit 1 ("ARCO Western Energy"), which focuses on oil production primarily from five producing oil fields in California and related cogeneration operations; and ARCO Long Beach Inc., a wholly-owned subsidiary ("ALBI"), which manages the optimized waterflood program for the Long Beach unit of the Wilmington Field pursuant to a contractual arrangement with the State of California and the City of Long Beach. ARCO's products segment includes the refining and transportation of petroleum and petroleum products, the marketing of petroleum products on the West Coast and the manufacture and sale of intermediate chemicals and specialty products. The ARCO Products division ("ARCO Products") is a refiner and marketer of refined petroleum products on the West Coast. ARCO Chemical Company, a subsidiary of which ARCO owns 83.3 percent ("ARCO Chemical"), produces and markets on a worldwide basis certain intermediate chemicals and specialty products, including propylene oxide and its derivatives, tertiary butyl alcohol and its derivatives, and styrene monomer and its derivatives. The ARCO Transportation division ("ARCO Transportation") operates domestic facilities for the transportation and storage of petroleum liquids, refined petroleum products, petrochemicals and natural gas. RECENT DEVELOPMENTS On January 17, 1994, at about 4:30 a.m., Southern California experienced a major earthquake that caused widespread property damage and major disruptions to utilities and highways. While ARCO's Los Angeles and Long Beach headquarters buildings and Los Angeles Refinery did not suffer any discernible damage, certain of ARCO's other assets located in the region experienced varying degrees of damage. One of ARCO's common carrier crude oil pipelines suffered ruptures; ARCO temporarily closed all of its pipelines in Southern California to assess damage. Nearly 70 ARCO-branded service stations throughout the region experienced damage; all but one are now back in operation. ARCO does not believe that the aggregate damage it suffered will have a material adverse effect on its financial position or operations. On January 28, 1994, Vastar, ARCO's wholly-owned subsidiary, filed a registration statement on Form S-1 with the Securities and Exchange Commission for the proposed sale of up to 17,250,000 shares of common stock to the public. ARCO intends to retain 80,000,001 shares, or 82.3 percent of Vastar's common stock. ARCO has a continuous, cumulative option to purchase from Vastar, at then current market prices, such number of shares of stock as will permit ARCO to continue to include Vastar in its consolidated federal income tax return. ARCO will be in a position to continue to elect Vastar's board of directors and to control the affairs of the company. RESOURCES OIL AND GAS Following the 1993 reorganization of its Lower 48 operations, ARCO conducts oil and gas exploration and production primarily through a number of business units, which are either wholly-owned subsidiaries or divisions of ARCO. ARCO Alaska is responsible for exploration, development and production of all of ARCO's oil and gas interests in the State of Alaska and surrounding offshore waters, of which the principal producing properties are interests in the Prudhoe Bay field, the Kuparuk River field and the Greater Point McIntyre area. As previously described, ARCO's principal Lower 48 operations are conducted by Vastar; the remainder of its Lower 48 operations are conducted through ARCO Permian, ARCO Western Energy and ALBI. ARCO International is responsible for exploration, development and production of ARCO's oil and gas interests overseas. In addition, Vastar, ARCO Permian, and ARCO International are responsible for marketing oil and gas production, and for crude oil, natural gas and NGLs purchases, resales and locational exchanges to reduce transportation costs. 2 Estimated net quantities of ARCO's proved oil and gas reserves at December 31, 1993 were as follows:
PETROLEUM NATURAL GAS LIQUIDS (MILLION (BILLION CUBIC BARRELS) FEET) ---------------- ---------------- DOMESTIC FOREIGN DOMESTIC FOREIGN -------- ------- -------- ------- Proved reserves............................... 2,259 206 4,725 3,280 Proved developed reserves..................... 1,804 127 4,190 1,120
Reference is made to Supplemental Information, Oil and Gas Producing Activities, beginning on page 54, for additional information concerning oil and gas producing activities and estimates of proved oil and gas reserves. In 1993 and 1992, ARCO produced approximately 147 percent and 158 percent, respectively, of the crude oil requirements for its two West Coast refineries. Of the excess production, a portion was delivered to a refinery owned by Tosco Corporation ("Tosco") under a long-term supply agreement, some was sold to Lyondell and the significant remainder was sold on the open market. See "Products--Refining and Marketing." Net quantities of petroleum liquids and natural gas produced by ARCO were as follows:
NATURAL GAS PETROLEUM LIQUIDS (MILLION CUBIC FEET (BARRELS PER DAY) PER DAY) ------------------- ---------------------- YEARS ENDED DECEMBER 31, DOMESTIC FOREIGN DOMESTIC FOREIGN ------------ -------- -------- ---------- --------- 1993.................................. 604,700 79,700 911 321 1992.................................. 660,500 77,700 1,202 240 1991.................................. 668,500 75,700 1,399 261
Average sales prices and average production costs per unit of petroleum liquids and natural gas were as follows:
YEARS ENDED DECEMBER 31, -------------------------------------------------- 1993 1992 1991 ---------------- ---------------- ---------------- DOMESTIC FOREIGN DOMESTIC FOREIGN DOMESTIC FOREIGN -------- ------- -------- ------- -------- ------- Average sales price (including transfers) per barrel of petroleum liquids produced................... $11.67 $16.05 $12.88 $17.82 $12.92 $18.19 Average lifting cost per equivalent barrel of production................. 4.90 4.01 4.83 5.41 5.00 5.27 Average sales price per MCF of natural gas produced.... 1.93 2.69 1.65 2.96 1.54 3.16
Delivery commitments covering natural gas production are as follows: In the United States, the Company has various long-term natural gas sales contracts. Certain contracts are reservoir dedicated, and present no obligation to deliver if production from these reservoirs ceases. Deliveries under such contracts comprised approximately 70 billion cubic feet in 1993 and will decline to approximately 18 billion cubic feet by 1995. Additional long-term domestic contracts, with terms varying from 1 to 20 years, had delivery commitments of approximately 174 billion cubic feet in 1993. The majority of these contracts are index based and present little or no price risk. Deliveries under these existing long-term contracts will increase to approximately 285 billion cubic feet annually in 1995. The Company can satisfy its existing natural gas delivery commitments from proprietary domestic production in the Lower 48. Total proprietary domestic production, which includes associated royalty volumes, was 367 billion cubic feet in 1993. The 3 Company reported 4,725 billion cubic feet of domestic proved natural gas reserves at December 31, 1993. There have been no instances in the last three years in which the Company was unable to meet its natural gas delivery commitments. Overseas, the Company has various long-term natural gas sales contracts. The majority of ARCO's natural gas production from the North Sea and its Indonesian operations is committed under long-term sales agreements. While annual delivery requirements may vary under these contracts, delivery obligations under the agreements are essentially limited to producible reserves from specific fields. ARCO Alaska, Inc. During 1993, approximately 69 percent of ARCO's domestic petroleum liquids production came from the Prudhoe Bay, Kuparuk River and the Greater Point McIntyre area fields on the North Slope of Alaska. While ARCO Alaska's net liquids production was down 20,200 barrels per day from 1992 to 418,700 barrels per day in 1993 as a result of natural field decline, production is expected to increase in 1994 as a full year's benefit from the new Point McIntyre field and the first phase of Prudhoe Bay's second major gas handling expansion facility ("GHX-2") is recognized. ARCO Alaska operates the eastern half of the Prudhoe Bay field and has a 21.78 percent working interest in the oil produced from the field, a 42.56 percent working interest in the condensate produced and, in 1993, a 37.7 percent working interest in the NGLs produced. ARCO's net petroleum liquids production from the Prudhoe Bay field averaged 250,800 barrels per day in 1993, compared to 270,500 barrels per day in 1992, the result of natural field decline. The first phase of GHX-2, which started up in September 1993, increased gas handling capacity to an average 6.7 billion cubic feet per day in the fourth quarter. The GHX-2 project, a joint undertaking among the working interest owners, is designed to increase the field's average gas handling capacity, and thereby mitigate declining oil production. Pursuant to an agreement reached among ARCO Alaska and the working interest owners of the Prudhoe Bay field in 1990, the owners committed to invest approximately $1.3 billion in additional gas handling facilities. Upon full implementation, expected in late 1994, the GHX-2 project is expected to increase gas handling capacity to 7.5 billion cubic feet per day and provide gross liquids production benefits of approximately 100,000 barrels per day. ARCO Alaska is the sole operator of the Kuparuk River field and holds a 55.17 percent working interest in the field. Its share of production from the field was 151,500 net barrels per day of petroleum liquids during 1993, compared to 150,800 net barrels per day during 1992 when ARCO was in an equity payback position for the first part of the year. Natural field decline has been offset at Kuparuk through continued peripheral development and infill drilling, as well as downhole fracturing and refracturing programs and expansion of enhanced oil recovery processes. The Greater Point McIntyre area encompasses the Point McIntyre, Lisburne, and the smaller West Beach and North Prudhoe Bay State fields. ARCO operates the Lisburne field, which has been producing since 1986, with production averaging 9,300 net barrels of liquids per day in 1993. The three other fields, which recently began production, are all produced through the Lisburne field facilities. Point McIntyre, the largest of the four fields in the area, with approximately 94 million net barrels of proved reserves, started up in October 1993 and averaged 25,400 net barrels per day for the remainder of the year. One well at the West Beach field was brought on line in April 1993 and one well from the North Prudhoe Bay State reservoir began production in October 1993. By December 1993, liquids produced through the Lisburne Production Facility averaged 135,200 gross barrels per day, and 42,700 net barrels per day. ARCO Alaska holds a 30.1 percent working interest in Point McIntyre, a 40 percent interest in Lisburne, a 50 percent interest in West Beach and a 50 percent interest in North Prudhoe Bay State. ARCO Alaska maintained an active exploration and delineation program in 1993, participating in 13 wells. One well was announced as a discovery, the North Prudhoe Bay State #3. Following further 4 delineation work on the 1991 Sunfish discovery, ARCO and its partner reported at least one more season of drilling will be required to determine the amount of reserves in the field. Delineation drilling in the northern part of the Sunfish structure is continuing following the completion of one well in 1993. In the southern part of the prospect, no further drilling is planned following the completion of two unsuccessful wells in 1993. ARCO Alaska holds a 60 percent working interest in the Sunfish prospect. In the Beaufort Sea, east of Prudhoe Bay, ARCO and its partners drilled two delineation wells on the Kuvlum prospect, where a discovery was made in 1992. While a substantial accumulation of hydrocarbons was confirmed, the discovery is not commercial as a stand- alone development. A well drilled in the adjacent Wild Weasel prospect did not encounter commercial hydrocarbons. All petroleum liquids shipped from the North Slope fields are transported to market through the Trans Alaska Pipeline System ("TAPS") to terminal facilities at Valdez, and from there to West Coast locations by ocean-going tankers. Lower 48 During 1993, ARCO's Lower 48 operations had net production of 321 billion cubic feet of natural gas and 68 million barrels of petroleum liquids as compared to 425 and 81 in 1992, respectively. Reserves were reduced by 173 million barrels of oil equivalent, primarily due to production and property divestitures. Development and exploration activities replaced 41 percent of 1993 net production. ARCO began in late 1991 to re-evaluate its Lower 48 operations in order to reduce overhead and lease operating costs, to upgrade its property portfolio and to achieve a better economic return on its exploration and development spending. During the period 1991-1993, ARCO took various steps to achieve these goals, culminating in its October 1993 reorganization of its Lower 48 operations. This reorganization resulted in the creation of four discrete business units to operate ARCO's Lower 48 properties. Each of these four business units has its own assets, operations and business strategies. ARCO believes that this reorganization will enable these units to operate with a lower overhead cost profile, a flatter organizational structure and a more focused resource exploitation. Vastar, headquartered in Houston, Texas, is engaged in the exploration for and the development, production and marketing of natural gas and, to a lesser extent, crude oil in selected major producing basins in the Gulf of Mexico, the Gulf Coast, the San Juan Basin and the Mid-Continent areas. At December 31, 1993, Vastar had net proved reserves of 423 million barrels of oil equivalent, of which 78 percent were natural gas. 1993 net production averaged 161,000 barrels of oil equivalent per day. Vastar has entered into fixed for floating swap agreements under which 350 million cubic feet per day of natural gas production from various Vastar properties is hedged at an average fixed price of $2.25 per thousand cubic feet. These hedges cover approximately 50 percent of Vastar's production for the period from March through December 1994. ARCO Permian, headquartered in Midland, Texas, owns producing fields in the Permian and East Texas oil fields. Its proved reserves as of December 31, 1993 were 336 million barrels of oil equivalent, of which 75 percent were petroleum liquids. 1993 net production averaged 81,000 barrels of oil equivalent per day. ARCO Western Energy, headquartered in Bakersfield, California, operates five producing oil fields in California, the largest being the Midway-Sunset field. Its assets also include cogeneration operations in three of the fields, as well as conventional steam-generating facilities. ARCO Western Energy had proved reserves as of December 31, 1993, of 173 million barrels of oil equivalent, of which 96 percent was petroleum liquids. 1993 net production averaged 44,000 barrels of oil equivalent per day. ALBI, headquartered in Long Beach, California, manages the development of the optimized waterflood program, begun in 1992, for the Long Beach Unit portion of the Wilmington Field. Under ALBI's contractual arrangement with the State of California and the City of Long Beach, ALBI receives 5 half of any profits above an agreed base profit level. In addition, THUMS Long Beach Company, the operating company responsible for the day to day operations of the unit under the direction and control of the City of Long Beach, is a wholly owned subsidiary of ALBI. ALBI had proved reserves as of December 31, 1993 of 122 million barrels of oil equivalent. 1993 net production averaged 23,000 barrels of oil equivalent per day. As a part of the reorganization of its Lower 48 operations, ARCO decided to close its Dallas headquarters; however, a transition team will remain in place in the Dallas area for an extended period. This team will provide certain transition services to, and will manage the disposition of assets not allocated to, these four units. Such assets include certain improved real estate, undeveloped leasehold property, and fee lands which do not conform to the reorganized operations. In connection with the reorganization of its Lower 48 oil and gas exploration and production operations, ARCO recorded a charge against fourth quarter 1993 earnings of $450 million after tax. Included in the charge are costs related to write-downs for sale or other disposition of certain oil and gas properties and excess office space and the severance of approximately 1,300 employees. ARCO International Oil and Gas Company ARCO International's principal operations are in the North Sea, Indonesia and Dubai. Foreign petroleum liquids production comes from Indonesia, the United Kingdom, Dubai and Turkey. Foreign natural gas production comes from the United Kingdom, Indonesia and the Netherlands. In 1993, principal foreign exploration activities were conducted in Indonesia, the United Kingdom, China and Algeria. In August 1993, the Orwell gas field in the U. K. sector of the North Sea began production; for the fourth quarter of 1993 it averaged 49 million net cubic feet of gas per day. ARCO British Limited operates and holds a 50 percent working interest in the field. In addition, the Murdoch gas field in the U. K. sector of the North Sea began production in October 1993. Initial production averaged 45 million net cubic feet of gas per day during the fourth quarter. The Murdoch Field is partner-operated, with ARCO holding a 34 percent working interest. ARCO International became a significant offshore gas producer in Indonesia in 1993, following completion of two developments. In September 1993, production and sale of natural gas began from a new gas development in the Offshore Northwest Java contract area in Indonesia. ARCO has a 46 percent interest in the contract area, where production is expected to average 260 million gross cubic feet per day in 1994. In January 1994, a second major gas project in Indonesia, the Pagerungan gas project north of Bali, began initial production. During 1994, the Pagerungan gas field is expected to produce 300 million gross cubic feet of gas per day. This gas is transported via a third party pipeline to a local power generation plant and local users. ARCO is operator and currently holds a 54 percent working interest. Development of the Yacheng 13-1 natural gas field in China continued on schedule in 1993. The fabrication of the process and wellhead platforms is underway and the installation of the undersea gas pipeline began in December 1993. The installation of the wellhead platform is scheduled for March 1994 and developmental drilling activities are expected to begin in May 1994. ARCO will be the operator and will hold a 34.3 percent working interest in the project. Gross production at the rate of 330 million cubic feet per day is expected to start up in early 1996, and is to be sold to customers in Hong Kong and on Hainan Island for power generation and other uses. In early 1992, ARCO International and its partner Agip announced an oil discovery in Ecuador. During 1993, an extension of the exploration license for this block was granted by the Ecuadorian government. Efforts are currently underway on commercialization and development plans and at year-end a third well was in progress. 6 ARCO International entered into several new exploration arrangements during 1993 in the United Kingdom, Indonesia, China, and Tunisia. ARCO British Limited was awarded six North Sea licenses in the 14th Licensing Round in June of 1993. Seismic options were acquired in eleven blocks in the Celtic Sea off the coast of Ireland and two offshore blocks in the Philippines. In China, drilling has begun on one of the two newly acquired blocks adjacent to the Yacheng gas field and pipeline route in the South China Sea. ARCO International's net proved reserves increased 22 million barrels of oil equivalent in 1993, primarily as a result of the Sirasun gas discovery in Indonesia. Exploration and Drilling Activity The following table shows the number of wells drilled to completion by the Company:
YEARS ENDED DECEMBER 31, --------------------------------------------------- 1993 1992 1991 ---------------- ---------------- ----------------- DOMESTIC FOREIGN DOMESTIC FOREIGN DOMESTIC FOREIGN -------- ------- -------- ------- -------- ------- Net productive exploratory wells drilled.............. 13 8 16 9 26 6 Net dry exploratory wells drilled.................... 65 13 70 15 42 19 Net productive development wells drilled.............. 228 31 164 22 433 29 Net dry development wells drilled.................... 21 2 19 1 173(a) --
- -------- (a) Includes 132 dry development wells associated with a shallow coal bed methane gas project at a total cost of $5.5 million. The Company's current activities, as of December 31, 1993, were as follows:
DOMESTIC FOREIGN -------- ------- Gross wells in process of drilling (including wells temporarily suspended)....................................... 55 56 Net wells in process of drilling (including wells temporarily suspended)................................................... 34 25 Waterflood projects in process................................ 3 -- Pressure maintenance and waterflood operations................ 61 6
The following table shows the approximate number of productive wells at December 31, 1993:
OIL GAS ---------------------- ---------------- DOMESTIC(a) FOREIGN(b) DOMESTIC FOREIGN ----------- ---------- -------- ------- Total gross productive wells............ 12,661 645 3,160 182 Total net productive wells.............. 5,523 253 1,383 44
- -------- (a) Includes approximately 1,637 gross and 294 net multiple completions. (b) Includes approximately 113 gross and 48 net multiple completions. As of December 31, 1993, the Company's holdings of petroleum rights acreage (including options and exploration rights) were as follows (in thousands):
DEVELOPED UNDEVELOPED ACREAGE ACREAGE ----------- ------------- NET GROSS NET GROSS ----- ----- ------ ------ Domestic Alaska.............................................. 208 373 1,285 1,668 Other domestic...................................... 1,577 2,876 3,964 5,651 ----- ----- ------ ------ Total domestic.................................... 1,785 3,249 5,249 7,319 Foreign............................................... 91 242 22,603 34,668 ----- ----- ------ ------ Total............................................. 1,876 3,491 27,852 41,987 ===== ===== ====== ======
7 COAL ARCO Coal, headquartered in Denver, Colorado, operates mines in the western United States and in northeastern Australia. ARCO Coal is owner and operator of two surface mines in Wyoming's Powder River Basin, Black Thunder and Coal Creek, that produce low sulfur steam coal. During 1993, the start-up of a third dragline at Black Thunder completed the mine's transition from a truck- and-shovel operation to a dragline operation. This start-up enabled Black Thunder to achieve record shipments of 34.3 million tons in 1993. ARCO Coal also owns and operates West Elk, an underground longwall mine in the Uinta Basin in western Colorado that produces low sulfur, high BTU steam coal. West Elk achieved record shipments of 3.0 million tons in 1993. In early 1994, ARCO Coal acquired the Jumbo Mountain lease adjacent to the West Elk mine. The new lease holds an estimated 10 million tons of recoverable reserves. Total U.S. coal shipments for 1993 were 37.5 million tons of coal. ARCO Coal has interests in three mines in the Bowen Basin of Queensland, Australia. ARCO Coal has an effective 87 percent interest in Curragh and a 31.4 percent interest in Blair Athol, both surface mines. Curragh produces high-grade coking and steam coal, while Blair Athol produces only steam coal. Curragh and Blair Athol had record shipments of 5.5 million net tons and 3.4 million net tons, respectively, in 1993. In December 1993, ARCO and the operator of Blair Athol signed an agreement to acquire 55 percent of the nearby undeveloped Clermont Project, which includes estimated gross reserves of approximately 200 million tons of steam coal. ARCO Coal also operates and has an 80 percent interest in Gordonstone, a state-of-the-art underground longwall mine that began production of high-grade coking and steam coal in the first half of 1993. ARCO Coal's net share of total shipments in 1993 from Australian operations was 10.2 million tons. As of December 31, 1993, ARCO Coal had long-term domestic contracts to supply U.S. utility companies with steam coal from its Black Thunder and Coal Creek mines. These contracts have various termination dates with the longest being December 31, 2017 and the earliest being April 30, 1994. Several of these include options for extensions for additional periods. Future revenues from these contracts can be affected by periodic reopeners that adjust sales prices based on prevailing market conditions. It is anticipated that these contracts will require approximately 85 percent of planned production from Black Thunder and Coal Creek in 1994. Approximately 80 percent of planned 1994 production in Australia is committed under both long and short-term contract arrangements. In total, ARCO Coal shipped 47.7 million tons of coal during 1993 and had 1,510 million tons of recoverable coal reserves as of December 31, 1993. Reference is made to Supplemental Information, Coal Operations on page 57 for further information concerning reserves and shipments of coal. PRODUCTS REFINING AND MARKETING ARCO Products operates two domestic petroleum refineries on the West Coast, the Los Angeles Refinery in Carson, California and the Cherry Point Refinery near Ferndale, Washington. Both of these refineries are accessible to major supply sources and major markets through ocean-going tankers, pipelines and other transportation facilities. Both currently utilize Alaskan North Slope crude oil exclusively. 8 The combined annual average operable crude distillation capacities of these two refineries, as measured pursuant to the standards of the American Petroleum Institute, are shown in the following table:
ANNUAL AVERAGE OPERABLE CRUDE DISTILLATION CAPACITY (BARRELS PER DAY) ----------------------- 1993 1992 1991 ------- ------- ------- Los Angeles Refinery.................................... 237,000 223,000 223,000 Cherry Point Refinery................................... 181,000 167,000 167,000 ------- ------- ------- Total................................................. 418,000 390,000 390,000 ======= ======= =======
ARCO Products' crude oil refinery runs and petroleum products manufactured at its refining facilities were as follows:
YEARS ENDED DECEMBER 31, ----------------------- 1993 1992 1991 ------- ------- ------- (EQUIVALENT BARRELS PER DAY) Crude oil refinery runs................................. 425,800 425,100 404,900 ======= ======= ======= Petroleum products manufactured: Gasoline.............................................. 221,600 198,800 191,800 Distillate fuels...................................... 79,500 81,600 85,900 Jet fuels............................................. 84,600 90,600 82,200 Refinery gas.......................................... 25,400 24,100 24,200 Coke.................................................. 15,500 15,200 17,000 Natural gas liquids................................... 18,400 18,500 11,700 Other (a)............................................. 10,100 21,600 13,600 ------- ------- ------- Total (b)........................................... 455,100 450,400 426,400 ======= ======= =======
- -------- (a) Includes chemical products and feedstocks, sulfur, middle-of-barrel specialties and changes in unfinished stocks. (b) Total manufactured petroleum products volumes exceed total crude oil runs as a result of the expansion of petroleum product through rearrangement of molecular structure and refinery blending of oxygenates. ARCO Products obtains additional gasoline supplies from the Avon, California refinery of Tosco under a 1986 supply agreement. Pursuant to the agreement, which has an initial term of 10 years, ARCO Products delivers approximately 50,000 barrels per day of Alaskan North Slope crude oil to Tosco's refinery in exchange for a quantity of gasoline that is a variable percentage of the amount of crude oil delivered, based on the price of certain crude oils. In connection with its refining operations, ARCO Products also produces petroleum coke and operates electric cogeneration facilities. Petroleum coke, a refinery by-product, is processed at the company's calciner operations into calcined coke. ARCO Products operates the Watson Cogeneration Facility at its Los Angeles Refinery under a joint venture agreement with a subsidiary of SCEcorp. A second cogeneration facility is located at the calciner operation in Wilmington, California, near the Los Angeles Refinery. ARCO Products markets gasoline and other refined petroleum products to both consumers and resellers. Gasoline is marketed under the ARCO(Registered) trademark through independent dealers and distributors and directly to motorists at branded retail outlets located in Arizona, California, Nevada, Oregon and Washington. ARCO Products also sells gasoline to unbranded resellers. NGLs are sold directly to end-use customers and the Watson Cogeneration Facility, and are also marketed through 9 distributors. Jet fuels are sold directly to airlines and the United States Department of Defense. Calcined coke is sold to domestic and international industrial consumers. Cargo and bulk sales of petroleum products are also made to commercial and industrial consumers, and certain products are marketed through other channels. As of December 31, 1993, there were 1,611 branded retail outlets, which included franchisee and Company-operated am/pm(Registered) convenience stores and SMOGPROS(Registered) Service Centers, and traditional service stations. In response to anticipated federal, state and local air quality requirements, ARCO Products began development of reformulated gasolines in the late 1980s. In September 1989, ARCO Products introduced its first reformulated, emission control gasoline, EC-1(Registered) Regular, in Southern California to replace its regular leaded gasoline. In September 1990, ARCO Products introduced a second reformulated gasoline, EC-Premium(Registered), to replace its super unleaded gasoline in Southern California markets. As of January 1, 1992, the sale of leaded gasoline was banned in California. ARCO Products now markets only unleaded and reformulated unleaded gasolines in California. EC-1(Registered) Regular, EC-Premium(Registered) and other reformulated gasolines being developed by the Company use oxygenates, such as methyl tertiary butyl ether ("MTBE"), to produce a cleaner burning fuel. ARCO Products has a small MTBE production unit at the Los Angeles Refinery. In addition, during 1991, ARCO Products and ARCO Chemical entered into long-term sales agreements providing for delivery of fixed quantities of MTBE to ARCO Products at contract prices. Also in response to federal and state air quality requirements, ARCO Products introduced California Air Resources Board ("CARB") specification diesel into the California market and Environmental Protection Agency ("EPA") specification diesel into the balance of its U.S. markets in September 1993. In order to remain in compliance with federal, state and local air quality requirements that are being phased in over the next several years, ARCO Products is making major modifications at its Los Angeles Refinery. Total domestic and foreign refined petroleum product sales, which include insignificant sales to ARCO Chemical and Lyondell, for the periods indicated, were as follows:
YEARS ENDED DECEMBER 31, ----------------------- 1993 1992 1991 ------- ------- ------- (EQUIVALENT BARRELS PER DAY) Petroleum product sales: Domestic: Gasoline............................................ 252,500 240,800 234,500 Distillate fuels.................................... 78,700 81,800 84,600 Jet fuels........................................... 97,100 104,900 95,600 Coke................................................ 15,100 16,000 17,000 Natural gas liquids................................. 18,700 18,600 13,900 Other............................................... 19,400 17,400 20,800 ------- ------- ------- Total............................................. 481,500 479,500 466,400 Foreign............................................... 94,400 92,800 97,000 ------- ------- ------- Total............................................. 575,900 572,300 563,400 ======= ======= =======
Total petroleum product sales differ from total petroleum products manufactured due to the consumption of some products as refinery fuel, the exchange of products with other companies, change in inventory levels, and the purchase and resale of products not manufactured by ARCO Products. 10 TRANSPORTATION ARCO Transportation, through various wholly owned subsidiaries of ARCO, manages facilities that transport and store petroleum liquids, refined petroleum products, petrochemicals and natural gas. Ownership interests in petroleum liquids pipeline systems in the United States include approximately 1,200 miles of gathering lines serving producing fields in California, Colorado, New Mexico, Oklahoma, Texas and Utah, and approximately 5,300 miles of common carrier trunk lines extending from producing areas, including Alaska, to refineries and terminals. Ownership interests in refined petroleum product and petrochemical pipeline systems in the United States include approximately 1,900 miles of trunk lines originating at refineries in Texas, California and Oklahoma; these pipelines move petroleum liquids and refined petroleum products for all shippers (including ARCO) that properly tender these materials for transportation. In addition, the Company has interests in several other petroleum liquids and refined petroleum product pipelines and several small natural gas pipeline systems in the western United States. ARCO Transportation Alaska, Inc. ("ATA"), a wholly owned subsidiary of ARCO, owns an undivided interest in TAPS. TAPS consists of an 800-mile, 48-inch diameter pipeline system used to transport petroleum liquids from the North Slope of Alaska to the ice-free port of Valdez in southern Alaska. The percentage of ownership varies by facility, with ATA's weighted average TAPS ownership being approximately 21.3 percent. In addition, ATA owns approximately 21.3 percent of the stock of Alyeska Pipeline Service Company, which was established to design, construct, operate and maintain TAPS for the owners. See page 17 of "Environmental Matters--Material Environmental Litigation." ATA's undivided interest in TAPS is proportionally consolidated for financial reporting purposes. TAPS 1993 throughput averaged approximately 1,620,000 barrels per day. During 1993, a federal audit team completed a study that pointed to deficiencies in TAPS operations and maintenance, inspection procedures, and management. During Congressional hearings following this audit, the Company reiterated its overriding commitment to safety and high environmental standards for TAPS. Kuparuk Pipeline Company, a wholly owned subsidiary of ARCO, owns a 57 percent partnership interest in a pipeline system that links the Kuparuk River field to TAPS Pump Station No. 1. An average of 333,000 barrels of petroleum liquids per day was transported through this pipeline system in 1993. In the Lower 48, ARCO Pipe Line Company, Four Corners Pipe Line Company, and ARCO Terminal Services Corporation, wholly owned subsidiaries of ARCO, provide transportation and storage facilities for various types of crude oil, finished products and petrochemicals. ARCO Pipe Line Company owns and operates petroleum liquids, product and petrochemical pipelines located east of the Rocky Mountains; gross throughput of these pipelines averaged 1,117,000 barrels per day in 1993. Four Corners Pipe Line Company owns and operates common carrier pipelines in the western United States that transported approximately 279,000 barrels per day of crude oil in 1993. ARCO Terminal Services Corporation owns and operates pipelines and owns or leases and operates terminals that provide a variety of storage and transportation services both to ARCO and third-party customers. In February 1994, in an effort to strengthen the competitive position and improve efficiencies, the management of ARCO Pipe Line and Four Corners Pipe Line companies have been combined. During 1993, ARCO Transportation completed two significant pipeline expansions. Line 90, a major west-to-east crude oil pipeline, was expanded to accommodate 12,000 additional barrels of crude oil per day for a total of up to 84,000 barrels per day. Additionally, a new long-term agreement for the shipping of Alaska North Slope crude oil from Long Beach eastward on this pipeline was signed. Also expanded was the Gulf Coast to Cushing crude oil pipeline system, that links the Gulf of Mexico port at Texas City with Midcontinent and Midwest refineries through Cushing, Oklahoma. This project raised system capacity by up to 40,000 barrels per day, depending on the viscosity of the crude oil being carried, and is intended to capitalize on growing demand from domestic refiners for imported crude oil. ARCO Marine, Inc., a wholly owned subsidiary of ARCO, owns or operates under long-term lease 10 ocean-going, United States flag tankers with an aggregate tonnage of approximately 1.5 million tons. 11 INTERMEDIATE CHEMICALS AND SPECIALTY PRODUCTS The Company's Intermediate Chemicals and Specialty Products operation consists of the businesses owned by ARCO Chemical. ARCO currently owns 80,000,001 shares of common stock of ARCO Chemical, which represent 83.3 percent of the outstanding shares. ARCO Chemical is a leading international manufacturer and marketer of intermediate chemicals and specialty products used in a broad range of consumer goods. Major products include propylene oxide ("PO") and its derivatives (which include polyols and propylene glycols ("PG")), tertiary butyl alcohol ("TBA") and its derivatives (which include MTBE and ethyl tertiary butyl ether ("ETBE")), and styrene monomer ("SM") and its derivatives (including polystyrenics). ARCO Chemical's principal chemical facilities are located in: Bayport, Texas (PO, TBA and various derivatives including PG); Channelview, Texas (PO, SM and various derivatives including polyols and MTBE); Monaca (Beaver Valley), Pennsylvania (SM derivatives); Rotterdam, the Netherlands (PO, TBA and various derivatives including PG and MTBE); Fos-sur-Mer, France (PO, TBA and various derivatives including PG, polyols and MTBE); and a joint venture in Chiba, Japan (PO and SM). Other production facilities include facilities for the production of polystyrenics at Painesville, Ohio and polyols at: Institute and South Charleston, West Virginia; Rieme, Belgium; Kaohsiung, Taiwan; and Anyer, West Java, Indonesia. ARCO Chemical owns a majority equity interest in the second PO/SM plant at Channelview, Texas, completed in 1992. The two equity investors in the plant, which are limited partners, each will take a substantial portion of the SM output of the plant through long-term processing agreements. The following table shows ARCO Chemical's worldwide production capacity (in millions of pounds per year, except where otherwise noted) for PO, TBA, SM and certain key derivatives:
ASIA PRODUCT AMERICAS EUROPE PACIFIC - ------- -------- ------ ------- PO 2,315 980 310 Polyols 655 385 120 PG 430 305 -- TBA 2,870 2,395 -- SM 2,525 -- 740 MTBE--Bbls/day 30,000 28,500 --
Capacities shown reflect the production capacities that, as of December 31, 1993, ARCO Chemical believes that it can obtain based upon plant design and subject to certain on-stream factors, product mix, and other variable factors. Capacities shown include the full capacity of on-stream joint-venture facilities. Plants can and have exceeded these capacities for extended periods of time. In addition, ARCO Chemical currently has processing arrangements at third party facilities pursuant to which it has the capacity to produce an additional 20,000 barrels per day of MTBE in the Americas region. The following table sets forth ARCO Chemical's key product volumes sold to and processed for customers for the periods indicated:
YEAR ENDED DECEMBER 31, ----------------- 1993 1992 1991 ----- ----- ----- (MILLIONS) PO and derivatives (pounds)................................... 3,356 3,055 2,729 TBA and derivatives (gallons)................................. 1,164 1,092 996 SM and derivatives (pounds)................................... 2,084 1,434 1,278
Total sales and other operating revenues for the Company's intermediate chemicals and specialty products segment for the years ended December 31, 1993, 1992 and 1991 were $3,192 million, $3,100 million, and $2,990 million, respectively, including immaterial amounts for sales and services to Lyondell. 12 In addition to sales to, or processing agreements with, unrelated third parties, ARCO Chemical has agreements with the Company and Lyondell which provide for, among other things, the purchase, sale and processing of various products and feedstocks. ARCO Chemical sells MTBE at contract prices to ARCO Products for use in the production of the Company's reformulated gasolines. During 1991, ARCO Products and ARCO Chemical entered into long-term sales agreements providing for delivery of fixed quantities of MTBE. Lyondell provides to ARCO Chemical a portion of the feedstocks purchased by ARCO Chemical for use at its chemical manufacturing facilities in Texas. Lyondell also provides certain plant services at these facilities. ARCO Chemical in turn provides certain feedstocks and supplies to Lyondell. ARCO Chemical is also a party to certain service agreements and other arrangements with the Company and Lyondell. For additional information about ARCO Chemical, a copy of ARCO Chemical's 1993 Annual Report to Stockholders and 1993 Annual Report on Form 10-K can be obtained by writing to Manager, Investor Relations, ARCO Chemical Company, 3801 West Chester Pike, Newtown Square, Pennsylvania 19073-2387. ARCO Chemical's telephone number is (610) 359-2000. EQUITY INTEREST IN LYONDELL ARCO owns a 49.9 percent equity interest in Lyondell, which is accounted for on the equity method. Prior to 1989, Lyondell was a wholly owned subsidiary of ARCO. See Note 20 of Notes to Consolidated Financial Statements on page 52, and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Lyondell is a petrochemical and petroleum processor and marketer. Lyondell manufactures a wide variety of petrochemicals, including olefins (ethylene, propylene, butadiene, butylenes and specialty products), polyolefins (polyethylene and polypropylene), methanol and MTBE, and refined petroleum products, including gasoline, heating oil, jet fuel, aromatics and lubricants. For the year ended December 31, 1993, Lyondell recorded total revenues of approximately $263 million from sales to ARCO Chemical. Lyondell also provides certain plant services at these facilities. ARCO Chemical in turn provides certain feedstocks and supplies to Lyondell. See "Products--Intermediate Chemicals and Specialty Products." Lyondell historically purchased a portion of its crude oil, natural gas and NGLs requirements from ARCO. Lyondell currently purchases certain of these requirements from ARCO's Lower 48 business units under short-term contracts and/or on the spot market at prices based on prevailing market prices. In addition, Lyondell and ARCO have entered into a services agreement and various leases, technology transfers and licenses and other arrangements. During 1993, Lyondell paid ARCO and its consolidated subsidiaries an aggregate of $73 million under these agreements, arrangements and transactions and received an aggregate of $278 million. In July 1993, Lyondell and CITGO Petroleum Corporation ("CITGO"), a subsidiary of Petroleos de Venezuela, S.A. ("PDVSA"), the Venezuelan national oil company, created a jointly owned Texas limited liability company, LYONDELL-CITGO Refining Company Ltd. ("LCR"), that owns and operates Lyondell's refining business. Lyondell contributed its refinery assets (including the lube oil blending and packaging plant in Birmingport, Alabama) and refinery working capital to LCR and retained an approximate 95 percent participation interest in LCR. CITGO initially contributed $50 million to the operations of LCR and in exchange received an approximate five percent participation interest in the ongoing operations of LCR. At the end of 1993, CITGO made an additional $50 million contribution to the ongoing operations of LCR, and increased its participation interest to approximately ten percent. LCR is undertaking a major upgrading project at the refinery to enable the facility to process substantial additional volumes of very heavy crude oil. Project engineering for the upgrade is currently underway; 13 LCR management anticipates the cost over the next four years to be approximately $800 million. CITGO will contribute a significant portion of the funding required to complete this upgrade. Upon completion of the upgrade, CITGO will own a significant minority interest in LCR and CITGO will have an option to increase its interest to 50 percent that can be exercised under certain conditions. In addition, in 1993 PDVSA entered into a long-term contract to supply heavy crude oil to LCR, and CITGO has a long-term obligation to purchase a substantial portion of the refined products produced at the refinery. For additional information about Lyondell, a copy of Lyondell's 1993 Annual Report to Stockholders and 1993 Annual Report on Form 10-K can be obtained by writing to Investor Relations, Lyondell Petrochemical Company, One Houston Center, 1221 McKinney Street, Houston, Texas 77010. Lyondell's telephone number is (713) 652-7200. CAPITAL PROGRAM The Company's capital expenditures for additions to fixed assets (including dry hole costs) totaled approximately $2.1 billion in 1993 and are budgeted at $1.9 billion for 1994. The levels of future capital expenditures may be affected by business conditions in the industry, particularly possible changes in prices of and demand for crude oil, natural gas and petroleum products. Changes in the tax laws, the imposition of and changes in federal and state clean air and clean fuel requirements, and other changes in environmental rules and regulations may also affect future capital expenditures. PATENTS ARCO owns numerous patents, many of which are available for license to the petroleum industry, and is itself a licensee under certain patents which are available generally to the industry. The Company's operations are not dependent upon any particular patent or patents or upon any exclusive patent rights. COMPETITION The petroleum industry is competitive in all its phases, including manufacturing, distribution and marketing of petroleum products and petrochemicals. Methods of competition for new sources of supply include finding and developing such sources and competition in bidding for leases which may contain such sources and the acquisition of producing properties. Competitive factors in manufacturing, distribution and marketing include price, methods and reliability of delivery, product quality, new product development and, with respect to consumer products, advertising and sales promotion. Crude oil and natural gas supplies are currently abundant relative to demand in the worldwide markets for those commodities. Market prices are typically volatile as a result of uncertainties caused by world events. ARCO's leasehold position on the North Slope of Alaska and its emphasis on the cost-efficient exploration and development of petroleum resources and on innovative marketing strategies make the Company well situated to compete in this environment. In the refining, marketing and manufacturing segment of the industry, refining operations that yield a higher proportion of high-margin products and marketing operations that put a premium on high volume and innovation are of primary importance. The Company's historic emphasis on efficient refinery operations and innovative retail marketing makes ARCO a strong competitor in its wholesale markets and in its West Coast retail market. The domestic coal industry serves competitive U.S. markets, where specific transportation arrangements are often a key element in competition because transportation costs are a significant component of the delivered price of coal. Almost all of the Company's domestic coal customers are 14 electric utilities. The Company's Australian mines are export-oriented, largely to Japan, and face worldwide competition, primarily from Canadian, Indonesian, South African, U.S. and other Australian producers. Key competitive factors in the intermediate chemicals and specialty products markets include product price, quality, reliability of supply, technical support, customer service and potential substitute materials. Commodity chemicals and polymers compete mainly on the basis of price, while specialty products compete mainly on the basis of product performance. The Company ranked twenty-second in sales in the most recent Fortune 500 list of industrial companies. HUMAN RESOURCES As of December 31, 1993, ARCO had approximately 25,100 full-time equivalent employees, of whom approximately 12 percent were represented by collective bargaining agents. RESEARCH AND DEVELOPMENT ARCO engages in research for new and improved methods, equipment and products principally at three facilities located at Plano, Texas, Newtown Square, Pennsylvania and Anaheim, California. Total research and development expenses were $109 million, $89 million and $119 million in 1993, 1992 and 1991, respectively. ENVIRONMENTAL MATTERS Site Remediation The Company is subject to federal, state and local environmental laws and regulations, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA" or "Superfund"), and the Superfund Amendments and Reauthorization Act of 1986 and the Resource Conservation Recovery Act of 1976 ("RCRA"), which may require the Company to remove or mitigate the effects on the environment of the disposal or release of certain chemical, mineral and petroleum substances at various sites, including the restoration of natural resources located at these sites and damages for loss of use and non-use values. The Company is currently participating in environmental remediation activities at numerous sites under Superfund and comparable state statutes at sites associated with discontinued operations, under RCRA and other state and local statutes at certain operating sites, and pursuant to indemnification agreements at certain former Company facilities. The Company 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, including service stations, refineries, terminals, chemical facilities, third party landfills, former nuclear processing facilities, and sites associated with discontinued operations. The Company may in the future be involved in additional environmental assessments and cleanups, including the restoration of natural resources and damages for loss of use and non-use values. The ultimate amount of the future costs associated with such environmental assessments and cleanups is indeterminable due to such factors as the unknown nature and/or extent of contaminants at many sites, the unknown timing, extent and method of the remedial actions which may be required and the determination of the Company's liability in proportion to other responsible parties. The Company 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, extent and method of remedial actions required by the applicable governmental authorities and an evaluation of the amount of the Company's liability considered in light of the liability and financial wherewithal of the 15 other responsible parties. As the scope of the Company's obligation becomes more clearly defined, there may be changes in these estimated costs, which might result in future charges against the Corporation's earnings. The Company's environmental remediation accrual of $648 million at December 31, 1993 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 and sites associated with discontinued operations. The Company has been named a potentially responsible party ("PRP") for 123 sites. The number of PRP sites in and of itself does not represent a relevant measure of liability, because the nature and extent of environmental concerns vary from site to site and the Company's share of responsibility varies from sole responsibility to very little responsibility. The Company reviews all of the PRP sites along with other sites as to which no claims have been asserted, in estimating the amount of accrual. The Company's future costs for these sites could exceed the amount accrued by as much as $1 billion. Approximately half of the reserve relates to sites associated with the Company's discontinued operations, primarily mining activities in the states of Montana and Colorado. Another significant component relates to currently and formerly owned chemical, nuclear processing, and refining and marketing facilities, and other sites which received wastes from these facilities. The Company is also the subject of certain material legal proceedings described below under the caption "Material Environmental Litigation." The remainder relates to sites with reserves ranging from $1 million to $10 million per site. No one site represents more than 15 percent of the total reserve. Substantially all amounts accrued in the reserve are expected to be paid out over the next five to six years. Clean Air The Federal Clean Air Act Amendments of 1990 (the "1990 Clean Air Act Amendments") and various state and local laws and regulations impose certain air quality requirements that may have a significant economic impact on ARCO during the next decade. Among other things, the 1990 Clean Air Act Amendments effectively require the manufacture and sale of reformulated and oxygenated gasolines in areas not meeting specified air quality standards. These requirements are to be effective by January 1, 1995 for the nine U.S. cities, including Los Angeles and San Diego, with the worst ozone pollution. In November 1991, the CARB announced its specifications for reformulated gasoline effective March 1, 1996, which are stricter than those to be applied under the federal rules. To comply with these air quality requirements, ARCO expects to make major modifications at its Los Angeles Refinery. The Company does not anticipate any material adverse effect upon its consolidated financial position as a result of compliance with such environmental laws and regulations. In 1992 the South Coast Air Quality Management District, or AQMD, which sets environmental standards for a five county area of Southern California, proposed a Regional Clean Air Incentives Market ("RECLAIM") program for the buying and selling of emission credits. On October 15, 1993, after several modifications, AQMD adopted the program, which includes the innovative credits trading feature, and emission reductions, pursuant to which the Los Angeles Refinery must, by 2003, achieve overall reductions from 1992 levels of oxides of nitrogen (NOx) by 63 percent and oxides of sulfur (SOx) by 83 percent. Environment-Related Expenditures For the past three years, the Company's environment-related expenditures have been comprised of both capital expenditures and operating expenses. Environment-related capital expenditures include the cost of projects to reduce and/or eliminate pollution and contamination in the future and the cost of modifications to the Company's manufacturing facilities necessary to comply with the aforementioned federal, state and local air quality laws and regulations. Environment-related operating costs include 16 both costs to eliminate, control or dispose of, pollutants, as well as costs to remediate previously contaminated sites. Sites are remediated using a variety of techniques, including on site stabilization, bioremediation, soil removal, pump and treat and other methods as deemed appropriate for each specific site. For the past three years, the Company's environment-related capital expenditures have averaged approximately $280 million per year. The Company anticipates environment-related capital programs of approximately $440 million and $360 million for 1994 and 1995, respectively. For the past three years, the Company's operating expenses for the remediation of previously contaminated properties either compelled or likely to be compelled in the foreseeable future by government or third parties have averaged approximately $160 million per year. Cash payments for site remediation have averaged $191 million per year over the same period. The Company's operating expenses also include ongoing costs of controlling or disposing of pollutants. For the past three years, the Company estimates that its operating expenses related to these ongoing costs have averaged approximately $270 million per year. In addition to the reserve accrual for environmental remediation costs, the Company has also accrued, as of December 31, 1993, $788 million for the estimated cost, net of salvage value, of dismantling facilities as required by contract, regulation or law, and the estimated costs of restoration and reclamation of land associated with such facilities. Material Environmental Litigation Pursuant to the authority provided under Superfund, the State of Montana has asserted claims against ARCO for compensation for damage to natural resources up to the maximum amount allowed by 42 United States Code Section 9607. These alleged damages, arising out of ARCO's or its predecessors' alleged activities, include restoration and compensable damages, assessment costs, and prejudgment interest. These claims, which relate to the four Upper Clark Fork River Basin Superfund sites in Montana, have been filed both as a lawsuit and an informal letter claim against the Company. The lawsuit, styled Montana v. ARCO, ex rel., was filed on December 12, 1983, in the United States District Court for the District of Montana (Case No. CV-83-317-HLN-PGH). On August 24, 1984, by agreement of the parties, the Court temporarily stayed all further proceedings pending completion of a natural resources damage assessment by the State of Montana. On August 17, 1990, the Court issued a Case Management Order and lifted the stay; the litigation proceeded under the order until December 1992, when the Court issued another temporary stay in an attempt to facilitate settlement negotiations between the parties. On March 17, 1993, the parties filed a joint petition seeking an extension of the stay until September 15, 1994 to allow the parties to engage in settlement negotiations pursuant to a memorandum of understanding signed by the parties on March 16, 1993. On March 22, 1993, the Court granted the parties' joint petition. In addition, on June 23, 1989, the EPA filed a CERCLA cost-recovery action against ARCO (amended October 15, 1992), styled U.S. v. ARCO, et al. (Case No. CV-89-039-BU-PGH), in the United States District Court for the District of Montana, for oversight costs at several of the Upper Clark Fork River Basin Superfund sites. A stay previously entered in U.S. v. ARCO has been lifted as of February 15, 1993, and litigation is proceeding on both the EPA's claims (in the approximate amount of $80 million) and ARCO's counterclaims against various federal agencies. (In the counterclaims, ARCO seeks contributions from the federal agencies for remediation costs and for any natural resource damage liability ARCO might incur in Montana v. ARCO.) In addition, the State of Colorado has filed a natural resource damage claim which relates to the Rico-Argentine Mine Site. This claim was originally filed against the Superfund itself as an administrative claim with the EPA; it has been denied by the EPA. An additional informal letter claim was filed against the Company; this claim remains unresolved. 17 ARCO and its subsidiary, Atlantic Richfield Hanford Company ("ARHCO"), and several other companies who have served as government contractors at the Hanford Nuclear Reservation in south central Washington State (the "Reservation") are named as defendants in a consolidated complaint in the United States District Court for the Eastern District of Washington. Presently, this action is proceeding on the basis of a consolidated complaint filed on April 19, 1991 (the "Consolidated Complaint") which is titled In re Hanford Nuclear Reservation Litigation (CY-91-3015-AAM). The Consolidated Complaint is brought on behalf of over 2,500 individuals and five purported classes of persons. The Consolidated Complaint alleges that the defendant government contractors accidentally or deliberately released radioactive and non-radioactive toxic and hazardous substances generated at the Reservation into the surrounding air, water and ground. The Consolidated Complaint contains claims for relief based upon state tort and real estate law and purportedly arising under the Price-Anderson Act. The Consolidated Complaint also contains claims for relief purportedly arising under CERCLA. The Consolidated Complaint seeks extensive relief on behalf of the individual and class plaintiffs, including compensatory and punitive damages for personal injury, wrongful death and economic loss, and as well as broad injunctive and declaratory relief pursuant to CERCLA. The Consolidated Complaint also seeks attorneys' fees and costs. On October 18, 1991, the District Court dismissed plaintiffs' claims for abatement, medical monitoring, response costs, and disclosure of information pursuant to CERCLA. The Court also dismissed plaintiffs' claims for punitive damages and dismissed one of the purported classes, the Hanford Downwinders Coalition, from the litigation. The Court denied defendants' motions for a more definite statement and for dismissal of certain of plaintiffs' state law claims. On approximately January 6, 1992, ARCO and ARHCO filed an answer denying the remaining claims of the Consolidated Complaint. Discovery is proceeding, and no trial date has been set. On July 9, 1993, a new action, entitled Pamela Durfey, et al. v. E. I. Du Pont De Nemours and Company, et al. (93-2-01325-5), was filed in the Superior Court of the State of Washington for the County of Yakima. The complaint, which names ARCO and ARHCO as defendants, was filed on behalf of a purported class that includes all people who have lived from 1942 to the present in the Washington and Oregon counties surrounding the Reservation. This action seeks "a comprehensive medical monitoring program to permit the early identification, detection and diagnosis" of diseases caused by the released radioactive and non-radioactive waste from the Reservation. This complaint has been removed to the United States District Court for the Eastern District of Washington. Plaintiffs have filed a motion for remand which is presently before the Court. With respect to all of these actions, the Company and ARHCO believe that, should either or both ultimately be held liable, they will be entitled to indemnification by the federal government as provided under the Price-Anderson Act, and pursuant to the terms of the contract between ARHCO and the Atomic Energy Commission. Without confirming or denying the government's indemnity obligations, the DOE has instructed the defendants to proceed with the good faith defense of the lawsuits. ARCO is one of the named defendants in several lawsuits filed in federal court in Texas brought by approximately 2,500 plaintiffs relating to the French Ltd. and Sikes (Texas) Superfund sites and several lawsuits filed in state court in Texas brought by several hundred plaintiffs relating to the Brio (Texas) Superfund site. These suits generally allege personal injury and/or property damage caused by chemical substances allegedly sent to the sites by the Company and other defendants. Most of the claims of the plaintiffs in the French Ltd. lawsuits have been resolved either by dismissal or by settlement with plaintiffs. In June 1992, ARCO agreed to settle the claims of approximately 1,500 plaintiffs relating to the Brio site. Since that date, new claims have been filed by approximately 1,200 plaintiffs. Neither the French Ltd. settlements nor the Brio settlement involved amounts which are material to the Company. On March 24, 1989, an oil tanker, the EXXON VALDEZ, ran aground near Bligh Island, Alaska, after taking on crude oil from the Valdez Marine Terminal operated by Alyeska, of which ATA owns approximately 21 percent. Roughly 240,000 barrels of crude oil were discharged into the waters of Prince William Sound. As a result, numerous lawsuits seeking compensatory and punitive damages and injunctions were filed in state and federal courts in Alaska against Exxon, Alyeska, and Alyeska's 18 owner companies (including ATA) alleging, among other things, that Alyeska responded inadequately to the oil spill. The State of Alaska filed an action that sought, among other things, the imposition of civil penalties and the recovery of environmental, economic and punitive damages suffered by the State. The United States filed an action that sought, among other things, the recovery of cleanup response costs and environmental damages resulting from the oil spill. Private plaintiffs filed other actions, many seeking certification as class actions. On October 8, 1991, the United States District Court in Alaska approved an Agreement and Consent Decree by which Exxon will pay $900 million over the next 10 years (with a possible additional $100 million to be paid under a re-opener provision) in settlement of all federal and state civil damage claims. In further consideration of the Exxon payments under the Agreement and Consent Decree, Alyeska and its owner companies are released from federal and state natural resource civil damage claims. On November 25, 1992, the United States District Court in Alaska approved an Agreement and Consent Decree by which Alyeska and its owner companies will pay $2 million to the United States and a total of $29.7 million by February 4, 1995 to the State of Alaska, of which $9.9 million was ATA's share, in settlement of remaining civil damage claims by federal and state governments. On July 13, 1993, it was announced that Alyeska and its owner companies had agreed to pay $98 million in settlement of the lawsuits by all but a handful of private plaintiffs, of which $20.9 million was ATA's share. This settlement was made contingent on, among other things, approval by the federal and state courts. In response to this announced settlement, Exxon Shipping Company filed a lawsuit against Alyeska and its non-Exxon owner companies in the United States District Court in Alaska seeking an injunction and stay of certain aspects of the settlement pending arbitration. Exxon Shipping's principal contention was that those aspects of the proposed settlement that affect the claims that Exxon Shipping may have against Alyeska and its owner companies as a result of the spill must be arbitrated because such claims fall under the arbitration provisions of the agreement that governed the calling of vessels at the Valdez Marine Terminal at the time of the spill. At the October 28, 1993 approval hearing on the settlement, the settlement was tentatively approved as fair, reasonable and adequate. On December 8, 1993, the United States District Court in Alaska issued various orders generally resolving the issues raised by Exxon Shipping concerning the settlement in favor of Alyeska and its owner companies. Exxon Shipping has sought reconsideration of one of those judicial orders, appealed two others and may appeal the rest of the orders. On November 21, 1990, ARCO filed a complaint in Los Angeles County Superior Court, Atlantic Richfield Company v. AETNA Casualty and Surety Company of America, et al. (Case No. BC 015575), naming more than 70 insurance companies as defendants and seeking recovery under numerous insurance policies in effect at times during past years for certain environmental expenses incurred by ARCO. The claims arise from the activities of ARCO and its predecessor companies, including Anaconda, at sites and locations throughout the United States. The Company cannot predict the outcome of this litigation, which may be protracted. Conclusion Environmental concerns, including the minimization and prevention of environmental contamination from ongoing operations, and the cost-effective remediations of existing contaminated sites, continue to be vital factors in the Company's future planning. See Note 12 of Notes to Consolidated Financial Statements on page 47, and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 19 ITEM 3. LEGAL PROCEEDINGS THE COMPANY On March 23, 1979, in the case of Van Vranken, et al. v. Atlantic Richfield, two California service station dealers purporting to represent a class of all resellers of gasoline, aviation fuels, butane and propane sued the Company in the United States District Court for the Northern District of California (Case No. C-79-0627-SW) for allegedly willfully violating the Department of Energy's ("DOE") 1973-1981 price regulations by unlawfully inflating its costs of crude oil eligible for recovery. On March 25, 1986, the District Court certified the plaintiffs as representatives of the class for purchases made between May 1, 1976 and January 28, 1981. On July 23, 1992, a jury found for the Company on the class' original claim, and for the class on three subsequent claims in the amount of $22.8 million, plus prejudgment interest. On October 22, 1992, the trial court ordered a formula for interest resulting in a total judgment of approximately $63 million. On September 30, 1993, the United States Court of Appeals for the Federal Circuit affirmed, without opinion, the trial court's judgment. The Company has sought reconsideration. On June 7, 1989, the City of New York, the New York City Housing Authority and the New York City Health and Hospitals Corporation brought suit in the Supreme Court of the State of New York for the County of New York (Case No. 14365/89) against six alleged former lead pigment manufacturers or their successors (including ARCO as successor to International Smelting and Refining Company ("IS&R"), a former subsidiary of The Anaconda Company), and the Lead Industries Association ("LIA"), a trade association. Plaintiffs seek to recover damages in excess of $50 million including (i) past and future costs of abating lead-based paint from housing owned by New York City and the New York City Housing Authority; (ii) other costs associated with dealing with the presence of lead-based paint in that housing and privately owned housing; and (iii) any amounts paid by the City or the Housing Authority to tenants because of injuries caused by the ingestion of lead-based paint. Plaintiffs also seek punitive damages and attorney fees. On January 7, 1991, defendant Eagle- Picher, one of the lead pigment manufacturers, filed for Chapter 11 bankruptcy protection in the Southern District of Ohio, for reasons unrelated to this litigation. As a result of the filing, all proceedings against Eagle-Picher have been stayed in this litigation. On December 23, 1991, the Court dismissed plaintiffs' claims of negligent product design, negligent failure to warn, and strict liability as time-barred under the applicable statute of limitation. The Court also ruled, however, that the plaintiffs' fraud and restitution claims were adequately pled and that more facts were needed to determine if the fraud claim was also time-barred. Interlocutory appeals were taken, and this decision was affirmed. On March 12, 1992, ARCO filed its answer to the complaint and its counterclaims against the City of New York and the New York City Housing Authority. On April 8, 1993, pursuant to stipulation by the parties, the trial court entered an order dismissing with prejudice plaintiffs' claims for indemnification arising from third-party personal injury claims resolved before March 15, 1993, and dismissing without prejudice claims for indemnification brought after that date. On September 3, 1993, plaintiffs filed an amended complaint adding American Cyanamid Company and Fuller-O'Brien Corporation as defendants. On August 25, 1992, ARCO (as successor to IS&R) was added as a defendant to a purported class action suit pending in the Court of Common Pleas in Cuyahoga County (Cleveland), Ohio, Jackson, et al. v. The Glidden Company, et al. (Case No. 236835), that seeks on behalf of the three named plaintiffs, and all other persons similarly situated in the state of Ohio, money damages for injuries allegedly suffered from exposure to lead paint, punitive damages, and an order requiring defendants to remove and abate all lead paint applied to any building in Ohio. The suit names as defendants, in addition to ARCO, the LIA and 16 companies alleged to have participated in the manufacture and sale of lead pigments and paints and includes causes of action for strict product liability, negligence, breach of warranty, fraud, nuisance, restitution, negligent infliction of emotional distress, and enterprise, market share and alternative liability. On July 29, 1993, the Court entered an order granting defendants' motion to dismiss the complaint on the grounds that Ohio law does not recognize market share, 20 enterprise or alternative liability causes of action in this case. On August 27, 1993, plaintiffs filed their notice of appeal. In addition, the Company is a defendant in several lawsuits, brought by individuals that allege injury from exposure to lead paint. These cases, in the aggregate, are not material to the financial condition of the Company. On July 5, 1990, an explosion and fire occurred at ARCO Chemical's Channelview, Texas plant. The incident resulted in the death of 17 people and in significant damage to the waste water treatment section of the plant, with some damage to the adjacent area providing utilities to the plant. Various lawsuits have been filed and claims made against ARCO Chemical for wrongful death, personal injury and property damage in connection with this incident, most of which have been resolved. ENVIRONMENTAL PROCEEDINGS As discussed under the caption "Environmental Matters," ARCO is currently participating in environmental assessments and cleanups at numerous operating and non-operating sites under Superfund and comparable state laws, RCRA and other state and local laws and regulations, and pursuant to third party indemnification requests, and is the subject of material legal proceedings relating to certain of these sites. See "Environmental Matters--Material Environmental Litigation." Set forth below is a description, in accordance with SEC rules, of certain fines and penalties imposed by governmental agencies in respect of environmental rules and regulations. In September 1991, the California Department of Toxic Substances Control filed an administrative complaint against ARCO Products Company seeking a civil penalty of $137,500 for failure to comply with certain hazardous waste regulations. The alleged violations stem from sandblasting and related actions by subcontractors while performing work at the Los Angeles Refinery. In December 1991, an administrative law hearing was held on these alleged violations. The Administrative Law Judge proposed a reduced penalty of $62,000, and the matter has been settled on that basis. ARCO Chemical has discovered that certain organic waste material is situated in the soil and ground water at portions of its Monaca, Pennsylvania (Beaver Valley) plant. ARCO Chemical has commenced a feasibility study to determine the technology required to remedy the conditions at the plant. Concurrently, ARCO Chemical is working with the Pennsylvania Department of Environmental Resources ("DER") to design a plan to remedy the conditions at the plant. ARCO Chemical has signed an agreement with Beazer East, Inc., the successor to Koppers Inc. (the previous owner of the Beaver Valley plant), whereby Beazer East, Inc. has agreed to pay for approximately 50 percent of the cost of the remediation. ARCO Chemical has agreed to pay to the Pennsylvania DER a fine in the amount of $300,000 in settlement for contamination of the ground water at the plant. In August 1993, the City Prosecuting Attorney of Long Beach, California, filed a complaint against ARCO Terminal Services Corporation ("ATSC"), an ARCO subsidiary, alleging that ATSC illegally disposed of hazardous waste. A second complaint was filed against ATSC and Four Corners Pipe Line Company ("FCPL"), another ARCO subsidiary, alleging that ATSC and FCPL illegally disposed of hazardous waste. The allegations made in each complaint are not related. In December 1993, pursuant to the provisions of judicially approved Orders for Civil Compromise, the complaints were dismissed. Liability was not admitted with regard to any of the allegations raised in the complaints, but payments in the amount of $150,000 and $100,000 have been placed into escrow accounts to fund environmental training and the acquisition of various materials and equipment to be used for environmental purposes. In addition to the matters reported herein, from time to time, certain of the Company's operating divisions and subsidiaries receive notices from federal, state or local governmental entities of alleged violations of environmental laws and regulations pertaining to, among other things, the disposal, emission and storage of chemical and petroleum substances, including hazardous wastes. Such alleged violations may become the subject of enforcement actions or other legal proceedings and may involve monetary sanctions of $100,000 or more (exclusive of interest and costs). 21 OTHER LITIGATION The Company and its subsidiaries are defendants in numerous suits in which they are not covered by insurance which involve smaller amounts than the matters described above. Although the legal responsibility and financial impact in respect to such litigation cannot be ascertained, it is not anticipated that these suits will result in the payment by the Company or its subsidiaries of monetary damages which in the aggregate would be material in relation to the net assets of the Company and its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 1993. ---------------- 22 EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the executive officers of Registrant as of February 28, 1994.
NAME, AGE AND PRESENT POSITION WITH ATLANTIC BUSINESS EXPERIENCE DURING PAST RICHFIELD FIVE YEARS AND PERIOD SERVED AS OFFICER(a)(b) ---------------------- --------------------------------------------- Lodwrick M. Cook, 65 Mr. Cook has been Chief Executive Officer of ARCO since Chairman of the Board, October 1985, Chairman of the Board since January 1986 and a Chief Executive Officer director since June 1980. He was President from October 1985 and Director to January 1986, Chief Operating Officer--Products from May 1984 until October 1985 and Executive Vice President from June 1980 to May 1984. From September 1977 to June 1980 he was a Senior Vice President of ARCO and from January 1979 to June 1980 was President of ARCO Transportation Company. He has been an officer of the Company since 1970. Mike R. Bowlin, 51 Mr. Bowlin has been President and Chief Operating Officer of President, Chief ARCO since June 1, 1993 and a director since June 1992. From Operating Officer and June 1992 to May 1993, he served as Executive Vice President. Director He was a Senior Vice President of ARCO from August 1985 to June 1992 and President of ARCO International Oil and Gas Company from November 1987 to June 1992. He was President of ARCO Coal Company from August 1985 to July 1987. He was Senior Vice President of International Oil and Gas Acquisitions from July 1987 to November 1987. From October 1984 to July 1985, he was a Vice President of the Company. From April 1981 to December 1984 he was Vice President of ARCO Oil and Gas Company. He has been an officer of the Company since October 1984. Ronald J. Arnault, 50 Mr. Arnault has been an Executive Vice President of ARCO and Executive Vice a director since October 1987. He was Chief Financial Officer President, Chief from June 1984 to July 1990 and July 1992 to present. From Financial Officer and June 1980 to October 1987 he was a Senior Vice President of Director ARCO. From January 1980 to June 1984 he was President of ARCO Solar Industries. Prior to June 1980 he was a Vice President of ARCO. He has been an officer of the Company since 1977. James A. Middleton, 57 Mr. Middleton has been an Executive Vice President of ARCO Executive Vice and a director since October 1987. He was President of ARCO President and Director Oil and Gas Company from January 1985 to July 1990. From June 1981 to October 1987 he was a Senior Vice President of ARCO. From April 1982 to January 1985 he was Senior Vice President, Production Operations, ARCO Oil and Gas Company, and from July 1981 to April 1982 he was President of ARCO Coal Compa- ny. Prior to June 1981 he was a Vice President of ARCO. He has been an officer of the Company since 1980. William E. Wade, Jr., 51 Mr. Wade has been an Executive Vice President of ARCO and a Executive Vice director since June 1993. He served as a Senior Vice Presi- President and Director dent from May 1987 to May 1993 and President of ARCO Oil and Gas Company from October 1990 to May 1993. He was President of ARCO Alaska, Inc. from July 1987 to July 1990. He was a Vice President of the Company from 1985 to May 1987. From 1981 to 1985, he was Vice President of ARCO Exploration Com- pany. He has been an officer of the Company since 1985.
23
NAME, AGE AND PRESENT POSITION WITH ATLANTIC BUSINESS EXPERIENCE DURING PAST RICHFIELD FIVE YEARS AND PERIOD SERVED AS OFFICER(a)(b) ---------------------- --------------------------------------------- H. L. Bilhartz, 47 Mr. Bilhartz has been a Senior Vice President of ARCO and Senior Vice President President of ARCO Alaska, Inc. since July 1990. From June 1987 to July 1990 he was a Vice President of ARCO and from July 1987 to July 1990 he was President of ARCO Coal Company. From 1985 to June 1987 he was Vice President and Managing Di- rector for ARCO British Limited and ARCO Netherlands in Lon- don. He served as Vice President of Finance, Control and Planning for ARCO International Oil and Gas Company from 1984 to 1985. From 1983 to 1984 he was Vice President and District Manager for ARCO Oil and Gas Company. He has been an officer of the Company since 1987. Camron Cooper, 54 Miss Cooper has been a Senior Vice President of ARCO since Senior Vice President October 1987 and Treasurer from October 1978 to January 1993. She was a Vice President from May 1983 to October 1987. She has been an officer of the Company since 1975. It was an- nounced January 24, 1994, that Miss Cooper will retire from ARCO on May 1, 1994. E. Kent Damon, Jr., 51 Mr. Damon has been a Senior Vice President of ARCO since July Senior Vice President 1990. He was President and Chief Investment Officer of ARCO Investment Management Company from December 1987 to February 1991. From August 1985 to July 1990 he was Vice President of ARCO. From July 1984 to August 1985 he served as Vice Presi- dent, Finance and Administration of ARCO Transportation Com- pany. Prior to July 1984 he served as Assistant Treasurer of ARCO. He has been an officer of the Company since 1985. Kenneth R. Dickerson, 58 Mr. Dickerson has been a Senior Vice President of ARCO since Senior Vice President July 1988. From October 1985 to June 1988 he served as Vice President and General Tax Officer. From September 1983 to Oc- tober 1985 he served as Deputy General Counsel--Resources. From September 1982 to September 1983 he was Associate Gen- eral Counsel for ARCO Oil and Gas Company. He has been an of- ficer of the Company since 1985. Marlan W. Downey, 62 Mr. Downey has been a Senior Vice President of ARCO and Pres- Senior Vice President ident of ARCO International Oil and Gas Company since June 1992. He was Senior Vice President of ARCO International Oil and Gas from 1987 to 1992. He has been an officer of the Com- pany since 1992. Anthony G. Fernandes, 48 Mr. Fernandes has been a Senior Vice President of ARCO and Senior Vice President President of ARCO Coal Company since July 1990. From July 1987 to July 1990 he served as Vice President and Controller of the Company. From January 1985 to July 1987 he was a Vice President of ARCO Oil and Gas Company and from May 1981 to January 1985 he was a Vice President of Anaconda Minerals. He has been an officer of the Company since 1987.
24
NAME, AGE AND PRESENT POSITION WITH ATLANTIC BUSINESS EXPERIENCE DURING PAST RICHFIELD FIVE YEARS AND PERIOD SERVED AS OFFICER(a)(b) ---------------------- --------------------------------------------- Marie L. Knowles, 47 Mrs. Knowles has been a Senior Vice President of ARCO and Senior Vice President President of ARCO Transportation Company since June 1993. From July 1990 to May 1993 she served as Vice President and Controller of the Company. From July 1988 to July 1990 she served as Vice President of Finance, Control and Planning for ARCO International Oil and Gas Company. She was Assistant Treasurer of Banking for ARCO from October 1986 to July 1988 and Manager, Corporate Planning from August 1985 to October 1986. She has been an officer of the Company since 1990. Francis X. McCormack, 64 Mr. McCormack has been a Senior Vice President of ARCO since Senior Vice President September 1973 and General Counsel since September 1972. He and General Counsel has been an officer of the Company since 1972. William C. Rusnack, 49 Mr. Rusnack has been a Senior Vice President of ARCO since Senior Vice President July 1990 and President of ARCO Products Company since June 1993. He was President of ARCO Transportation Company from July 1990 to May 1993. From June 1987 to July 1990 he served as Vice President, Corporate Planning of ARCO. He was Senior Vice President, Marketing and Employee Relations of ARCO Oil and Gas Company from 1985 to June 1987. He has been an offi- cer of the Company since 1987. Michael E. Wiley, 43 Mr. Wiley has been a Senior Vice President of ARCO since June Senior Vice President 1993 and President of Vastar Resources, Inc. since October 1993. From June to October 1993 he served as President of ARCO Oil and Gas Company. From 1991 to June 1993, he was Vice President of ARCO and Manager of ARCO Exploration and Produc- tion Technology. From 1989 to 1991 he was Vice President of ARCO Oil and Gas Company's Southern District. He has been an officer of the Company since 1991. Allan L. Comstock, 50 Mr. Comstock has been a Vice President and Controller of ARCO Vice President and since June 1993. He was a Vice President of ARCO Chemical Controller Company from October 1989 to May 1993. From November 1985 to September 1989 he was General Auditor of ARCO. He has been an officer of the Company since 1993. Terry G. Dallas, 43 Mr. Dallas has been a Vice President of ARCO since June 1993 Vice President and and Treasurer since January 24, 1994. He was Vice President, Treasurer Corporate Planning from June 1993 to January 1994. He served as Assistant Treasurer, Corporate Finance from 1990 to 1993 and was the Manager, Finance, Control and Planning, ARCO British, Ltd. from 1988 to 1990. He has been an officer of the Company since July 1993.
- -------- (a) Division names used in the descriptions of business experience of executive officers of the Company are the names which were in effect at the time such officers held such positions. In some instances, divisions have been combined or reorganized and, accordingly, activities thereof are presently conducted under different division names. (b) The By-Laws of the Company provide that each officer shall hold office until the officer's successor is elected or appointed and qualified or until the officer's death, resignation or removal by the Board of Directors. 25 DESCRIPTION OF CAPITAL STOCK The following description of the Company's capital stock is included in order to facilitate incorporation by reference of such description in filings by the Company under the federal securities laws. Certain statements under this heading are summaries of provisions of the Certificate of Incorporation of ARCO, as adopted upon the reincorporation of the Company into a Delaware corporation on May 7, 1985, and do not purport to be complete. A copy of the Certificate of Incorporation, as amended through May 3, 1993, is filed as an exhibit hereto. The summaries make use of certain terms defined in the Certificate of Incorporation and are qualified in their entirety by reference thereto. The term "$3.00 Preference Stock" refers to the Company's $3.00 Cumulative Convertible Preference Stock, par value $1 per share. The term "$2.80 Preference Stock" refers to the Company's $2.80 Cumulative Convertible Preference Stock, par value $1 per share. The term "Preferred Stock" refers to the Company's Preferred Stock, par value $.01 per share; this new class of Preferred Stock was authorized by stockholders on May 3, 1993. The term "Common Stock" refers to the Company's Common Stock, par value $2.50 per share. The following is a summary of the capital stock of ARCO as of December 31, 1993.
SHARES SHARES AUTHORIZED OUTSTANDING ----------- ----------- $3.00 Preference Stock.......................... 94,316 81,309 $2.80 Preference Stock.......................... 942,016 854,053 Preferred Stock................................. 75,000,000 -- Common Stock.................................... 600,000,000 159,953,980*
- -------- * Excludes treasury stock. New Class of Preferred Stock. Under the Certificate of Incorporation, as amended following approval by stockholders on May 3, 1993, the Board is authorized to issue, at any time or from time to time, one or more series of Preferred Stock at its discretion. In addition, the Board has the power to determine all designations, powers, preferences and the rights of such stock and any qualifications, limitations and restrictions, including but not limited to: (i) the designation of series and numbers of shares; (ii) the dividend rights, if any; (iii) the rights upon liquidation or distribution of the assets of the Company, if any; (iv) the conversion or exchange rights, if any; (v) the redemption provisions, if any; and (vi) the voting rights, if any. So long as the Preference Stocks are outstanding, and only for that period of time, the rights of the Preferred Stock are subordinate to the rights of the holders of Preference Stocks. Dividend Rights. Holders of $3.00 Preference Stock and holders of $2.80 Preference Stock are entitled to receive cumulative dividends at the annual rate of $3.00 per share and $2.80 per share, respectively, payable quarterly, before cash dividends are paid on the Preferred Stock, if any, and the Common Stock. Shares of $3.00 Preference Stock and shares of $2.80 Preference Stock rank on a parity as to dividends. After provision for payment in full of cumulative dividends on the outstanding $3.00 Preference and $2.80 Preference Stocks, and the payment in full of cumulative dividends on the outstanding Preferred Stock, if any, dividends may be paid on the Common Stock as the Board of Directors may deem advisable, within the limits and from the sources permitted by law. 26 Conversion Rights. Each share of $3.00 Preference Stock is convertible, at the option of the holder, into six and eight-tenths (6.8) shares of Common Stock of the Company at any time, and each share of $2.80 Preference Stock is convertible, at the option of the holder, into two and four-tenths (2.4) shares of Common Stock of the Company at any time. These conversion rates are subject to adjustment as set forth in the Certificate of Incorporation. Shares of Preferred Stock would be convertible, if at all, on such terms as were designated by the Board of Directors. Voting Rights. The holders of $3.00 Preference Stock are entitled to eight votes per share; holders of $2.80 Preference Stock are entitled to two votes per share; and holders of Common Stock are entitled to one vote per share. Holders of $3.00 Preference and $2.80 Preference Stocks are entitled to vote cumulatively for directors; holders of Common Stock have no cumulative voting rights. The $3.00 Preference, $2.80 Preference and Common Stocks vote together as one class, except as provided by law and except as to certain matters which require a vote by the holders of $3.00 Preference Stock or by the holders of $2.80 Preference Stock as a separate class as set forth below. The Certificate of Incorporation provides that if the Company shall be in default with respect to dividends on the $3.00 Preference Stock in an amount equal to six quarterly dividends, the number of directors of the Company shall be increased by two at the first annual meeting thereafter, and at such meeting and at each subsequent annual meeting until all dividends on the $3.00 Preference Stock shall have been paid in full, the holders of the $3.00 Preference Stock shall have the right, voting as a class, to elect such two additional directors. The Certificate of Incorporation contains identical provisions with respect to the $2.80 Preference Stock. The Certificate of Incorporation provides that the Company shall not, without the assent of the holders of two-thirds of the then outstanding shares of $3.00 Preference Stock, (a) change any of the terms of the $3.00 Preference Stock in any material respect adverse to the holders, or (b) authorize any prior ranking stock; and that the Company shall not, without the assent of the holders of a majority of the then outstanding shares of $3.00 Preference Stock, (1) authorize any additional $3.00 Preference Stock or stock on a parity with it; (2) sell, lease or convey all or substantially all of the property or business of the Company; or (3) become a party to a merger or consolidation unless the surviving or resulting corporation will have immediately after such merger or consolidation no stock either authorized or outstanding (except such stock of the Company as may have been authorized or outstanding immediately before such merger or consolidation of such stock of the surviving or resulting corporation as may be issued upon conversion thereof or in exchange therefor) ranking as to dividends or assets prior to or on a parity with the $3.00 Preference Stock or the stock of the surviving or resulting corporation issued upon conversion thereof or in exchange therefor. The Certificate of Incorporation contains identical provisions with respect to the $2.80 Preference Stock. The holders of Preferred Stock, if any, would have such voting rights, if any, as were designated by the Board. Redemption Provisions. The $3.00 Preference Stock is redeemable at the option of the Company as a whole or in part at any time on at least thirty days' notice at $82 per share plus accrued dividends to the redemption date. The $2.80 Preference Stock is redeemable at the option of the Company as a whole or in part at any time on at least thirty days' notice at $70 per share plus accrued dividends to the redemption date. The holders of Preferred Stock, if any, would have such redemption provisions, if any, as were designated by the Board. Liquidation Rights. In the event of liquidation of the Company, the holders of $3.00 Preference Stock and holders of $2.80 Preference Stock will be entitled to receive, before any payment to holders of Common Stock, $80 per share and $70 per share, respectively, together in each case with accrued and unpaid dividends. Shares of $3.00 Preference Stock and shares of $2.80 Preference Stock will rank on a parity as to assets of the Company upon its liquidation. Subject to the rights of creditors and the holders of $3.00 Preference Stock and $2.80 Preference Stock, the holders of Common Stock are 27 entitled pro rata to the assets of the Company upon its liquidation. The holders of Preferred Stock, if any, would have such liquidation rights, if any, as were designated by the Board. Preemptive Rights. No holders of shares of capital stock of the Company have or will have any preemptive rights to acquire any securities of the Company. Liability to Assessment. The shares of Common Stock are fully paid and non- assessable. Prohibition of Greenmail. Article VII of the Certificate of Incorporation provides in general that any direct or indirect purchase by the Company of any of its voting stock (or rights to acquire voting stock) known to be beneficially owned by any person or group which holds more than 3 percent of a class of its voting stock and which has owned the securities being purchased for less than two years must be approved by the affirmative vote of at least 66 2/3 percent of the votes entitled to be cast by the holders of the voting stock. Such approval shall not be required with respect to any purchase by the Company of such securities made (i) at or below fair market value (based on average New York Stock Exchange closing prices over the preceding 90 days) or (ii) as part of a Company tender offer or exchange offer made on the same terms to all holders of such securities and complying with the Securities Exchange Act of 1934 or (iii) in a Public Transaction (as defined). Rights to Purchase Common Stock. On May 27, 1986, the Board of Directors of the Company declared a dividend distribution of one Right for each outstanding share of Common Stock to the stockholders of record on June 9, 1986 (the "Record Date"). Each Right entitles the registered holder to purchase from the Company one share of Common Stock at a price of $200 per share (the "Purchase Price"), subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement") between the Company and Morgan Guaranty Trust Company of New York, as Rights Agent (the "Rights Agent"). The Rights were issued on the Record Date. Thereafter, as long as the Rights are attached to the Common Stock, the Company will issue one Right with each share of Common Stock that shall become outstanding so that all such shares will have attached Rights. The Rights are attached to all Common Stock certificates representing outstanding Common Stock, and no separate certificates evidencing Rights ("Right Certificates") have been distributed. Until the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons acquired, or obtained the right to acquire, beneficial ownership of 20 percent or more of the outstanding shares of Common Stock (an "Acquiring Person") or (ii) 10 days following the earlier of the commencement of, or the announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 30 percent or more of the outstanding shares of Common Stock (the earlier of such dates described in (i) and (ii) above being called the "Distribution Date"), the Rights are evidenced by such Common Stock certificate with a copy of the Summary of Rights attached thereto. The date of announcement of the existence of an Acquiring Person referred to in clause (i) above is hereinafter referred to as the "Shares Acquisition Date." The Rights Agreement provides that, until the Distribution Date, the Rights will be transferred with and only with the Common Stock. Until the Distribution Date (or earlier redemption or expiration of the Rights), Common Stock certificates issued after the Record Date upon transfer or issuance of Common Stock contain a notation incorporating the Rights Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates evidencing Common Stock outstanding as of the Record Date, even without a copy of the Summary of Rights attached thereto, will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. As soon as practicable following the Distribution Date, Right Certificates will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and such separate Right Certificates alone will evidence the Rights. The Rights are not exercisable until the Distribution Date. The Rights will expire on June 9,1996, unless earlier redeemed by the Company as described below. 28 The Purchase Price payable, and the number of shares of Common Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of the Common Stock, (ii) upon the grant to holders of the Common Stock of certain rights or warrants to subscribe for Common Stock or convertible securities at less than the current market price of the Common Stock or (iii) upon the distribution to holders of the Common Stock of evidences of indebtedness or assets (excluding regular periodic cash dividends out of earnings or retained earnings at a rate not in excess of 125 percent of the rate of the last cash dividend theretofore paid or dividends payable in Common Stock) or of subscription rights or warrants (other than those referred to above). In the event that the Company were to be acquired in a merger or other business combination transaction, or more than 50 percent of its assets or earning power were sold, proper provision would be made so that each holder of a Right would thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction would have a market value of two times the exercise price of the Right. In the event that the Company were to be the surviving corporation in a merger with an Acquiring Person and its Common Stock were not changed or exchanged, or in the event that an Acquiring Person were to engage in one of a number of self- dealing transactions or certain other events occur while there is an Acquiring Person (e.g., a reverse stock split), as specified in the Rights Agreement, proper provision would be made so that each holder of a Right (except as provided below) would thereafter have the right to receive upon exercise that number of shares of Common Stock of the Company having a market value of two times the exercise price of the Right. Upon the occurrence of any of the events described in the preceding sentence, any Rights that are or were at any time on or after the earlier of (a) the Shares Acquisition Date and (b) the Distribution Date beneficially owned by an Acquiring Person will immediately become null and void, and no holder of such Rights will have any right with regard to such Rights from and after such occurrence. With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1 percent in such Purchase Price. No fractional shares will be issued and in lieu thereof, an adjustment in cash will be made based on the market price of the Common Stock on the last trading date prior to the date of exercise. At any time prior to the time that a person or group of affiliated or associated persons has acquired beneficial ownership of 20 percent or more of the outstanding Common Stock, the Company may redeem the Rights in whole, but not in part, at a price of $0.10 per Right (the "Redemption Price"). Immediately upon the action of the Board of Directors of the Company electing to redeem the Rights, the Company will make announcement thereof, and upon such election, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights was not, and the issuance of Rights thereafter is not, taxable to plan participants or the Company, stockholders may recognize taxable income if the Rights become exercisable. The terms of the Rights may be amended by the Board of Directors of the Company and the Rights Agent, provided that the amendment does not adversely affect the interests of the holders of Rights. The Rights have certain antitakeover effects. The Rights will cause substantial dilution to a person or group that attempts to acquire the Company on terms not approved by its Board of Directors, except pursuant to an offer conditioned on a substantial number of Rights being acquired. The Rights should not interfere with any merger or other business combination approved by the Board of Directors at a time when the Rights are redeemable. A copy of the Rights Agreement is filed as an exhibit hereto. This summary description of the Rights is qualified in its entirety by reference thereto. 29 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
1993 1992 ----------------------------------- ----------------------------------- 4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST -------- -------- -------- -------- -------- -------- -------- -------- Common Stock: Market price per share High................. $116 1/4 $117 3/8 $127 3/4 $122 $121 1/8 $121 3/4 $119 3/4 $112 5/8 Low.................. $100 1/2 $109 3/8 $113 1/8 $107 1/2 $105 5/8 $107 1/8 $ 98 1/8 $ 98 1/8 Cash dividends per share................. $1.375 $1.375 $1.375 $1.375 $1.375 $1.375 $1.375 $1.375 $3.00 Convertible Pref- erence Stock: Market price per share High................. $749 3/4 $780 1/2 $834 1/2 $776 $820 $740 $782 $721 5/8 Low.................. $730 $760 $806 1/2 $745 1/2 $714 $736 7/8 $716 1/2 $680 Cash dividends per share................. $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $2.80 Convertible Pref- erence Stock: Market price per share High................. $275 1/4 $279 3/4 $302 3/4 $287 $287 $290 3/4 $281 1/8 $266 1/2 Low.................. $245 $262 1/2 $277 $260 3/4 $252 $259 1/2 $235 5/8 $236 Cash dividends per share................. $0.70 $0.70 $0.70 $0.70 $0.70 $0.70 $0.70 $0.70
Prices in the foregoing table are from the New York Stock Exchange composite tape. On February 28, 1994 the high price per share was $101 3/8 and the low price per share was $100 5/8. As of December 31, 1993, the approximate number of holders of record of Common Stock of ARCO was 120,000. The principal markets in which ARCO's Common Stock is traded are listed on the cover page. The quarterly dividend rate for Common Stock was increased to $1.375 per share in January 1991. On January 24, 1994, a dividend of $1.375 per share was declared on Common Stock, payable on March 15, 1994 to stockholders of record on February 18, 1994. Future cash dividends will depend on earnings, financial conditions and other factors; however, the Company presently expects that dividends will continue to be paid. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial information for ARCO:
YEARS ENDED DECEMBER 31, --------------------------------------- 1993(1) 1992(1) 1991(1) 1990 1989(2) ------- ------- ------- ------- ------- (MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS) Sales and other operating revenues (including excise taxes).............. $18,487 $18,668 $18,191 $18,836 $16,049 Income before changes in accounting principles............................ $ 269 $ 1,193 $ 709 $ 1,688 $ 1,953 Net income............................. $ 269 $ 801 $ 709 $ 2,011 $ 1,953 Earned per share before changes in accounting principles................. $ 1.66 $ 7.39 $ 4.39 $ 10.20 $ 11.26 Earned per share....................... $ 1.66 $ 4.96 $ 4.39 $ 12.15 $ 11.26 Cash dividends per common share........ $ 5.50 $ 5.50 $ 5.50 $ 5.00 $ 4.50 Total assets........................... $23,894 $24,256 $24,492 $23,864 $22,261 Long-term debt and capital lease obligations........................... $ 7,089 $ 6,227 $ 5,989 $ 5,997 $ 5,313
- -------- (1) See Note 2 of Notes to Consolidated Financial Statements regarding unusual items on page 42. (2) Includes after-tax gain of $634 million from sale of majority interest in Lyondell. 30 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW OF 1993 RESULTS In 1993, ARCO's net income was $269 million, or $1.66 per share. Operating results were lower compared to 1992. Operations in 1993 benefited from improved margins and higher gasoline sales volumes in ARCO's West Coast refining and marketing operations, higher coal sales volumes and higher natural gas prices. These benefits were more than offset by lower crude oil prices and volumes, lower natural gas volumes, higher exploration and selling, general and administrative expenses and lower after-tax earnings from transportation operations. The 1993 results included net charges of $545 million after tax related to reorganization of ARCO's Lower 48 oil and gas operations, the impact of the federal corporate tax rate increase on deferred taxes, litigation issues, reserves for future environmental remediation and a loss on the sale of Brazilian marketing subsidiaries partially offset by gains from Lower 48 property sales. The charges associated with the fourth quarter reorganization of ARCO's Lower 48 oil and gas operations were $450 million after tax. Included in those charges were unusual items of $659 million before tax, $404 million after tax, primarily related to writedowns for sale or other disposition of oil and gas properties and excess office space, in addition to workforce reductions. The incremental cash cost associated with these charges is approximately $60 million after tax. OVERVIEW OF 1992 RESULTS In 1992, ARCO's net income was $801 million, or $4.96 per share. The improvement in operating results compared to 1991 reflected improved margins and higher sales volumes in refining and marketing operations, lower lease operating costs, higher sales volumes and margins in chemical operations and higher natural gas prices, partially offset by lower natural gas sales volumes. In addition, income from equity earnings, interest income and interest expense were lower in 1992. The 1992 results included approximately $140 million after tax in net benefits primarily related to unusual items, partially offset by provisions for future environmental costs. Unusual items were $271 million before tax, $211 million after tax, and were comprised of a settlement on assets nationalized by Iran and recognition of a previously deferred portion of the gain from the 1989 sale of a majority interest in Lyondell Petrochemical Company (Lyondell), partially offset by a charge related to the withdrawal by ARCO Chemical Company (ARCO Chemical) from a South Korean joint venture. The 1992 results also included a net after-tax charge of 31 $392 million, or $2.43 per share, for the cumulative effect of adopting two new accounting standards related to non-pension postretirement benefits and income taxes. OVERVIEW OF 1991 RESULTS In 1991, ARCO's net income was $709 million, or $4.39 per share. Results included net charges for unusual items of $503 million before tax, $312 million after tax, primarily related to personnel reductions, anticipated loss on property sales and property writedowns. RESULTS OF CONSOLIDATED OPERATIONS REVENUES Sales and other operating revenues were $18.5 billion in 1993, $18.7 billion in 1992 and $18.2 billion in 1991. The decrease in revenues in 1993, compared to 1992, resulted from lower crude oil prices and volumes, lower natural gas volumes, decreased crude oil trading volumes and lower refined and chemical products prices, partially offset by increased natural gas marketing volumes and higher refined and chemical products sales volumes and natural gas prices. The increase in revenues in 1992, compared to 1991, resulted from higher crude oil trading volumes, refined product prices and sales volumes, chemical product sales volumes and natural gas prices, partially offset by lower crude oil prices and natural gas volumes. Income from equity investments was $40 million in 1993, $22 million in 1992 and $119 million in 1991. The increase in income from equity investments in 1993, compared to 1992, primarily reflected reduced losses from ARCO Chemical's equity affiliates. The lower income in 1992, compared to 1991, primarily resulted from a decline in earnings from Lyondell. Other revenues were $492 million in 1993, compared to $376 million in 1992 and $385 million in 1991. The increase in 1993 reflected higher gains on asset sales. EXPENSES Trade purchases were $7.2 billion in 1993, $7.3 billion in 1992 and $7.0 billion in 1991. The 1993 trade purchases decrease compared to 1992 reflected lower crude oil trading prices and volumes and lower purchased volumes of finished refined products and chemical feedstocks, partially offset by higher natural gas marketing volumes and prices. The trade purchases increase in 1992, compared to 1991, related primarily to higher crude oil trading volumes, partially offset by lower crude oil prices. Operating expenses were $3.3 billion in 1993, $3.2 billion in 1992 and $3.1 billion in 1991. In 1993, operating expenses were higher than in 1992 as a result of litigation-related accruals, higher compensation and contract personnel costs associated with downstream and coal operations and higher maintenance costs, including turnarounds at three chemical plants, partially offset by lower operating costs in oil and gas operations. In 1992, lower operating costs in oil and gas were offset by higher operating costs in chemical operations. Exploration expenses were $667 million in 1993, $567 million in 1992 and $593 million in 1991. The increase in 1993, compared to 1992, reflected higher dry hole costs in Alaska and increased activity overseas, partially offset by decreased activity in the Lower 48. Selling, general and administrative expenses were $1.8 billion in 1993, $1.7 billion in 1992, and $1.8 billion in 1991. Increased expenses in 1993, compared to 1992, primarily resulted from higher compensation expense and higher delivery and advertising costs. The decrease in expenses in 1992, compared to 1991, primarily reflected lower insurance and pension costs. Taxes other than excise and income taxes were $1.1 billion in 1993, $1.2 billion in 1992, and $1.1 billion in 1991. The decrease in 1993 primarily resulted from lower production taxes related to lower crude oil prices and volumes. The increase in 1992 primarily resulted from an increase in the Brazilian value- added tax rate. Excise taxes were $1.3 billion in 1993, $1.2 billion in 1992 and $1.1 billion in 1991. The increase in 1993, compared to 1992, primarily resulted from the fourth quarter 1993 federal excise tax rate increase, the full-year effect in 1993 of increased state excise tax rates in 1992 and higher refined products sales volumes. The increase in 1992, compared to 1991, resulted from higher refined product sales volumes and increases in state excise tax rates in certain states in the fourth quarter of 1992. Depreciation, depletion and amortization was $1.7 billion in 1993, $1.8 billion in 1992 and $1.7 billion in 1991. The decrease in 1993, compared to 1992, resulted from 32 the sale of Lower 48 oil and gas properties, partially offset by a $73 million accrual for the plugging and abandonment of onshore wells. The increase in 1992, compared to 1991, included the startup of the new ARCO Chemical propylene oxide/styrene monomer plant in Channelview, Texas and assets placed in service at the Corporation's two West Coast refineries. Interest expense was $715 million in 1993, $762 million in 1992 and $892 million in 1991. A decline in the weighted average interest rate on outstanding long- term debt in 1993 and 1992 is the primary cause of the lower interest expense compared to 1991. The Corporation's effective tax rate was 51.6% in 1993, compared to 35.6% in 1992 and 36.2% in 1991. The higher effective tax rate in 1993 reflected increased taxes on foreign income and the effect of the 1993 federal tax rate increase on deferred taxes. RESULTS OF SEGMENT OPERATIONS OIL AND GAS ARCO's worldwide oil and gas exploration and production operations earned $45 million after tax in 1993, versus $816 million after tax in 1992. The effect of lower crude oil prices and volumes and natural gas volumes and higher dry hole expense, partially offset by higher natural gas prices and lower depletion and lease operating costs, resulted in the lower earnings for 1993. The 1993 results included net charges of approximately $390 million after tax comprised of the previously discussed charges associated with the Lower 48 reorganization, the federal tax rate increase and other charges, partially offset by gains on property sales. Annual future cost savings associated with the Lower 48 reorganization are estimated to be approximately $100 million after tax. The 1992 results included a net benefit of $138 million after tax consisting of gains from the Iranian settlement, and gains from Lower 48 property sales, partially offset by charges associated with the downsizing of Lower 48 operations. ARCO's oil and gas exploration and production operations earned $816 million after tax in 1992, up from $549 million after tax in 1991. The 1992 results reflected the effect of lower operating and exploration costs and higher natural gas prices, offset by lower natural gas sales volumes, compared to 1991. The 1991 results included approximately $170 million after tax in net charges related to personnel reductions and the anticipated loss on divestiture of properties in the Lower 48, partially offset by a benefit from the reduction in U.K. corporation tax rates. The Corporation's domestic composite average price for crude oil was $11.67 per barrel in 1993, $12.92 per barrel in 1992 and $12.93 per barrel in 1991. Average domestic natural gas prices were $1.93 per thousand cubic feet in 1993, $1.65 per thousand cubic feet in 1992 and $1.54 per thousand cubic feet in 1991. Worldwide petroleum liquids production averaged 684,400 barrels per day in 1993, 738,200 barrels per day in 1992 and 744,200 barrels per day in 1991. Volumes decreased in 1993 as a result of Lower 48 property divestitures and natural field declines, partially offset by increased overseas production. Natural field decline in Alaska was partially offset by the September 1993 startup of the first phase of the second gas handling expansion facility (GHX-2) at Prudhoe Bay and new volumes which came on-stream from the Greater Point McIntyre area in October 1993. Worldwide production in 1992, compared to 1991, benefited from increased international volumes, although this was offset by natural field declines and Lower 48 property divestitures. ARCO's share of production from its largest Alaskan field, Prudhoe Bay, was 250,800 barrels of petroleum liquids per day in 1993, compared to 270,500 barrels per day in 1992 and 281,700 barrels per day in 1991. The decline in 1993 and 1992, compared to 1991, primarily reflected natural field decline. ARCO's share of petroleum liquids production from the Kuparuk River field was 151,500 barrels per day in 1993 compared to 150,800 barrels per day in 1992 and 140,300 barrels per day in 1991. The increase in 1992, compared to 1991, reflected the completion as of July 1, 1992 of a 24-month production payback of 9,000 barrels per day and improved field operations. Lower 48 petroleum liquids production was 186,000 barrels per day in 1993, 221,600 barrels per day in 1992 and 227,900 barrels per day in 1991. Domestic natural gas production totaled 911 million cubic feet per day in 33 1993, 1.2 billion cubic feet per day in 1992 and 1.4 billion cubic feet per day in 1991. The decreases in 1993 and 1992 production were primarily associated with the sale of Lower 48 properties and natural field declines. Foreign petroleum liquids production averaged 79,700 barrels per day in 1993, 77,700 barrels per day in 1992 and 75,700 barrels per day in 1991. Foreign natural gas production increased to 321 million cubic feet per day in 1993 as a result of the first full year of production from the Pickerill field in the United Kingdom North Sea and new production from the Orwell and Murdoch fields in the U.K. North Sea and from the offshore Northwest Java Sea field in Indonesia, all of which began production in late 1993. The decrease in 1992 natural gas production to 240 million cubic feet per day from 261 million cubic feet per day in 1991, reflected primarily natural field decline in the United Kingdom. COAL After-tax earnings from coal operations were $107 million in 1993, $83 million in 1992 and $33 million in 1991. The improvement in 1993 earnings reflected record sales volumes as a result of strong electric utility demand and reduced East Coast supply as a result of a mine workers strike. Australian mines also set production volumes and sales records for 1993. 1993 results included a benefit of approximately $10 million after tax associated with a change in the accrued estimated loss on the sale of the Coal Resources of Queensland (CRQ) mine, which was completed in January 1993. Included in the 1991 earnings were approximately $50 million in net after-tax charges primarily associated with a writedown of the CRQ mine, partially offset by gains from the sale of Venezuelan and other assets. Total worldwide coal shipments in 1993 were 47.7 million tons compared to 39.8 million tons in 1992 and 41.6 million tons in 1991. REFINING AND MARKETING After-tax earnings for refining and marketing operations were $307 million in 1993, $346 million in 1992 and $266 million in 1991. Earnings were lower in 1993, compared to 1992, because operating results were offset by a net charge of approximately $80 million after tax, comprised primarily of litigation-related accruals, the loss associated with the sale of the Brazilian marketing subsidiaries and the effect of the federal tax rate increase on deferred taxes. The improved earnings in 1992, compared to 1991, were the result of higher margins and sales volumes in the West Coast marketing area. The 1992 results included a charge of approximately $40 million after tax primarily for environmental costs related to previously divested operations. The 1991 earnings included approximately $10 million of net after-tax charges for personnel reductions, future environmental remediation primarily associated with previously divested properties and certain legal exposures, partially offset by benefits associated with accounting and tax adjustments related to Brazilian operations. West Coast petroleum products sales totaled 481,500 barrels per day in 1993, 479,500 barrels per day in 1992 and 466,400 barrels per day in 1991. The higher level of sales in 1993, compared to 1992, resulted from increased demand. The higher level of sales in 1992, compared to 1991, resulted from increased market share. The marketing operations supplemented ARCO's production with third-party purchases in order to meet increased sales. TRANSPORTATION After-tax earnings for the transportation operations were $189 million in 1993, $239 million in 1992 and $212 million in 1991. The 1993 earnings were lower, compared to 1992, as a result of a lower Trans Alaska Pipeline System (TAPS) tariff, lower volumes and the effect of the federal tax rate increase on deferred taxes. In 1992, improved results from Lower 48 terminal and pipeline operations offset a decline in earnings from TAPS. The 1991 earnings included after-tax charges of approximately $30 million for personnel reduction costs and for settlement of the Kuparuk Pipeline tariff rate litigation. INTERMEDIATE CHEMICALS AND SPECIALTY PRODUCTS After-tax earnings for the intermediate chemicals and specialty products segment were $239 million in 1993, $210 million in 1992 and $192 million in 1991. The segment consists of ARCO Chemical, an 83.3 percent owned subsidiary of the Corporation. ARCO Chemical's reported net income in 1993 included a $10 million after-tax loss on early debt extinguishment and benefited from a lower effective income tax rate. The 1992 34 results included $56 million before tax for a charge resulting from ARCO Chemical's withdrawal from the YUKONG ARCO Chemical Ltd., joint venture in South Korea. In 1993, increased sales volumes in ARCO Chemical's core products worldwide were offset by higher fixed costs associated with a new plant and maintenance expense resulting from turnarounds at three plants. Additional offsets included lower methyl tertiary butyl ether (MTBE) margins, primarily in Europe and lower overall propylene oxide (PO) and derivative margins as a result of lower margins for new products and continued weakness in the European economy. The 1992 earnings improved, compared to 1991, as a result of higher sales volumes and margins. Sales volumes for all major product groups, including PO derivatives and MTBE, were higher in 1992 than 1991. PO margins were higher in 1992, primarily in Europe, reflecting a weaker dollar. MTBE sales volumes were higher in 1992, primarily in the U.S., as a result of higher demand from domestic gasoline refiners. MTBE margins were higher on average in 1992 in both the U.S. and Europe as a result of lower raw material costs. ARCO Chemical's reported 1991 results included a $153 million before tax benefit from business interruption insurance related to a plant accident and to feedstock contamination at another plant in 1990. Also included in 1991 results were net pretax charges totaling $20 million reflecting personnel reductions and future environmental remediation costs, partially offset by a benefit related to a change in estimated accident charges. LYONDELL PETROCHEMICAL COMPANY ARCO's 49.9 percent equity share of Lyondell's net income was $13 million for 1993, $8 million for 1992 and $111 million for 1991. Lyondell's results in 1993 improved as a result of higher margins attained through the processing of greater volumes of Venezuelan crude oil. Lyondell's 1992 earnings, compared to 1991, were lower as a result of lower olefins margins and volumes and reduced refining margins in the Gulf Coast. UNALLOCATED EXPENSES AND OTHER Unallocated expenses and other was a net after-tax expense of $140 million in 1993 and $60 million in 1991 compared to a net after-tax benefit of $25 million in 1992. The increase in unallocated expenses in 1993, compared to 1992, reflected the absence of a $111 million after-tax gain recognized in 1992, increased employee-related expenses, higher charges for future environmental remediation, and lower net investment income. In 1992, unallocated expenses and other included the recognition of a $111 million after-tax gain representing a previously deferred portion of the gain from the 1989 sale of a majority interest in Lyondell, partially offset by corporate staff expense and charges for future environmental remediation. The 1991 unallocated expenses and other included after-tax charges of $34 million for future environmental remediation and higher insurance costs. RECENT DEVELOPMENTS On January 28, 1994, Vastar Resources, Inc. (Vastar), a wholly owned subsidiary of ARCO, filed a registration statement on Form S-1 with the Securities and Exchange Commission for the proposed sale of up to 17,250,000 shares of common stock to the public. ARCO intends to retain 80,000,001 shares, or 82.3 percent of Vastar's common stock. On December 7, 1993, Vastar borrowed $1.25 billion under a revolving credit agreement with a group of banks at an initial interest rate of 3.9 percent. The revolving line of credit is available until November 30, 1996. FINANCIAL POSITION AND LIQUIDITY Cash flows from operating activities were $2.8 billion in 1993, $3.1 billion in 1992 and $3.0 billion in 1991. The net cash used in investing activities was $2.2 billion in 1993 and primarily included expenditures for additions to fixed assets (including dry hole costs) of $2.1 billion, proceeds from asset sales of $582 million and a net increase in short-term investments of $789 million. The net cash used in financing activities was $431 million in 1993 and primarily included repayments of long-term debt of $886 million, proceeds of $1.3 billion from the issuance of long-term debt and dividend payments of $879 million. Cash and cash equivalents and short-term investments totaled $3.7 billion at year-end 1993 and short-term borrowings were $1.5 billion. Working capital was $1.1 billion higher at the end of 1993, reflecting an increase in 35 short-term investments and a decrease in long-term debt due within one year. At December 31, 1993, the Corporation had unused committed bank credit facilities totaling $3.2 billion. In addition, ARCO Chemical had unused bank credit facilities totaling $300 million. The Corporation's 1994 capital spending program includes $1.9 billion for additions to fixed assets. Future capital expenditures remain subject to business conditions affecting the industry, particularly changes in price and demand for crude oil, natural gas and petroleum products. Changes in the tax laws, the imposition of and changes in federal and state clean air and clean fuel requirements, and other changes in environmental rules and regulations may also affect future capital expenditures. It is expected that future cash requirements for capital expenditures, dividends and debt repayments will come from cash generated from operating activities, existing cash balances, and any asset sales and future financings. ENVIRONMENTAL MATTERS During 1993, the Corporation charged to income $172 million before tax for environmental remediation costs and made related payments of $206 million. At December 31, 1993, the environmental remediation reserve totaled $648 million. The amount reserved represents an estimate of the undiscounted costs which the Corporation will incur to remediate sites with known contamination. In view of the uncertainties associated with estimating these costs, such as uncertainties with respect to the appropriate method for remediating contaminated sites, the extent of contamination at various sites, and the Corporation's ultimate share of costs at various sites, actual future costs could exceed the amount accrued by as much as $1 billion. Although the contingencies associated with environmental matters could result in significant expenses or judgments that, if aggregated and assumed to occur within a single fiscal year, would be material to the Corporation'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 the Corporation's consolidated financial position, stockholders' equity, liquidity or capital resources. In addition to the provision for environmental remediation costs, $788 million has been accrued for the estimated cost, net of salvage value, of dismantling facilities as required by contract, regulation or law, and the estimated costs of restoration and reclamation of land associated with such facilities. For further discussion of environmental matters see Note 12 of Notes to Consolidated Financial Statements. EFFECTS OF INFLATION While the annual rate of inflation remained moderate during the three-year period ended December 31, 1993, the Corporation continued to experience certain inflationary effects. The Corporation will achieve some benefits by using current, inflated dollars to satisfy its debt obligations and other monetary liabilities, because the Corporation's monetary assets are less than its monetary liabilities at December 31, 1993. Based on the age of the Corporation's property, plant and equipment, it is estimated that the replacement cost of those assets is greater than the historical cost reflected in the Corporation's financial statements. Accordingly, the Corporation's depreciation, depletion and amortization expense for the three years ended December 31, 1993, would be greater if the expense were stated on a current-cost basis. To the extent that the Corporation uses the last-in, first-out (LIFO) inventory accounting method, the replacement cost of inventory is greater than the historical cost reflected on the Corporation's balance sheet, while the costs of products sold reflected in the Corporation's income statement approximate current cost. 36 ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
SCHEDULE NOS. PAGE ---- ---- Report of Independent Accountants............................. 38 Financial Statements: Consolidated Statement of Income and Retained Earnings.... 39 Consolidated Balance Sheet................................ 40 Consolidated Statement of Cash Flows...................... 41 Notes to Consolidated Financial Statements................ 42 Supplemental Information.................................. 54 Supporting Financial Statement Schedules Covered by the Foregoing Report of Independent Accountants: V Property, Plant and Equipment............................. 64 VI Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment............................ 66 VIII Valuation and Qualifying Accounts......................... 68 IX Short-Term Borrowings..................................... 70
Schedules other than those listed above have been omitted since they are either not required, are not applicable, or the required information is shown in the financial statements or related notes. Financial statements with respect to unconsolidated subsidiaries and 50 percent owned companies are omitted per Rule 3-09(a) of Regulation S-X. 37 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Atlantic Richfield Company We have audited the accompanying consolidated balance sheets of Atlantic Richfield Company as of December 31, 1993 and 1992, and the related consolidated statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 1993 and the related financial statement schedules listed in the index on page 37 of this Form 10- K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Atlantic Richfield Company as of December 31, 1993 and 1992, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for income taxes, postretirement benefits other than pensions and postemployment benefits in 1992. COOPERS & LYBRAND Los Angeles, California February 11, 1994 38 CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS ARCO
For the year ended December 31, Millions of dollars, except per share amounts 1993 1992 1991 ------------------------------ REVENUES Sales and other operating revenues (including excise taxes) $18,487 $18,668 $18,191 Income from equity investments 40 22 119 Interest 164 182 261 Other revenues 492 376 385 --------------------------- 19,183 19,248 18,956 --------------------------- EXPENSES Trade purchases 7,224 7,263 7,022 Operating expenses 3,293 3,174 3,078 Exploration expenses (including undeveloped lease amortization) 667 567 593 Selling, general and administrative expenses 1,828 1,724 1,763 Taxes other than excise and income taxes 1,147 1,203 1,131 Excise taxes 1,298 1,165 1,120 Depreciation, depletion and amortization 1,718 1,754 1,694 Interest 715 762 892 Unusual items 659 (271) 503 --------------------------- 18,549 17,341 17,796 --------------------------- Income before income taxes, minority interest and cumulative effect of changes in accounting principles 634 1,907 1,160 Provision for taxes on income 327 678 420 Minority interest in earnings of subsidiaries 38 36 31 --------------------------- Income before cumulative effect of changes in accounting principles 269 1,193 709 Cumulative effect of changes in accounting principles -- (392) -- --------------------------- Net income $ 269 $ 801 $ 709 =========================== EARNED PER SHARE Before cumulative effect of changes in accounting principles $1.66 $7.39 $4.39 Cumulative effect of changes in accounting principles -- (2.43) -- --------------------------- Net income per share $1.66 $4.96 $4.39 =========================== RETAINED EARNINGS Balance, January 1 $ 5,918 $ 5,990 $ 6,837 Net income 269 801 709 Cash dividends: Preference stocks (3) (3) (3) Common stock (876) (870) (869) Cancellation of treasury stock -- -- (684) --------------------------- Balance, December 31 $ 5,308 $ 5,918 $ 5,990 ===========================
See Notes on pages 42 through 53. 39 CONSOLIDATED BALANCE SHEET ARCO
December 31, Millions of dollars 1993 1992 ------------------ ASSETS Current assets: Cash and cash equivalents $ 1,458 $ 1,414 Short-term investments 2,289 1,501 Accounts receivable 1,333 1,511 Inventories 914 963 Prepaid expenses and other current assets 237 257 ------------------ Total current assets 6,231 5,646 ------------------ Investments and long-term receivables: Investments accounted for on the equity method 266 318 Other investments and long-term receivables 221 210 ------------------ 487 528 ------------------ Fixed assets: Property, plant and equipment 31,494 31,798 Less accumulated depreciation, depletion and amortization 15,628 14,882 ------------------ 15,866 16,916 Deferred charges and other assets 1,310 1,166 ------------------ Total assets $23,894 $24,256 ================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 1,510 $ 1,494 Accounts payable 1,091 1,263 Taxes payable, including excise taxes 272 267 Long-term debt due within one year 165 676 Accrued interest 190 224 Other 1,107 897 ------------------ Total current liabilities 4,335 4,821 ------------------ Long-term debt 7,089 6,227 Deferred income taxes 2,779 2,982 Other deferred liabilities and credits 3,177 3,177 Minority interest 387 328 Stockholders' equity: Preference stocks 1 1 Common stock, $2.50 par value; shares issued 160,746,125 (1993), 160,745,937 (1992); shares outstanding 159,953,980 (1993), 158,922,188 (1992) 402 402 Capital in excess of par value of stock 661 676 Retained earnings 5,308 5,918 Pension liability adjustment (29) -- Treasury stock, at cost (83) (191) Foreign currency translation (133) (85) ------------------ Total stockholders' equity 6,127 6,721 ------------------ Total liabilities and stockholders' equity $23,894 $24,256 ==================
The Corporation follows the successful efforts method of accounting for oil and gas producing activities. See Notes on pages 42 through 53. 40 CONSOLIDATED STATEMENT OF CASH FLOWS ARCO
For the year ended December 31, Millions of dollars 1993 1992 1991 ----------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 269 $ 801 $ 709 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 1,718 1,754 1,694 Dry hole expense and undeveloped leasehold amortization 419 331 330 Net gains on asset sales (204) (162) (28) Income from equity investments (40) (22) (119) Dividends from equity investments 97 111 112 Transition obligation for postretirement benefits -- 697 -- Noncash provisions greater (less) than cash payments 513 (a) (207) 440 (b) Net change in deferred taxes (203) (242) (216) Net change in accounts receivable, inventories and accounts payable 55 109 9 Net change in other working capital accounts 201 (162) 21 Other (58) 71 (a) 12 ----------------------------------- Net cash provided by operating activities 2,767 3,079 2,964 ----------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to fixed assets (including dry hole costs) (2,070) (2,278) (3,239) Net cash provided (used) by short-term investments (789) (180) 608 Proceeds from asset sales 582 553 117 Investments and long-term receivables (6) (93) (205) Other 46 (117) 48 ----------------------------------- Net cash used by investing activities (2,237) (2,115) (2,671) ----------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (886) (834) (957) Proceeds from issuance of long-term debt 1,255 1,112 1,079 Net cash provided (used) by notes payable 30 (199) 873 Dividends paid (879) (873) (872) Treasury stock purchases -- -- (204) Treasury stock contributed to benefit plans 81 110 -- Other (32) (32) (31) ----------------------------------- Net cash used by financing activities (431) (716) (112) ----------------------------------- Effect of exchange rate changes on cash (55) (62) (55) ----------------------------------- Net increase in cash and cash equivalents 44 186 126 Cash and cash equivalents at beginning of year 1,414 1,228 1,102 ----------------------------------- Cash and cash equivalents at end of year $ 1,458 $ 1,414 $ 1,228 ===================================
(a) Includes noncash unusual items of $659 and ($149) in 1993 and 1992, respectively. (b) Includes noncash unusual items of $476. See Notes on pages 42 through 53. 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 Accounting Policies ARCO's accounting policies conform to generally accepted accounting principles, including the "successful efforts" method of accounting for oil and gas producing activities. Principles of Consolidation The consolidated financial statements include the accounts of all subsidiaries, ventures and partnerships in which a controlling interest is held, including ARCO Chemical Company (ACC), of which ARCO owned 83.3 percent of the outstanding shares at December 31, 1993. ARCO also consolidates its interests in undivided interest pipeline companies and in oil and gas and coal mining joint ventures. ARCO uses the equity method of accounting for companies where its ownership is between 20 and 50 percent and for other ventures and partnerships in which less than a controlling interest is held. Cash Equivalents; Short-Term Investments Cash equivalents consist of highly liquid investments, such as time deposits, certificates of deposit and marketable securities other than equity securities, maturing within three months of purchase. Short-term investments consist of similar investments maturing in more than three months of purchase. Cash equivalents and short-term investments are stated at cost, which approximates market value. Oil and Gas Unproved Property Costs Unproved property costs are capitalized and amortized on a composite basis, considering past success experience and average property life. In general, costs of properties surrendered or otherwise disposed of are charged to accumulated amortization. Costs of successful properties are transferred to developed properties. Fixed Assets Fixed assets are recorded at cost and are written off on either a unit-of- production method or a straight-line method based on the expected lives of individual assets or groups of assets. Upon disposal of assets depreciated on an individual basis, residual cost less salvage is included in current income. Upon disposal of assets depreciated on a group basis, unless unusual in nature or amount, residual cost less salvage is charged against accumulated depreciation. Dismantlement, Restoration and Reclamation Costs The estimated costs, net of salvage value, of dismantling facilities or projects with limited lives or facilities that are required to be dismantled by contract, regulation or law, and the estimated costs of restoration and reclamation associated with oil and gas and mining operations are accrued during production and classified as a long-term liability. Such costs are taken into account in determining the cost of production in all operations, except oil and gas production, in which case such costs are considered in determining depreciation, depletion and amortization. Environmental Remediation Environmental remediation costs are accrued as operating expenses based on the estimated timing and extent of remedial actions required by applicable governmental authorities, experience gained from similar sites on which remediation has been completed, and the amount of ARCO's liability in consideration of the proportional liability and financial wherewithal of other responsible parties. Estimated liabilities are not discounted to present value. Reclassifications Certain previously reported amounts have been restated to conform to classifications adopted in 1993. NOTE 2 Unusual Items In the fourth quarter of 1993, ARCO announced a reorganization of its Lower 48 oil and gas operations. ARCO provided as unusual items a pretax charge of $659 million, $404 million after tax, primarily related to the writedown for sale or other disposition of oil and gas properties and excess office space, in addition to workforce reductions. In the fourth quarter of 1992, ARCO recognized a pretax benefit of $149 million from the settlement with Iran related to Corporation assets that had been nationalized in the late 1970s. In the second quarter of 1992, ARCO recognized a pretax benefit of $178 million related to a portion of the gain from the 1989 sale of a majority interest in Lyondell Petrochemical Company (Lyondell) which was previously deferred as the amount equal to ARCO's guarantee of notes associated with certain of Lyondell's manufacturing facilities. When Lyondell repaid the notes in 1992, ARCO was released from its guarantee and accordingly recognized the gain. In the second quarter of 1992, ARCO also recognized a pretax charge of $56 million resulting from ACC's withdrawal from the YUKONG ARCO Chemical Ltd. joint venture in Korea. The net benefit related to 1992 unusual items was $211 million after tax. In 1991, ARCO announced a reorganization of its oil and gas operations in the Lower 48 states and a companywide workforce reduction. An estimated pretax charge of $281 million was provided as unusual items for the 42 cost of these programs. ARCO also provided as unusual items a pretax charge of approximately $222 million for the anticipated loss on the sale of certain Lower 48 oil and gas properties and the writedown of certain coal assets. The net provision related to the above items was $312 million after tax. NOTE 3 Accounting Changes Effective January 1, 1992, ARCO implemented on the immediate recognition basis Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires accrual of the actuarially determined costs of postretirement benefits during the years that the employee renders the necessary service. ARCO's previous policy was to expense these costs when incurred. The cumulative effect of adopting SFAS No. 106 as of January 1, 1992, resulted in a charge of $435 million, or $2.70 per share, to 1992 earnings, net of income tax effects of approximately $262 million. Effective January 1, 1992, ARCO adopted SFAS No. 109, "Accounting for Income Taxes." The cumulative effect of the change on 1992 net income was a benefit of $43 million, or $0.27 per share. The effect of adopting SFAS Nos. 106 and 109 on 1992 net income, excluding the cumulative effect, was not material. Effective January 1, 1992, ARCO also adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits." The standard requires companies to accrue the cost of postemployment benefits either during the years that the employee renders the necessary service or at the date of the event giving rise to the benefit, depending upon whether certain conditions are met. The effect of adoption did not have a material impact on 1992 net income. NOTE 4 Segment Information ARCO operates primarily in the Resources and Products segments. The Resources segment includes oil and gas operations, which comprise the exploration, development and production of petroleum, including petroleum liquids (crude oil, condensate and natural gas liquids) and natural gas; the purchase and sale of petroleum liquids and natural gas; and the mining and sale of coal. The Products segment includes the refining and transportation of petroleum and petroleum products; the marketing of petroleum products; and the manufacture and sale of intermediate chemicals and specialty products, including propylene oxide and derivatives, tertiary butyl alcohol, methyl tertiary butyl ether and styrene monomer. Segment information for the years ended December 31, 1993, 1992 and 1991 was as follows:
Millions of dollars 1993 1992 1991 --------------------------- SALES AND OTHER OPERATING REVENUES Resources: Oil and gas $ 8,357 $ 8,994 $ 8,859 Coal 648 585 597 Products: Refining and marketing 8,603 8,461 7,989 Transportation 878 900 849 Intermediate chemicals and specialty products 3,192 3,100 2,990 Other 28 24 30 Elimination of intersegment amounts (3,219) (3,396) (3,123) --------------------------- Total $18,487 $18,668 $18,191 ===========================
Intersegment sales were made at prices approximating current market values. The amounts for intersegment sales included in sales and other operating revenues were as follows:
Millions of dollars 1993 1992 1991 ---------------------- Resources: Oil and gas $2,592 $2,833 $2,694 Products: Refining and marketing 19 16 19 Transportation 385 419 346 Intermediate chemicals and specialty products 195 104 41 Other 28 24 23 ---------------------- Total $3,219 $3,396 $3,123 ======================
Millions of dollars 1993 1992 1991 -------------------- PRETAX SEGMENT EARNINGS Resources: Oil and gas $ 114 $1,183 $ 841 Coal 160 107 25 Products: Refining and marketing 569 547 394 Transportation 327 378 333 Intermediate chemicals and specialty products 412 396 377 Equity in earnings from Lyondell Petrochemical Company 13 8 111 Unallocated expenses and other (246) 50 (29) Interest (715) (762) (892) Income taxes (327) (678) (420) Minority interest (38) (36) (31) Cumulative effect of changes in accounting principles -- (392) -- --------------------- Net income $ 269 $ 801 $ 709 =====================
43
Millions of dollars 1993 1992 1991 ----------------------- AFTER-TAX SEGMENT EARNINGS Resources: Oil and gas $ 45 $ 816 $ 549 Coal 107 83 33 Products: Refining and marketing 307 346 266 Transportation 189 239 212 Intermediate chemicals and specialty products(a) 239 210 192 Equity in earnings from Lyondell Petrochemical Company 13 8 111 Unallocated expenses and other (140) 25 (60) Interest (491) (534) (594) Cumulative effect of changes in accounting principles -- (392) -- ----------------------- Net income $ 269 $ 801 $ 709 =======================
(a) Net of minority interest of $(36), $(32), and $(31) in 1993, 1992 and 1991, respectively.
Millions of dollars 1993 1992 1991 ------------------------- TOTAL ASSETS Resources: Oil and gas $ 9,349 $10,362 $11,351 Coal 1,320 1,411 1,095 Products: Refining and marketing 2,789 2,830 2,732 Transportation 2,145 2,191 2,223 Intermediate chemicals and specialty products 3,502 3,599 3,676 Other 4,789 3,863 3,415 ------------------------- Total $23,894 $24,256 $24,492 ========================= ADDITIONS TO FIXED ASSETS Resources: Oil and gas $ 1,383 $ 1,249 $ 1,890 Coal 94 308 305 Products: Refining and marketing 345 315 448 Transportation 59 94 124 Intermediate chemicals and specialty products 181 295 435 Other 8 17 37 ------------------------- Total $ 2,070 $ 2,278 $ 3,239 ========================= DEPRECIATION, DEPLETION AND AMORTIZATION Resources: Oil and gas(a) $ 1,092 $ 1,176 $ 1,203 Coal 59 53 46 Products: Refining and marketing 200 178 161 Transportation 104 98 94 Intermediate chemicals and specialty products 223 199 164 Other 40 50 26 ------------------------- Total $ 1,718 $ 1,754 $ 1,694 =========================
(a) Excludes undeveloped leasehold amortization of $98, $110, and $113, respectively, included in exploration expense. Foreign operations are conducted principally in the following geographic regions: Oil and gas--United Kingdom, Indonesia and Dubai; Coal--Australia; Intermediate chemicals and specialty products---Europe and Asia Pacific; Refining and marketing--Brazil (marketing only). The Brazilian operations were sold in December 1993.
Millions of dollars 1993 1992 1991 -------------------------- FOREIGN OPERATIONS Sales and other operating revenues: Oil and gas $ 998 $ 952 $ 980 Coal 304 282 293 Refining and marketing(c) 1,920 1,794 1,751 Intermediate chemicals and specialty products 1,122 1,255 1,172 Other 29 23 23 Elimination of intersegment amounts -- oil and gas -- -- (11) -------------------------- Total $4,373 $4,306 $4,208 ========================== Net income (loss): Oil and gas $ (17) $ 171(a) $ 79 Coal 59 41 (16) Refining and marketing(c) 2 28 57 Intermediate chemicals and specialty products(b) 58 37 22 Other (25) (26) (38) -------------------------- Total $ 77 $ 251 $ 104 ========================== Total assets: Oil and gas $2,691 $2,415 $2,466 Coal 821 901 693 Refining and marketing(c) -- 301 305 Intermediate chemicals and specialty products 1,424 1,567 1,731 Other 230 233 710 -------------------------- Total $5,166 $5,417 $5,905 ==========================
(a) Includes gain from settlement on assets nationalized by Iran (Note 2). (b) Includes losses of equity affiliates, principally Asian joint ventures, of $(2), $(18), and $(22), in 1993, 1992 and 1991, respectively. (c) Operations sold in December 1993. NOTE 5 Inventories Inventories are recorded when purchased, produced or manufactured and are stated at the lower of cost or market. In 1993, approximately 88 percent of inventories excluding materials and supplies were determined by the last-in, first-out (LIFO) method. Materials and supplies and other non-LIFO inventories are determined predominantly on an average cost basis. Total inventories at December 31, 1993 and 1992 comprised the following categories:
Millions of dollars 1993 1992 -------------- Crude oil and petroleum products $ 266 $ 283 Chemical products 373 375 Other products 32 42 Materials and supplies 243 263 --------------- Total $ 914 $ 963 ===============
The excess of the current cost of inventories over book value was approximately $228 million and $285 million at December 31, 1993 and 1992, respectively. 44 NOTE 6 Taxes Taxes other than excise and income taxes for the years ended December 31, 1993, 1992 and 1991 comprised the following:
Millions of dollars 1993 1992 1991 ---------------------- Property $ 198 $ 205 $ 206 Production/severance 331 389 406 Value added 349 330 250 Other 269 279 269 ---------------------- Total $1,147 $1,203 $1,131 ======================
The components of the provision for taxes on income for the years ended December 31, 1993, 1992 and 1991 were as follows:
Millions of dollars 1993 1992 1991 ------------------ Federal: Current $ 382 $292 $355 Deferred (159) 198 (66) ----------------- 223 490 289 ----------------- Foreign: Current 69 80 104 Deferred 13 17 (36) ----------------- 82 97 68 ----------------- State: Current 33 42 76 Deferred (11) 49 (13) ----------------- 22 91 63 ----------------- Total provision for taxes on income $ 327 $678 $420 ================= Total income taxes paid in cash $ 510 $ 675 $ 776 ==================
The deferred tax benefit in 1993 and 1991 primarily resulted from book accruals associated with the reorganizations and workforce reductions. The major components of the net deferred tax liability as of December 31, 1993 and 1992, and January 1, 1992 were as follows:
December 31 December 31 January 1 Millions of dollars 1993 1992 1992 ----------------------------------- Depreciation, depletion and amortization $(3,630) $(3,734) $(3,754) Other (329) (306) (312) ------------------------------- Total deferred tax liabilities (3,959) (4,040) (4,066) ------------------------------- Dismantlement and environmental 492 474 481 Postretirement benefits 302 277 262 Foreign excess tax basis/loss carryforwards 197 165 130 Other 316 244 327 ------------------------------- Total deferred tax assets 1,307 1,160 1,200 ------------------------------- Valuation allowance (127) (102) (34) ------------------------------- Net deferred income tax liability $(2,779) $(2,982) $(2,900) ===============================
ARCO has foreign loss carryforwards of $227 million which begin expiring in 1994. The domestic and foreign components of income before income taxes, minority interest and cumulative effect of changes in accounting principles, and a reconciliation of income tax expense with tax at the effective federal statutory rate for the years ended December 31, 1993, 1992 and 1991 were as follows:
Percent of Pretax Millions of dollars Amount Income ------------------ 1993 Income before income taxes: Domestic $ 342 53.9 Foreign 292 46.1 ------------------ Total $ 634 100.0 ================== Tax at 35% $ 222 35.0 Increase (reduction) in taxes resulting from: Dividend exclusion 7 1.1 Impact of federal rate increase on deferred tax liability 65 10.3 Taxes on foreign income in excess of statutory rate 74 11.7 Sale of foreign subsidiary 37 5.8 Foreign deferred tax asset recognition (26) (4.1) State income taxes (net of federal effect) 14 2.2 Tax credits (49) (7.7) Other (17) (2.7) ------------------ Provision for taxes on income $ 327 51.6 ================== 1992 Income before income taxes: Domestic $1,449 76.0 Foreign 458 24.0 ------------------ Total $1,907 100.0 ================== Tax at 34% $ 648 34.0 Increase (reduction) in taxes resulting from: Dividend exclusion 12 .6 Taxes on foreign income in excess of statutory rate 25 1.3 State income taxes (net of federal effect) 60 3.2 Tax credits (43) (2.2) Other (24) (1.3) ------------------ Provision for taxes on income $ 678 35.6 ================== 1991 Income before income taxes: Domestic $ 900 77.6 Foreign 260 22.4 ------------------ Total $1,160 100.0 ================== Tax at 34% $ 394 34.0 Increase (reduction) in taxes resulting from: Dividend exclusion (30) (2.6) Taxes on foreign income in excess of statutory rate 54 4.7 State income taxes (net of federal effect) 42 3.6 Tax credits (36) (3.1) Other (4) (.4) ------------------ Provision for taxes on income $ 420 36.2 ==================
45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 Long-Term Debt Long-term debt at December 31, 1993 and 1992 comprised the following:
Millions of dollars 1993 1992 -------------- 5-5/8%, due in 1997 $ 18 $ 23 5.90%, due in 2007 265 265 6-1/8%, due in 1996 102 102 7.70%, due in 2000 31 51 7-3/4%, due in 2003 52 124 8-1/4%, due in 2022 250 250 8-1/2%, due in 2012 250 250 8-5/8%, due in 2000 -- 76 8-3/4%, due in 2032 250 250 9%, due in 2021 300 300 9%, due in 2031 150 150 9-1/8%, due in 1993 -- 200 9-1/8%, due in 2011 300 300 9-1/8%, due in 2031 350 350 9-1/4%, due in 1993 -- 250 9-1/2%, due in 1996 -- 150 9-7/8%, due in 2016 450 450 10-1/4%, due in 2000 250 250 10-3/8%, due in 1995 500 500 10-7/8%, due in 2005 500 500 Third Series Medium-Term Notes 137 137 Medium-Term Notes--A Series 200 200 Medium-Term Notes--B Series 250 250 ARCO Tresop Notes 311 311 ARCO Chemical Company: 9.35%, due in 2019 -- 123 9.375%, due in 2005 100 100 9.8%, due in 2020 224 224 9.9%, due in 2000 200 200 10.25%, due in 2010 100 100 Medium-Term Notes -- 35 French bank loans 94 117 ACNL bank loans 155 165 Vastar bank loans 1,250 -- Capitalized lease obligations 26 26 Other 204 256 -------------- Total, including debt due within one year 7,269 7,035 Less: Debt due within one year 165 676 Bonds held in sinking fund 15 132 -------------- Long-term debt $7,089 $6,227 ==============
Maturities and sinking fund obligations for the five years subsequent to December 31, 1993 are as follows (millions of dollars): 1994--$165; 1995--$632; 1996--$1,434; 1997--$269; 1998--$182. No material amounts of long-term debt are collateralized by Corporation assets. Vastar Resources, Inc. (Vastar), a wholly owned subsidiary of ARCO, entered into a $1.25 billion unsecured, variable rate, revolving-term credit agreement. In December 1993, Vastar borrowed $1.25 billion principal amount at an initial interest rate of 3.9 percent. The agreement contains restrictions which, among other things, require Vastar to maintain certain financial ratios and restrict encumbrance of assets. NOTE 8 Bank Credit Facilities and Compensating Balances In 1993, ARCO and certain wholly owned subsidiaries had committed bank credit facilities of approximately $3.2 billion, including a credit facility negotiated on behalf of a subsidiary that is denominated in pounds sterling. At December 31, 1993, there were no borrowings under these committed facilities. ACC maintains two credit facilities under which it may borrow up to $300 million which are not guaranteed by ARCO. At December 31, 1993, there were no borrowings against the ACC credit facilities. The facilities replace a previous facility that effectively expired in December 1993. Notes payable on the balance sheet consist primarily of commercial paper issued to a variety of financial investors and institutions and any amounts outstanding under ARCO or ACC credit facilities. ARCO has no requirements for compensating balances. ARCO does maintain balances for some of its banking services and products. Such balances are solely at ARCO's discretion, so that on any given date, none of ARCO's cash is restricted. At December 31, 1993, ARCO had letters of credit outstanding totalling $305 million. NOTE 9 Interest Expense Interest expense for the years ended December 31, 1993, 1992 and 1991 was comprised of the following: Millions of dollars 1993 1992 1991 ------------------ Long-term debt $ 573 $ 624 $ 684 Short-term debt 92 105 92 Other 106 148 195 ------------------- 771 877 971 Capitalized interest (56) (115) (79) ------------------- Total interest expense $ 715 $ 762 $ 892 =================== Total interest paid in cash $ 749 $ 752 $ 912 ===================
NOTE 10 Foreign Currency Transaction Gains Foreign exchange transactions, which relate primarily to Brazilian operations, resulted in net gains of $22 million, $1 million and $41 million in 1993, 1992 and 1991, respectively. 46 NOTE 11 Fixed Assets Property, plant and equipment, and related accumulated depreciation, depletion and amortization at December 31, 1993 and 1992 were as follows:
Millions of dollars 1993 1992 ---------------- Resources: Oil and gas $19,100 $19,543 Coal 1,296 1,324 Products: Refining and marketing 3,647 3,600 Transportation 3,588 3,546 Intermediate chemicals and specialty products 3,257 3,165 Other 606 620 ---------------- 31,494 31,798 Accumulated depreciation, depletion and amortization 15,628 14,882 ---------------- Total $15,866 $16,916 ================
Expenses for maintenance and repairs for 1993, 1992 and 1991 were $509 million, $513 million and $523 million, respectively. NOTE 12 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. At December 31, 1993 and 1992, there were contingent liabilities primarily with respect to guarantees of securities of other issuers of approximately $111 million and $100 million, respectively, of which approximately $41 million and $45 million, respectively, were indemnified. Following the March 1989 EXXON VALDEZ oil spill, Alyeska Pipeline Service Company (Alyeska) and Alyeska's owner companies were the subject of numerous lawsuits by the State of Alaska, the United States and private plaintiffs. ARCO Transportation Alaska, Inc. (ATA) owns approximately 21 percent of Alyeska. In July 1993, it was announced that Alyeska and its owner companies had agreed to pay $98 million in settlement of all but a handful of the lawsuits by private plaintiffs of which $20.9 million was ATA's share. At the October 1993 approval hearing on the settlement, the settlement was tentatively approved; however, there remain certain issues concerning claims that Exxon might assert against Alyeska and its owner companies that must be resolved before the settlement becomes final. ARCO and former producers of lead pigments have been named as defendants in cases filed by a municipal housing authority, a purported class and several individuals seeking damages and injunctive relief as a consequence of the presence of lead-based paint in certain housing units. ARCO and its subsidiary, Atlantic Richfield Hanford Company (ARHCO), and several other companies have been named as defendants in lawsuits filed on behalf of individual persons and a number of purported classes. These lawsuits arise out of radioactive and non-radioactive toxic and hazardous substances allegedly generated at the Hanford Nuclear Reservation in Richland, Washington (HNR). The claims against ARCO and ARHCO arise out of the performance by ARHCO of a contract with the Atomic Energy Commission to provide chemical processing, waste management and support services at HNR from 1967 to 1977. ARCO and ARHCO believe that, should either or both ultimately be held liable, they will be entitled to indemnification by the federal government as provided under the Price-Anderson Act, and pursuant to the terms of the contract between ARHCO and the Atomic Energy Commission. ARCO is also the subject of or party to a number of pending or threatened legal actions for which the legal responsibility and financial impact cannot presently be ascertained. Although any ultimate liability arising from any of these suits, or from any of the proceedings described above, if aggregated and assumed to occur in a single fiscal year, would be material to ARCO's results of operations, the likelihood of such occurrence is considered remote. On the basis of management's best assessment of the ultimate amount and timing of these events, such expenses or judgments are not expected to have a material adverse effect on ARCO's consolidated financial position, stockholders' equity, liquidity or capital resources. ARCO is subject to other loss contingencies pursuant to federal, state and local environmental laws and regulations. These include possible obligations to remove or mitigate the effects on the environment of the disposal or release of certain chemical, mineral and petroleum substances at various sites, including the restoration of natural resources located at these sites and damages for loss of use and non-use values. ARCO is currently participating in environmental assessments and cleanups under these laws at federal Superfund and state-managed sites, as well as other clean-up sites, including service stations, refineries, terminals, chemical facilities, third-party landfills, former nuclear processing facilities, and sites 47 associated with discontinued operations. ARCO may in the future be involved in additional environmental assessments and cleanups, including the restoration of natural resources and damages for loss of use and non-use values. The amount of such future costs is indeterminable due to such factors as the unknown nature and extent of contamination at many sites, 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. ARCO continues to estimate the amount of these costs in periodically establishing reserves based on progress made in determining the magnitude of remediation costs, experience gained from sites on which remediation has been completed, the timing and extent of remedial actions required by the applicable governmental authorities and an evaluation of the amount of ARCO's liability considered in light of the liability and financial wherewithal of the other responsible parties. At December 31, 1993, the reserve balance is $648 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 reserve covers federal Superfund and state-managed sites as well as other clean-up sites, including service stations, refineries, terminals, chemical facilities, third-party landfills, former nuclear processing facilities and sites associated with discontinued operations. ARCO has been named a potentially responsible party (PRP) for 123 sites. The number of PRP sites in and of itself does not represent a relevant measure of liability, because the nature and extent of environmental concerns varies from site to site and ARCO's share of responsibility varies from sole responsibility to very little responsibility. ARCO reviews all of the PRP sites, along with other sites as to which no claims have been asserted, in estimating the amount of the reserve. ARCO's future costs at these sites could exceed the reserve by as much as $1 billion. Approximately half of the reserve related to sites associated with ARCO's discontinued operations, primarily mining activities in the states of Montana and Colorado. 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 15 percent of the total reserve. Substantially all amounts accrued in the reserve 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. None of these claims has been resolved. Due to the uncertainty as to ultimate recovery from these parties, ARCO has neither recorded any asset nor reduced any liability in anticipation of such recovery. Environmental loss contingencies also include claims for personal injuries allegedly caused by exposure to toxic materials manufactured or used by ARCO. Although these contingencies could result in significant expenses or judgments that, if aggregated and assumed to occur within a single fiscal year, would be material to ARCO's results of operations, the likelihood of such occurrence is considered remote. On the basis of management's best assessment of the ultimate amount and timing of these events, such expenses or judgments are not expected to have a material adverse effect on ARCO's consolidated financial position, stockholders' equity, liquidity or capital resources. 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 13 Retirement Plans ARCO and its subsidiaries have defined benefit pension plans to provide pension benefits to substantially all employees. The benefits are based on years of service and the employee's compensation, primarily during the last three years of service. ARCO's funding policy is to make annual contributions as required by applicable regulations. ARCO charges pension costs as accrued, based on an actuarial valuation for each plan, and funds the plans through contributions to trust funds that are kept apart from Corporation funds. 48 The following table sets forth the plans' funded status and amounts recognized in the balance sheet at December 31, 1993 and 1992:
Assets Exceed Accumulated Accumulated Benefits Millions of dollars Benefits Exceed Assets ----------------------------- 1993 Actuarial present value of benefit obligations: Vested benefit obligation $2,007 $ 158 ====================== Accumulated benefit obligation $2,054 $ 161 ====================== Projected benefit obligation $2,420 $ 214 Plan assets at fair value, primarily stocks and bonds 2,720 -- ---------------------- Projected benefit obligation (in excess of) or less than plan assets 300 (214) Unrecognized net (gain) loss 134 100 Prior service cost not yet recognized in net periodic pension cost 148 27 Remaining unrecognized (asset) obligation from January 1, 1986 (348) 9 Adjustment required to recognize minimum liability -- (83) ---------------------- Prepaid pension cost (pension liability) recognized in the balance sheet $ 234 $(161) ====================== 1992 Actuarial present value of benefit obligations: Vested benefit obligation $1,626 $ 85 ====================== Accumulated benefit obligation $1,638 $ 85 ====================== Projected benefit obligation $1,828 $ 98 Plan assets at fair value, primarily stocks and bonds 2,443 -- ---------------------- Projected benefit obligation (in excess of) or less than plan assets 615 (98) Unrecognized net (gain) loss (178) 4 Prior service cost not yet recognized in net periodic pension cost 143 1 Remaining unrecognized (asset) obligation from January 1, 1986 (376) 10 Adjustment required to recognize minimum liability -- (4) ---------------------- Prepaid pension cost (pension liability) recognized in the balance sheet $ 204 $ (87) ======================
Pension costs related to ARCO-sponsored plans, on a pretax basis, including amortization of unfunded projected benefit obligations for the years ended December 31, 1993, 1992 and 1991 were as follows:
Millions of dollars 1993 1992 1991 ------------------ Service cost-benefits earned during the period $ 59 $ 51 $ 43 Interest cost on projected benefit obligation 173 133 137 Actual return on plan assets (483) (91) (370) Net amortization and deferral 220 (127) 201 ------------------- Net periodic pension (benefit) cost $ (31) $ (34) $ 11 ===================
In addition to the pension (benefit) cost above, in 1993 and 1991 ARCO recorded $61 million and $103 million, respectively, before tax as additional pension expense in connection with the workforce reductions in those years. ARCO's assumptions used as of December 31, 1993, 1992 and 1991 in determining the pension cost and pension liability shown above were as follows:
Percent 1993 1992 1991 ---------------- Discount rate 7.25 8.5 8.75 Rate of salary progression 5.0 5.0 5.0 Long-term rate of return on assets 10.5 10.5 9.5 ================
NOTE 14 Other Postretirement Benefits ARCO and its subsidiaries sponsor defined postretirement benefit plans to provide other postretirement benefits to substantially all employees who retire with ARCO having rendered the required years of service, along with their spouses and eligible dependents. Health care benefits are provided primarily through comprehensive indemnity plans. Currently, ARCO pays approximately 80 percent of the cost of such plans, but has the right to modify the cost-sharing provisions at any time. Life insurance benefits are based primarily on the employee's final compensation and are also partially paid for by retiree contributions, which vary based upon coverage chosen by the retiree. ARCO's current policy is to fund the cost of postretirement health care and life insurance plans on a pay-as-you-go basis. Pursuant to Section 401(h) of the Internal Revenue Code of 1986, excess pension assets totalling $21 million were transferred from the pension plans to health care benefit accounts within the pension plans for reimbursement of 1992 retiree health care benefits. The following table sets forth the plans' combined postretirement benefit liability as of December 31, 1993 and 1992:
Health Life Millions of dollars Care Insurance Total --------------------------- 1993 Accumulated postretirement benefit obligation: Retirees $ 461 $158 $ 619 Employees fully eligible 35 12 47 Other active participants 211 47 258 ------------------------- Total 707 217 924 Unrecognized loss (125) (18) (143) ------------------------- Accrued postretirement benefit cost recognized in the balance sheet $ 582 $199 $ 781 ========================= 1992 Accumulated postretirement benefit obligation: Retirees $ 416 $155 $ 571 Employees fully eligible 27 8 35 Other active participants 133 32 165 ------------------------- Total 576 195 771 Unrecognized loss (14) (4) (18) ------------------------- Accrued postretirement benefit cost recognized in the balance sheet $ 562 $191 $ 753 =========================
49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARCO charges postretirement benefit costs as accrued, based on actuarial calculations for each plan. Net annual postretirement benefit costs as of December 31, 1993 and 1992 included the following components:
Health Life Millions of dollars Care Insurance Total ------------------------- 1993 Service cost-benefits earned during the period $15 $ 3 $18 Interest cost on accumulated postretirement benefit obligation 47 15 62 ------------------------- Net postretirement benefit cost $62 $18 $80 ========================= 1992 Service cost-benefits earned during the period $12 $ 3 $15 Interest cost on accumulated postretirement benefit obligation 46 15 61 ------------------------- Net postretirement benefit cost $58 $18 $76 =========================
In addition to the cost above, ARCO recorded $9 million as additional postretirement benefit expense in connection with the workforce reduction in 1993. For the year ended December 31, 1991, ARCO recognized postretirement costs as incurred. Accordingly, the amount recognized as expense in prior years is not comparable. The significant assumptions used in determining postretirement benefit cost and the accumulated postretirement benefit obligation were as follows:
December 31 December 31 January 1 Percent 1993 1992 1992 ---------------------------------------- Discount rate 7.25 8.5 8.75 Rate of salary progression 5.0 5.0 5.0 ========================================
The weighted average annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care trend rate) for the health plans is 10 percent for 1993 to 1996, 8 percent for 1997 to 2001, and 6 percent thereafter. The effect of a one-percentage-point increase in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligation as of December 31, 1993, by approximately 10.5 percent, and the aggregate of the service and interest cost components of net annual postretirement benefit cost by approximately 11 percent. NOTE 15 Stockholders' Equity Detail of ARCO's capital stock as of December 31, 1993 and 1992 was as follows:
1993 1992 ------------------------- $3.00 Cumulative convertible preference stock, par $1: Shares authorized 94,316 94,316 Shares issued and outstanding 81,309 90,377 Aggregate value in liquidation -- (thousands) $ 6,505 $ 7,230 $2.80 Cumulative convertible preference stock, par $1: Shares authorized 942,016 942,016 Shares issued and outstanding 854,053 916,653 Aggregate value in liquidation -- (thousands) $ 59,784 $ 64,166 Common stock, par $2.50: Shares authorized 600,000,000 600,000,000 Shares issued 160,746,125 160,745,937 Shares outstanding 159,953,980 158,922,188 Shares held in treasury 792,145 1,823,749 ==========================
The changes in preference stocks outstanding were due solely to conversions. The $3.00 cumulative convertible preference stock is convertible into 6.8 shares of common stock. The $2.80 cumulative convertible preference stock is convertible into 2.4 shares of common stock. The common stock is subordinate to the preference stocks for dividends and assets. The $3.00 and $2.80 preference stocks may be redeemed at the option of ARCO for $82 and $70 per share, respectively. ARCO has authorized 75,000,000 shares of preferred stock, $.01 par, of which none were issued or outstanding at December 31, 1993. By stockholder approval, all of the Series B, 3.75 percent cumulative preferred stock, $100 par, of which none were issued and outstanding, was cancelled effective May 3, 1993. By Board authorization, effective December 31, 1991, ARCO canceled 7 million shares of common stock held in treasury. As a result of this cancellation, common stock decreased by $17 million, capital in excess of par value of stock decreased by $30 million, and retained earnings decreased by $684 million in 1991. The balance in ARCO's common stock at December 31, 1993, 1992 and 1991 was $402 million. Detail of changes in treasury stock in 1993, 1992 and 1991 was as follows:
Millions of dollars Balance, January 1, 1991 $ 890 Treasury stock purchases 202 Conversions (36) Cancellation of treasury stock (731) ----- Balance, December 31, 1991 325 Treasury stock contributed to benefit plans (110) Conversions (24) ----- Balance, December 31, 1992 191 Treasury stock contributed to benefit plans (81) Conversions (27) ----- Balance, December 31, 1993 $ 83 =====
50 The net decrease in capital in excess of par value of stock in 1993, 1992 and 1991 of $15 million, $12 million and $52 million, respectively, was due primarily to the conversion of preference stock to common stock and the cancellation of treasury stock in 1991. ARCO's Certificate of Incorporation contains a provision restricting dividend payments; however, at December 31, 1993, retained earnings were free from such restriction. At December 31, 1993, shares of ARCO's authorized and unissued common stock were reserved as follows:
Conversions: $3.00 Preference stock 552,901 $2.80 Preference stock 2,049,727 Stock option plans 5,148,852 Employee benefit plans 9,974,482 ---------- Total 17,725,962 ==========
Under ARCO's incentive compensation plans, awards of ARCO's common stock may be made to officers, outside directors and key employees. NOTE 16 Earned per Share Earned per share is based on the average number of common shares outstanding during each period including common stock equivalents that consist of certain outstanding options and all outstanding convertible securities. The average shares used in the calculation of earned per share for the years ended December 31, 1993, 1992 and 1991 were 162.4 million, 161.5 million and 161.7 million, respectively. NOTE 17 Stock Options Options to purchase shares of ARCO's common stock have been granted to executives, outside directors and key employees. These options become exercisable in varying installments and expire ten years after the date of grant. Transactions during 1993, 1992 and 1991 were as follows:
Balance, January 1, 1991 1,681,133 Granted 528,686 Canceled or expired (1,740) Exercised (average option price per share: $77.67) (199,988) --------- Balance, December 31, 1991 2,008,091 Granted 679,457 Exercised (average option price per share: $77.09) (51,385) --------- Balance, December 31, 1992 2,636,163 Granted 574,726 Exercised (average option price per share: $81.74) (48,707) --------- Balance, December 31, 1993 3,162,182 ========= At December 31, 1993: Shares exercisable 2,249,912 Shares available for option (1,290,018 at December 31, 1992) 1,986,670 Average option price per share: Shares under option $104.21 Shares exercisable $101.04 =========
NOTE 18 Supplemental Cash Flow Information The following is supplemental cash flow information for the years ended December 31, 1993, 1992 and 1991:
Millions of dollars 1993 1992 1991 ------------------------- Short-term investments: Gross maturities $ 5,428 $ 4,796 $ 7,480 Gross purchases (6,217) (4,976) (6,872) ------------------------- Net cash provided (used) $ (789) $ (180) $ 608 ========================= Notes payable: Gross proceeds $ 8,568 $ 7,380 $ 7,877 Gross repayments (8,538) (7,579) (7,004) ------------------------- Net cash provided (used) $ 30 $ (199) $ 873 ========================= Gross noncash provisions charged to income $ 1,148 $ 553 $ 1,003 Cash payments of previously accrued items (635) (760) (563) ------------------------- Noncash provisions greater (less) than cash payments $ 513 $ (207) $ 440 =========================
NOTE 19 Lease Commitments Commitments under capital financial leases are capitalized with the obligation recorded at the present value of future rental payments. The related assets are amortized on a straight-line basis. At December 31, 1993, future minimum rental payments due under leases were as follows:
Capital Operating Millions of dollars Leases Leases ------------------ 1994 $ 3 $157 1995 3 135 1996 3 115 1997 3 98 1998 3 85 Later years 76 338 ------------------ Total minimum lease payments 91 $928 ======== Imputed interest (rates ranging from 9.75% to 12.0%) 65 ------- Present value of minimum lease payments included in long-term debt $26 =======
Minimum future rental income under noncancelable subleases at December 31, 1993 amounted to $98 million. Operating lease net rental expense for the years ended December 31, 1993, 1992 and 1991 was as follows:
Millions of dollars 1993 1992 1991 ------------------- Minimum rentals $ 220 $ 206 $ 197 Contingent rentals 1 1 1 Sublease rental income (15) (18) (16) ------------------- Net rental expense $ 206 $ 189 $ 182 ===================
No restrictions on dividends or on additional debt or lease financing exist under ARCO's lease commitments. Under certain conditions, options and obligations exist to purchase certain leased properties. 51 NOTE 20 Lyondell Petrochemical Company Lyondell Petrochemical Company (Lyondell) is engaged in the manufacture, refining and marketing of basic commodity chemicals, including ethylene, propylene, methanol and aromatics, and petroleum products. At December 31, 1993, ARCO owned 49.9 percent of Lyondell common stock outstanding; ARCO accounts for this investment on the equity method. The market value of ARCO's shares of Lyondell common stock, based on the closing quoted market price at December 31, 1993, was $848 million. Summarized financial information for Lyondell was as follows:
Millions of dollars 1993 1992 1991 ------ ------ ------ Year ended December 31: Revenues(a) $3,850 $4,809 $5,735 Operating income $ 93 $ 104 $ 399 Income before income taxes and cumulative effect of accounting changes $ 16 $ 35 $ 339 Cumulative effect of changes in accounting principles $ 22 $ (10) -- Net income $ 26 $ 16 $ 222 ======================== ARCO's equity in net income of Lyondell $ 13 $ 8 $ 111 ======================== Cash dividends received from Lyondell $ 54 $ 72 $ 70 ======================== At December 31: Current assets $ 523 $ 568 Noncurrent assets $ 708 $ 647 Current liabilities $ 299 $ 345 Long-term debt $ 717 $ 725 Other liabilities $ 179 $ 151 Minority interest $ 124 -- Stockholders' deficit(b) $ (88) $ (6)
(a) Includes $278, $329 and $526 of sales to ARCO in 1993, 1992 and 1991, respectively, which approximated 4%, 5% and 8% of ARCO's purchases in those years. (b) ARCO's investment in Lyondell comprises 49.9% of Lyondell's stockholders' deficit plus $72 of dividends received in excess of basis of investment. NOTE 21 Financial Instruments; Fair Value and Off-Balance-Sheet Risk The following methods and assumptions were used to estimate the fair value of each class of financial instruments: The carrying amount of cash equivalents, short-term investments and notes payable approximates fair value because of the short maturity of those instruments. The fair value of other investments and long-term receivables was estimated primarily based on quoted market prices for those or similar investments. At December 31, 1993 and 1992, the fair value of other investments and long-term receivables approximated carrying value. The fair value of ARCO's long-term debt was estimated based on the quoted market prices for the same or similar issues or on the current rates offered to ARCO for debt of the same remaining maturities. At December 31, 1993 and 1992, the fair value of long-term debt, including long-term debt due within one year, was $8,307 million and $7,570 million, respectively. The fair value of foreign currency forward contracts and derivatives was estimated by obtaining quotes from brokers. Fair value of these instruments at December 31, 1993 and 1992, approximated carrying value. At December 31, 1993 and 1992, ARCO had foreign currency forward contracts and foreign cross-currency contracts outstanding, which mature at various dates, to reduce exposure to foreign currency exchange risk. The aggregate contract value of instruments used to buy U.S. dollars in exchange for Australian dollars was approximately $483 million and $367 million at December 31, 1993 and 1992, respectively. The aggregate contract value of instruments used to sell European currencies and Japanese yen in exchange for Deutsche marks, U.S. dollars and functional currencies of ARCO's European operations was approximately $24 million and $65 million at December 31, 1993 and 1992, respectively. Additionally, ARCO had outstanding foreign currency swaps which mature at various dates through 1994, to sell approximately 187 million French francs for $35 million at both December 31, 1993 and 1992. 52 At December 31, 1993 and 1992, approximately $355 million and $405 million, respectively, of the long-term debt was denominated in foreign currencies. To reduce the exposure to foreign currency fluctuations, ARCO entered into a swap agreement on an 18 billion yen debt issue due in 1996 which fixes the principal balance at $102 million with an effective rate of 8.14 percent. At December 31, 1993, ARCO had outstanding interest rate swaps on two loans totalling 300 million Dutch guilders due in 1997 (one loan for 150 million Dutch guilders in 1992). This effectively changed both loans' floating interest rates to fixed rates of 5.70 percent and 6.71 percent (9.69 percent in 1992). The counterparties to these transactions are major international financial institutions; ARCO does not anticipate nonperformance by the counterparties. NOTE 22 Unaudited Quarterly Results
Millions of dollars except per share amounts 1993 1992 -------------------- Sales and other operating revenues (including excise taxes) Quarter ended: March 31 $ 4,507 $ 4,334 June 30 4,670 4,528 September 30 4,553 4,828 December 31 4,757 4,978 -------------------- Total $18,487 $18,668 ==================== Income (loss) before income taxes, minority interest and cumulative effect of changes in accounting principles Quarter ended: March 31 $ 442 $ 338 June 30 461 549 (a) September 30 233 587 December 31 (502)(a) 433 (a) -------------------- Total $ 634 $ 1,907 ==================== Net income (loss) Quarter ended: March 31 $ 260 $ (212) (b) June 30 271 309 (a) September 30 68 332 December 31 (330)(a) 372 (a,c) -------------------- Total $ 269 $ 801 ==================== Earned per share Quarter ended: March 31 $ 1.60 $ (1.31) (b) June 30 $ 1.67 $ 1.91 September 30 $ 0.42 $ 2.06 December 31 $ (2.06) $ 2.30 ====================
(a) See Note 2. (b) The impact of cumulative effect of changes in accounting principles resulted in a net after-tax charge of ($392) million, or ($2.43) per share. (c) Includes $100 million benefit from reduced taxes resulting from adjustments for capital transactions and revisions of previously accrued taxes. 53 SUPPLEMENTAL INFORMATION (UNAUDITED) Oil and Gas Producing Activities The Securities and Exchange Commission (SEC) defines proved oil and gas reserves as those estimated quantities of crude oil, natural gas, and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. ARCO reports reserve estimates to various federal government agencies and commissions. These estimates may cover various regions of crude oil and natural gas classifications within the United States and may be subject to mandated definitions. There have been no reports of total ARCO reserve estimates furnished to federal government agencies or commissions which vary from those reported to the SEC since the beginning of the last fiscal year. Estimated quantities of ARCO's proved oil and gas reserves were as follows:
Petroleum Liquids Natural Gas (million barrels) (billion cubic feet) Domestic Foreign Domestic Foreign ----------------------------------------------- January 1, 1991: Proved reserves 2,720 210 6,256 1,796 Proved developed reserves 2,152 134 5,343 475 December 31, 1991: Proved reserves 2,642 189 5,798 2,405 Proved developed reserves 2,094 131 5,069 534 December 31, 1992: Proved reserves 2,517 211 5,185 3,117 Proved developed reserves 1,915 122 4,552 690 December 31, 1993: Proved reserves 2,259 206 4,725 3,280 Proved developed reserves 1,804 127 4,190 1,120 ==============================================
The changes in proved reserves for the years ended December 31, 1991, 1992 and 1993 were as follows:
Petroleum Liquids Natural Gas (million barrels) (billion cubic feet) Domestic Foreign Domestic Foreign ---------------------------------------------- Reserves at January 1, 1991 2,720 210 6,256 1,796 Revisions of estimates (8) 3 42 69 Improved recovery 89 -- 3 -- Purchases of minerals-in-place 137 2 27 247 Extensions and discoveries 35 2 213 392 Production (244) (28) (511) (95) Consumed in production -- -- (78) (4) Sales of minerals-in-place (87) -- (154) -- -------------------------------------------- Reserves at December 31, 1991 2,642 189 5,798 2,405 Revisions of estimates 40 22 22 44 Improved recovery 39 -- 48 -- Purchases of minerals-in-place 35 -- 37 -- Extensions and discoveries 100 29 145 761 Production (242) (28) (440) (88) Consumed in production -- -- (72) (5) Sales of minerals-in-place (97) (1) (353) -- -------------------------------------------- Reserves at December 31, 1992 2,517 211 5,185 3,117 Revisions of estimates (20) 15 (12) (54) Improved recovery 17 -- 28 -- Purchases of minerals-in-place 3 -- 30 -- Extensions and discoveries 10 11 186 350 Production (221) (29) (332) (117) Consumed in production -- -- (75) (9) Sales of minerals-in-place (47) (2) (285) (7) -------------------------------------------- Reserves at December 31, 1993 2,259 206 4,725 3,280 ============================================
Significant changes to proved oil and gas reserves during 1993 were due to the addition of reserves from the Sirasun gas discovery in Indonesia, the Mustang Island gas discovery offshore Gulf of Mexico and the sale of Lower 48 oil and gas properties. Estimates of petroleum reserves have been made by ARCO engineers. These estimates include reserves in which ARCO holds an economic interest under production-sharing and other types of operating agreements with foreign governments. These estimates do not include probable or possible reserves. Natural gas liquids comprise 12 percent of petroleum liquid proved reserves. The sale of natural gas from the North Slope of Alaska, which is not used in providing fuel in North Slope operations or sold to others on the North Slope, is dependent upon construction of a natural gas transportation system or another marketing alternative. Such gas is not 54 included in ARCO's reserves. There are currently several projects under consideration, including the Alaska Natural Gas Transportation System and the Trans Alaska Gas System. However, there are a number of regulatory, financial, legal and marketing questions regarding the projects that remain unresolved. ARCO has studied various options for marketing North Slope gas over the past few years. However, ARCO Alaska believes that market conditions are not likely to permit implementation of any large gas sales project within the foreseeable future. The aggregate amounts of capitalized costs relating to oil and gas producing activities and the related accumulated depreciation, depletion and amortization as of December 31, 1993, 1992 and 1991 were as follows:
Proved Properties Unproved Properties Millions of dollars Domestic Foreign Domestic Foreign ----------------------------------------- 1993 Gross $14,521 $3,694 $593 $235 Accumulated depreciation, depletion and amortization 8,772 1,925 315 4 ----------------------------------------- Net $ 5,749 $1,769 $278 $231 ========================================= 1992 Gross $15,212 $3,369 $677 $196 Accumulated depreciation, depletion and amortization 8,821 1,718 77 1 ----------------------------------------- Net $ 6,391 $1,651 $600 $195 ========================================= 1991 Gross $16,700 $3,234 $747 $300 Accumulated depreciation, depletion and amortization 9,232 1,603 112 10 ----------------------------------------- Net $ 7,468 $1,631 $635 $290 =========================================
Costs, both capitalized and expensed, incurred in oil and gas producing activities during the three years ended December 31, 1993, 1992 and 1991 were as follows:
Millions of dollars Domestic Foreign Total ------------------------ 1993 Property acquisition costs: Proved properties $ -- $ 3 $ 3 Unproved properties $ 59 $ 2 $ 61 Exploration costs $351 $274 $625 Development costs $435 $441 $876 ======================== 1992 Property acquisition costs: Proved properties $ 13 $ 5 $ 18 Unproved properties $ 41 $ 2 $ 43 Exploration costs $362 $220 $582 Development costs $393 $388 $781 ======================== 1991 Property acquisition costs: Proved properties $508 $ 55 $563 Unproved properties $ 50 $ 9 $ 59 Exploration costs $374 $217 $591 Development costs $619 $258 $877 ========================
Results of operations from oil and gas producing activities (including operating overhead) for the three years ended December 31, 1993, 1992 and 1991 were as follows:
Millions of dollars Domestic Foreign Total --------------------------- 1993 Revenues: Sales $1,639 $807 $2,446 Transfers 1,616 -- 1,616 Other 48 31 79 --------------------------- 3,303 838 4,141 Production costs 1,352 195 1,547 Exploration expenses 457 210 667 Depreciation, depletion and amortization 719 260 979 Other operating expenses 170 147 317 --------------------------- 605 26 631 Income tax expense (252) (49) (301) --------------------------- Results of operations from production activities $ 353 $(23) $ 330 =========================== 1992 Revenues: Sales $2,157 $800 $2,957 Transfers 1,842 -- 1,842 Other 77 41 118 --------------------------- 4,076 841 4,917 Production costs 1,523 233 1,756 Exploration expenses 382 185 567 Depreciation, depletion and amortization 914 235 1,149 Other operating expenses 197 133 330 --------------------------- 1,060 55 1,115 Income tax expense (395) (32) (427) --------------------------- Results of operations from production activities $ 665 $ 23 $ 688 =========================== 1991 Revenues: Sales $2,503 $872 $3,375 Transfers 1,819 -- 1,819 Other 77 41 118 --------------------------- 4,399 913 5,312 Production costs 1,645 229 1,874 Exploration expenses 415 178 593 Depreciation, depletion and amortization 941 236 1,177 Other operating expenses 260 138 398 --------------------------- 1,138 132 1,270 Income tax expense (424) (52) (476) --------------------------- Results of operations from production activities $ 714 $ 80 $ 794 ===========================
The difference between the above results of operations for 1993, 1992 and 1991 and the amounts reported for after-tax oil and gas segment earnings in Note 4 of Notes to Consolidated Financial Statements is primarily marketing-related activities and the exclusion of gains 55 on property sales and unusual items related to the Lower 48 reorganization. Information for 1992 and 1991 has been restated to conform to 1993 formats, primarily the reclassification of allocated overhead from production and exploration costs to other operating expenses and the removal of certain unusual items previously included. The standardized measure of discounted estimated future net cash flows related to proved oil and gas reserves at December 31, 1993, 1992 and 1991 was as follows:
Billions of dollars Domestic Foreign Total ------------------------ 1993 Future cash inflows $24.4 $10.2 $34.6 Future development and production costs 16.5 3.6 20.1 Future income tax expense 2.2 2.2 4.4 ------------------------ Future net cash flows 5.7 4.4 10.1 10% annual discount 2.4 2.1 4.5 ------------------------ Standardized measure of discounted future net cash flows $ 3.3 $ 2.3 $ 5.6 ======================== 1992 Future cash inflows $37.3 $10.9 $48.2 Future development and production costs 20.9 4.4 25.3 Future income tax expense 5.2 2.2 7.4 ------------------------ Future net cash flows 11.2 4.3 15.5 10% annual discount 4.9 2.2 7.1 ------------------------ Standardized measure of discounted future net cash flows $ 6.3 $ 2.1 $ 8.4 ======================== 1991 Future cash inflows $35.7 $ 9.2 $44.9 Future development and production costs 23.1 4.2 27.3 Future income tax expense 3.6 1.7 5.3 ------------------------ Future net cash flows 9.0 3.3 12.3 10% annual discount 3.8 1.5 5.3 ------------------------ Standardized measure of discounted future net cash flows $ 5.2 $ 1.8 $ 7.0 ========================
Primary changes in the standardized measure of discounted estimated future net cash flows for the years ended December 31, 1993, 1992 and 1991 were as follows:
Billions of dollars 1993 1992 1991 --------------------- Sales and transfers of oil and gas, net of production costs $(2.5) $(2.9) $ (2.8) Extensions, discoveries and improved recovery, less related costs .4 1.0 .4 Revisions of estimates of reserves proved in prior years: Quantity estimates -- .3 -- Net changes in price and production costs (4.2) 2.1 (11.5) Purchases/Sales (.3) (.4) .4 Other .1 .5 (1.6) Accretion of discount 1.2 1.0 2.1 Development costs incurred during the period .9 .8 1.1 Net change in income taxes 1.6 (1.0) 4.7 --------------------- Net change $(2.8) $ 1.4 $ (7.2) =====================
Estimated future cash inflows are computed by applying year-end prices of oil and gas to year-end quantities of proved reserves. Future price changes are considered only to the extent provided by contractual arrangements. Estimated future development and production costs are determined by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions. Estimated future income tax expense is calculated by applying year-end statutory tax rates (adjusted for permanent differences and tax credits) to estimated future pretax net cash flows related to proved oil and gas reserves, less the tax basis of the properties involved. These estimates are furnished and calculated in accordance with requirements of the Financial Accounting Standards Board and the SEC. Because of unpredictable variances in expenses and capital forecasts, crude oil and natural gas price changes, largely influenced and controlled by U.S. and foreign governmental actions, and the fact that the bases for such estimates vary significantly, management believes the usefulness of these projections is limited. Estimates of future net cash flows presented do not represent management's assessment of future profitability or future cash flow to ARCO. Management's investment and operating decisions are based on reserve estimates that include proved reserves prescribed by the SEC as well as probable reserves, and on different price and cost assumptions from those used here. 56 It should be recognized that applying current costs and prices and a 10 percent standard discount rate does not convey absolute value. The discounted amounts arrived at are only one measure of the value of proved reserves. Regarding the information on estimated reserve quantities and discounted future net cash flows, ARCO has no long-term supply contracts to purchase from foreign governments or any interest in equity affiliates involved in oil and gas producing activities. Coal Operations Supplemental operating statistics for the coal operations of ARCO for the three years ended December 31, 1993, 1992 and 1991 were as follows:
1993 1992 1991 ---------------------- Coal shipments -- thousand tons: Domestic 37,499 30,634 32,598 Foreign 10,246 9,158 8,961 ---------------------- Total 47,745 39,792 41,559 ====================== Coal reserves -- million tons recoverable: Domestic 1,296 1,236 876 Foreign 214 232 242 --------------------- Total 1,510 1,468 1,118 ===================== Average market price per ton of coal: Domestic $ 9.12 $ 9.79 $ 9.20 Foreign $29.69 $30.84 $32.70 Composite price $13.53 $14.64 $14.27 ======================
The significant change to reserves in 1992 was due to the acquisition of the West Black Thunder lease acreage. 57 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding executive officers of the Company is included in Part I. For the other information called for by Items 10, 11, 12 and 13, reference is made to the Registrant's definitive proxy statement for its Annual Meeting of Stockholders, to be held on May 2, 1994, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1993, and which is incorporated herein by reference, except for the material included under the captions "Report of Compensation Committee" and "Performance Graph." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT: 1 AND 2. Financial Statements and Financial Statement Schedules: These documents are listed in the Index to Consolidated Financial Statements and Financial Statement Schedules. 3. Exhibits: 3.1 Certificate of Incorporation of Atlantic Richfield Company as amended through May 3,1993 filed herewith; proposed amendment to Certificate of Incorporation is included in Appendix A of Registrant's Proxy Statement dated March 14, 1994 (the "1994 Proxy Statement") filed with the Securities and Exchange Com- mission (the "Commission") under File No. 1-1196 and incorpo- rated herein by reference. 3.2 By-Laws of Atlantic Richfield Company as amended through Janu- ary 23, 1989 filed herewith. 4.1 Rights Agreement dated as of May 27, 1986 between the Company and Morgan Guaranty Trust Company of New York, as Rights Agent, filed as Exhibit 2.1 to the Company's Form 8-A filed with the Commission under File No. 1-1196 on June 3, 1986, and incorporated herein by reference. 4.2 Indenture dated as of May 15, 1985 between the Company and The Chase Manhattan Bank, N.A., filed as Exhibit 4.4 to the Company's Quarterly Report on Form 10-Q for the six months ended June 30, 1985, File No. 1-1196, and incorporated herein by reference. 58 4.3 Indenture, dated as of January 1, 1992, between the Company and The Bank of New York, filed as an exhibit, bearing the same number, to the Company's Registration Statement on Form S-3 (No. 33-44925), filed with the Commission on January 6, 1992, and incorporated herein by reference. 4.4 Instruments defining the rights of holders of long-term debt which is not registered under the Securities Exchange Act of 1934 are not filed because the total amount of securities authorized under any such instrument does not exceed 10 percent of the consolidated total assets of the Company. The Company agrees to furnish a copy of any such instrument to the Commis- sion upon request. 10.1(a) Atlantic Richfield Company Supplementary Executive Retirement Plan, as adopted by the Board of Directors of the Company on March 26, 1990, and effective on October 1, 1990, filed as Ex- hibit 10.2 to the Company's Form 10-K Report for the year 1990, File No. 1-1196, and incorporated herein by reference. 10.1(b) Amendment No. 1 to Atlantic Richfield Company Supplementary Executive Retirement Plan effective March 22, 1993, filed as Exhibit 10 to the Company's Form 10-Q Report for the quarterly period ended June 30, 1993, File No. 1-1196, and incorporated herein by reference. 10.2(a) Atlantic Richfield Company Executive Deferral Plan, as adopted by the Board of Directors of the Company on March 26, 1990 and effective on October 1, 1990, filed as Exhibit 10.3 to the Company's Form 10-K Report for the year 1990, File No. 1-1196, and incorporated herein by reference. 10.2(b) Amendment No. 1 to Atlantic Richfield Company Executive Defer- ral Plan effective July 27, 1992, filed as an exhibit, bearing the same number, to the Company's Form 10-K Report for the year 1992, File No. 1-1196, and incorporated herein by reference. 10.3 Atlantic Richfield Executive Medical Insurance Plan-Summary Plan Description, as in effect January 1, 1994, filed herewith. 10.4(a) Atlantic Richfield Company Executive Supplementary Savings Plan II, as amended, restated and effective on July 1, 1988, filed as Exhibit 10.6 to the Company's Form 10-K Report for the year 1988, File No. 1-1196, and incorporated herein by reference. 10.4(b) Amendment No. 1 to Atlantic Richfield Company Executive Sup- plementary Savings Plan II as amended and effective on January 1, 1989, filed as Exhibit 10.6(b) to the Company's Form 10-K Report for the year 1989, File No. 1-1196, and incorporated herein by reference. 10.5 Atlantic Richfield Company Policy on Financial Counseling and Individual Income Tax Service, as revised effective January 1, 1991, filed as Exhibit 10.6 to the Company's Form 10-K Report for the year 1990, File No. 1-1196, and incorporated herein by reference. 10.6 Annual Incentive Plan, as adopted by the Board of Directors of the Company on November 26, 1984, and effective on that date, as amended through January 1, 1991, filed as Exhibit 10.7 to the Company's Form 10-K Report for the year 1990, File No. 1-1196, and incorporated herein by reference; proposed amendment to the Annual Incentive Plan is included in Appendix B of Reg-istrant's 1994 Proxy Statement filed with the Commission under File No. 1-1196 and incorporated herein by reference. 59 10.7 Atlantic Richfield Company's 1985 Executive Long-Term Incen- tive Plan, as adopted by the Board of Directors of the Company on May 28, 1985, and effective on that date, as amended through February 24, 1992, filed as Exhibit 10.8 to the Company's Form 10-K Report for the year 1991, File No. 1-1196, and incorporated herein by reference, and as amended on Febru- ary 22, 1993 and effective on that date, filed as an exhibit bearing the same number, to the Company's 10-K Report for the year 1992, File No. 1-1196, and incorporated herein by reference. 10.8 Atlantic Richfield Company Executive Life Insurance Plan--Sum- mary Plan Description, as in effect January 1, 1994, filed herewith. 10.9 Atlantic Richfield Company Executive Long-Term Disability Plan--Summary Plan Description, as in effect January 1, 1994, filed herewith. 10.10 Form of Indemnity Agreement adopted by the Board of Directors on January 26, 1987 and executed in February 1987 by the Com- pany and each of its directors and officers, included in Ex- hibit A to the 1987 Proxy Statement (filed with the Commission under File No. 1-1196) and incorporated herein by reference. 10.11 Exchange Agreement between Tosco Corporation and Atlantic Richfield Company dated October 2, 1986, as amended by letter dated November 5, 1986, filed as Exhibit 10.14, to the Company's Form 10-K Report for the year 1986, File No. 1-1196, and incorporated herein by reference. 10.12 Retirement Plan for Outside Directors effective October 1, 1990, as amended March 31, 1993, filed as Exhibit 10 to the Company's Form 10-Q Report for the quarterly period ended March 31, 1993, File No. 1-1196, and incorporated herein by reference. 10.13(a) Stock Option Plan for Outside Directors effective December 17, 1990, filed as Exhibit 10.14 to the Company's Form 10-K Report for the year 1990, File No. 1-1196, and incorporated herein by reference. 10.13(b) Amendment No. 1 to Stock Option Plan for Outside Directors effective June 22, 1992, filed as an exhibit, bearing the same number, to the Company's Form 10-K Report for the year 1992, File No. 1-1196, and incorporated herein by reference. 10.14 Special Incentive Plan, as adopted by the Board of Directors of the Company on February 28, 1994, and effective on that date, is included in Appendix C of Registrant's Proxy State- ment filed with the Commission under File No. 1-1196 and in- corporated herein by reference. 22 Subsidiaries of the Registrant. 23 Consent of Coopers & Lybrand. Copies of exhibits will be furnished upon prepayment of 25 cents per page. Requests should be addressed to the Corporate Secretary. (b) REPORTS ON FORM 8-K: No Current Reports on Form 8-K were filed during the quarter ended December 31, 1993, and thereafter through March 1, 1994. 60 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the following registration statements of Atlantic Richfield Company, Registration Statement on Form S-8 (No. 33-43830), Registration Statement on Form S-8 (No. 33-21558), Post- Effective Amendment No. 4 to Registration Statement on Form S-8 (No. 33- 21160), Post-Effective Amendment No. 4 to Registration Statement on Form S-8 (No. 33-23639), Post-Effective Amendment No. 4 to Registration Statement on Form S-8 (No. 33-21162), Post-Effective Amendment No. 4 to Registration Statement on Form S-8 (No. 33-21553), Post-Effective Amendment No. 4 to Registration Statement on Form S-8 (No. 33-23640), and Post-Effective Amendment No. 4 to Registration Statement on Form S-8 (No. 33-21552) of our report dated February 11, 1994, on our audits of the consolidated financial statements and financial statement schedules of Atlantic Richfield Company as of December 31, 1993 and 1992 and for each of the three years in the period ended December 31, 1993, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND Los Angeles, California March 1, 1994 61 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 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 /s/ Lodwrick M. Cook By ___________________________________ Lodwrick M. Cook Chairman of the Board and Chief Executive Officer FEBRUARY 28, 1994 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE /s/ Lodwrick M. Cook Chairman of the February 28, 1994 - ------------------------------------- Board, Chief Lodwrick M. Cook Principal executive Executive Officer officer and Director /s/ Mike R. Bowlin President, Chief February 28, 1994 - ------------------------------------- Operating Officer Mike R. Bowlin and Director /s/ Ronald J. Arnault Executive Vice February 28, 1994 - ------------------------------------- President, Chief Ronald J. Arnault Principal Financial Officer financial officer and Director /s/ James A. Middleton Executive Vice February 28, 1994 - ------------------------------------- President and James A. Middleton Director /s/ William E. Wade, Jr. Executive Vice February 28, 1994 - ------------------------------------- President and William E. Wade, Jr. Director 62 SIGNATURE TITLE DATE /s/ Frank D. Boren Director February 28, 1994 - ------------------------------------- Frank D. Boren /s/ Richard H. Deihl Director February 28, 1994 - ------------------------------------- Richard H. Deihl /s/ John Gavin Director February 28, 1994 - ------------------------------------- John Gavin /s/ Hanna H. Gray Director February 28, 1994 - ------------------------------------- Hanna H. Gray /s/ Philip M. Hawley Director February 28, 1994 - ------------------------------------- Philip M. Hawley /s/ William F. Kieschnick Director February 28, 1994 - ------------------------------------- William F. Kieschnick /s/ Kent Kresa Director February 28, 1994 - ------------------------------------- Kent Kresa /s/ David T. McLaughlin Director February 28, 1994 - ------------------------------------- David T. McLaughlin /s/ John B. Slaughter Director February 28, 1994 - ------------------------------------- John B. Slaughter /s/ Hicks B. Waldron Director February 28, 1994 - ------------------------------------- Hicks B. Waldron /s/ Henry Wendt Director February 28, 1994 - ------------------------------------- Henry Wendt /s/ Allan L. Comstock Vice President and February 28, 1994 - ------------------------------------- Controller Allan L. Comstock Principal accounting officer 63 SCHEDULE V ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT (IN MILLIONS OF DOLLARS) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
(COLUMN A) (COLUMN B) (COLUMN C) (COLUMN D) (COLUMN E) (COLUMN F) - ----------------------------------------------------------------------------------- OTHER BALANCE AT CHANGES BALANCE AT BEGINNING ADDITIONS RETIREMENTS ADD CLOSE OF CLASSIFICATION OF PERIOD AT COST OR SALES (DEDUCT) PERIOD - ----------------------------------------------------------------------------------- YEAR 1993 Resources: Oil and gas Alaska................ $ 7,158 $ 416 $ 27 $(162)(b) $ 7,385 Other................. 12,385 967 1,354(a) (283)(b) 11,715 Coal................... 1,324 94 73 (49) 1,296 Products: Refining and marketing. 3,600 345 294 (4) 3,647 Transportation TAPS.................. 2,131 9 2 (2) 2,136 Other................. 1,415 50 13 -- 1,452 Intermediate chemicals and specialty products.............. 3,165 181 20 (69) 3,257 Other................... 620 8 15 (7) 606 ------- ------ ------ ----- ------- Total............... $31,798 $2,070 $1,798 $(576) $31,494 ======= ====== ====== ===== ======= YEAR 1992 Resources: Oil and gas Alaska................ $ 7,083 $ 294 $ 164 $ (55) $ 7,158 Other................. 13,622 955 1,633(a) (559)(c) 12,385 Coal................... 1,129 308 33 (80) 1,324 Products: Refining and marketing. 3,320 315 41 6 3,600 Transportation TAPS.................. 2,119 16 -- (4) 2,131 Other................. 1,360 78 25 2 1,415 Intermediate chemicals and specialty products.............. 2,968 295 32 (66) 3,165 Other................... 672 17 66 (3) 620 ------- ------ ------ ----- ------- Total............... $32,273 $2,278 $1,994 $(759) $31,798 ======= ====== ====== ===== =======
(See footnotes on following page.) 64 SCHEDULE V (CONTINUED) ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT (IN MILLIONS OF DOLLARS) - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
(COLUMN A) (COLUMN B) (COLUMN C) (COLUMN D) (COLUMN E) (COLUMN F) - ---------------------------------------------------------------------------------- OTHER BALANCE AT CHANGES BALANCE AT BEGINNING ADDITIONS RETIREMENTS ADD CLOSE OF CLASSIFICATION OF PERIOD AT COST OR SALES (DEDUCT) PERIOD - ---------------------------------------------------------------------------------- YEAR 1991 Resources: Oil and gas Alaska................ $ 6,801 $ 343 $ 36 $ (25) $ 7,083 Other................. 13,376 1,547 700(a) (601)(d) 13,622 Coal................... 876 305 24 (28) 1,129 Products: Refining and marketing. 2,915 448 48 5 3,320 Transportation TAPS.................. 2,100 33 11 (3) 2,119 Other................. 1,298 91 28 (1) 1,360 Intermediate chemicals and specialty products.............. 2,467 435 42 108(e) 2,968 Other................... 331 37 20 324(f) 672 ------- ------ ---- ----- ------- Total............... $30,164 $3,239 $909 $(221) $32,273 ======= ====== ==== ===== =======
- -------- (a) Primarily the sale of various oil and gas properties. (b) Primarily dry hole costs charged to income. (c) Primarily an equity translation adjustment at December 31, 1992 and dry hole costs charged to income. (d) Primarily the reclassification of assets associated with the ARCO exploration and production technology division and dry hole costs charged to income. (e) Primarily the Union Carbide Chemicals and Plastics Company, Inc. assets transferred from deferred charges upon finalization of purchase. (f) Primarily the reclassification of assets associated with the ARCO exploration and production technology division. The methods used in computing the annual provision for depreciation, depletion and amortization of property, plant and equipment are presented in Note 1 of Notes to Consolidated Financial Statements herein. 65 SCHEDULE VI ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT (IN MILLIONS OF DOLLARS) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
(COLUMN A) (COLUMN B) (COLUMN C) (COLUMN D) (COLUMN E) (COLUMN F) - ---------------------------------------------------------------------------------- ADDITIONS CHARGED RETIREMENTS, OTHER BALANCE AT TO PROFIT RENEWALS CHANGES BALANCE AT BEGINNING AND LOSS AND ADD CLOSE OF CLASSIFICATION OF PERIOD OR INCOME REPLACEMENTS (DEDUCT) PERIOD - ---------------------------------------------------------------------------------- YEAR 1993 Resources: Oil and gas Alaska................ $ 3,725 $ 344 $ 26 $ -- $ 4,043 Other................. 6,899 724 1,078(a) 436(b) 6,981 Coal................... 290 54 62 15 297 Products: Refining and marketing. 1,256 200 144 (1) 1,311 Transportation TAPS.................. 958 64 2 1 1,021 Other................. 554 37 10 (1) 580 Intermediate chemicals and specialty products.............. 935 188 17 (22) 1,084 Other................... 265 41 13 18 311 ------- ------ ------ ------ ------- Total................ $14,882 $1,652 $1,352 $ 446 $15,628 ======= ====== ====== ====== ======= YEAR 1992 Resources: Oil and gas Alaska................ $ 3,511 $ 359 $ 145 $ -- $ 3,725 Other................. 7,283 848 1,165(a) (67) 6,899 Coal................... 288 47 21 (24) 290 Products: Refining and marketing. 1,116 177 37 -- 1,256 Transportation TAPS.................. 898 60 -- -- 958 Other................. 538 34 18 -- 554 Intermediate chemicals and specialty products.............. 802 164 11 (20) 935 Other................... 285 47 66 (1) 265 ------- ------ ------ ------ ------- Total................ $14,721 $1,736 $1,463 $(112) $14,882 ======= ====== ====== ====== =======
(See footnotes on following page.) 66 SCHEDULE VI (CONTINUED) ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT (IN MILLIONS OF DOLLARS) - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
(COLUMN A) (COLUMN B) (COLUMN C) (COLUMN D) (COLUMN E) (COLUMN F) - ----------------------------------------------------------------------------------- ADDITIONS CHARGED RETIREMENTS, OTHER BALANCE AT TO PROFIT RENEWALS CHANGES BALANCE AT BEGINNING AND LOSS AND ADD CLOSE OF CLASSIFICATION OF PERIOD OR INCOME REPLACEMENTS (DEDUCT) PERIOD - ----------------------------------------------------------------------------------- YEAR 1991 Resources: Oil and gas Alaska................ $ 3,199 $ 346 $ 34 $ -- $ 3,511 Other................. 7,156 906 610(a) (169)(c) 7,283 Coal................... 221 37 8 38 288 Products: Refining and marketing. 997 160 46 5 1,116 Transportation TAPS.................. 849 61 12 -- 898 Other................. 527 33 23 1 538 Intermediate chemicals and specialty products.............. 699 134 31 -- 802 Other................... 116 24 21 166(c) 285 ------- ------ ---- ----- ------- Total................ $13,764 $1,701 $785 $ 41 $14,721 ======= ====== ==== ===== =======
- -------- (a) Primarily the sale of various oil and gas properties. (b) Primarily the writedown of various oil and gas properties and the Company's office building and parking structure in Dallas, Texas. (c) Primarily the reclassification of assets associated with the ARCO exploration and production technology division. 67 SCHEDULE VIII ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS (IN MILLIONS OF DOLLARS) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
(COLUMN A) (COLUMN B) (COLUMN C) (COLUMN D) (COLUMN E) - ------------------------------------------------------------------------------ ADDITIONS ---------------- BALANCE AT CHARGED CHARGED DEDUCTIONS BALANCE AT BEGINNING TO TO OTHER FROM CLOSE OF DESCRIPTION OF PERIOD INCOME ACCOUNTS RESERVES PERIOD - ------------------------------------------------------------------------------ YEAR 1993 Amounts deducted from applicable assets: Accounts receivable....... $ 15 $ 2 $-- $ 3(a) $ 14 ---- ---- --- ---- ---- Affiliated companies accounted for on the equity method............ $ 8 $ -- $-- $ -- $ 8 ---- ---- --- ---- ---- Other investments and long-term receivables.... $ 43 $ 7 $-- $ -- $ 50 ---- ---- --- ---- ---- Reserves included in other deferred liabilities and credits and other current liabilities: Dismantlement, restoration and reclamation.......... $716 $136 $-- $ 64 $788 ---- ---- --- ---- ---- Reduction in force........ $ 97 $ 57 $-- $ 63 $ 91 ---- ---- --- ---- ---- Insurance ................ $196 $ 35 $-- $ 46 $185 ---- ---- --- ---- ---- Environmental remediation. $682 $172 $-- $206 $648 ---- ---- --- ---- ---- Other..................... $308 $109 $-- $ 91 $326 ---- ---- --- ---- ---- YEAR 1992 Amounts deducted from applicable assets: Accounts receivable....... $ 17 $ -- $-- $ 2(a) $ 15 ---- ---- --- ---- ---- Affiliated companies accounted for on the equity method............ $ 8 $ -- $-- $ -- $ 8 ---- ---- --- ---- ---- Other investments and long-term receivables.... $ 51 $ -- $-- $ 8 $ 43 ---- ---- --- ---- ---- Reserves included in other deferred liabilities and credits and other current liabilities: Dismantlement, restoration and reclamation.......... $692 $ 98 $-- $ 74 $716 ---- ---- --- ---- ---- Reduction in force........ $150 $ 26 $-- $ 79 $ 97 ---- ---- --- ---- ---- Insurance ................ $219 $ 20 $-- $ 43 $196 ---- ---- --- ---- ---- Environmental remediation. $729 $160 $-- $207 $682 ---- ---- --- ---- ---- Other..................... $261 $104 $19 $ 76 $308 ---- ---- --- ---- ----
(See footnotes on following page.) 68 SCHEDULE VIII (CONTINUED) ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS (IN MILLIONS OF DOLLARS) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
(COLUMN A) (COLUMN B) (COLUMN C) (COLUMN D) (COLUMN E) - ------------------------------------------------------------------------------ ADDITIONS ---------------- BALANCE AT CHARGED CHARGED DEDUCTIONS BALANCE AT BEGINNING TO TO OTHER FROM CLOSE OF DESCRIPTION OF PERIOD INCOME ACCOUNTS RESERVES PERIOD - ------------------------------------------------------------------------------ YEAR 1991 Amounts deducted from applicable assets: Accounts receivable....... $ 12 $ 6 $-- $ 1(a) $ 17 ---- ---- --- ---- ---- Affiliated companies accounted for on the equity method............ $ 8 $ -- $-- $ -- $ 8 ---- ---- --- ---- ---- Other investments and long-term receivables.... $ 47 $ -- $ 4 $ -- $ 51 ---- ---- --- ---- ---- Reserves included in other deferred liabilities and credits and other current liabilities: Dismantlement, restoration and reclamation.......... $650 $ 86 $-- $ 44 $692 ---- ---- --- ---- ---- Reduction in force........ $ -- $288 $-- $138(b) $150 ---- ---- --- ---- ---- Insurance ................ $208 $ 56 $-- $ 45 $219 ---- ---- --- ---- ---- Environmental remediation. $737 $153 $-- $161 $729 ---- ---- --- ---- ---- Other..................... $230 $ 45 $17 $ 31 $261 ---- ---- --- ---- ----
- -------- (a) Write-off for uncollectible accounts, net of recoveries. (b) Primarily a reclassification of pension liability. 69 SCHEDULE IX ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE IX--SHORT-TERM BORROWINGS (DOLLARS IN MILLIONS) - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
(COLUMN A) (COLUMN B) (COLUMN C) (COLUMN D) (COLUMN E) (COLUMN F) - ------------------------------------------------------------------------------------- MAXIMUM AVERAGE WEIGHTED CATEGORY OF WEIGHTED AMOUNT AMOUNT AVERAGE AGGREGATE BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST SHORT-TERM AT END INTEREST DURING THE DURING THE RATE DURING BORROWINGS OF PERIOD RATE PERIOD PERIOD(a) THE PERIOD(b) - ------------------------------------------------------------------------------------- YEAR 1993 Notes payable, including commercial paper....... $1,510 4.3 $1,779 $1,659 4.1 YEAR 1992 Notes payable, including commercial paper....... $1,494 5.0 $1,837 $1,451 5.4 YEAR 1991 Notes payable, including commercial paper....... $1,807 6.5 $1,807 $1,399 7.3
- -------- (a) The average amount outstanding equals the sum of the amounts outstanding at each month-end divided by twelve. (b) The weighted average interest rate equals the sum of each outstanding amount times its rate for each day in the period, divided by the total number of days in the period times the average amount outstanding during the period. 70 EX-3 2 CERT. OF INC., BYLAWS CERTIFICATE OF INCORPORATION ATLANTIC RICHFIELD COMPANY AS AMENDED MAY 3, 1993 CERTIFICATE OF INCORPORATION OF ATLANTIC RICHFIELD COMPANY (A DELAWARE CORPORATION) ARTICLE I NAME AND TERM OF EXISTENCE A. The name of the Company is Atlantic Richfield Company. B. The term of existence of the Company is perpetual. ARTICLE II ADDRESS AND REGISTERED AGENT The location and post office address of the Company's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle 19801. The name of the registered agent at such address is The Corporation Trust Company. ARTICLE III DESCRIPTION OF BUSINESS The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV CAPITAL STOCK A. AUTHORIZED SHARES The aggregate number of shares of Capital Stock which the Company shall have authority to issue is six hundred seventy-six million, thirty-six thousand, three hundred thirty-two (676,036,332) shares ("Capital Stock"), to be divided into four classes consisting of: 1. Seventy-five million (75,000,000) shares of Preferred Stock of the par value of One Cent ($.01) each (hereinafter sometimes called "Preferred Stock"), 2. Ninety-four thousand, three hundred sixteen (94,316) shares of $3.00 Preference Stock of the par value of One Dollar ($1.00) each (hereinafter sometimes called "$3.00 Preference Stock"), 3. Nine hundred forty-two thousand, sixteen (942,016) shares of $2.80 Cumulative Convertible Preference Stock of the par value of One Dollar ($1.00) each (hereinafter sometimes called "$2.80 Preference Stock"), and 4. Six hundred million (600,000,000) shares of Common Stock of the par value of Two Dollars Fifty Cents ($2.50) each (hereinafter sometimes called "Common Stock"). The following is a description of each class of capital stock and a statement of the preferences, qualifications, privileges, limitations, restrictions, and other special or relative rights granted to or imposed upon the shares of each class: 1 B. PREFERRED STOCK The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix a designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof; provided, however, that the Preferred Stock shall be subordinate as to dividends and rights upon liquidation, dissolution and winding up to the $3.00 Preference Stock and the $2.80 Preference Stock. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof than outstanding) by the affirmative vote of the holders of stock of the Company entitled to vote thereon having a majority of the votes entitled to be cast, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the certificate or certificates establishing the series of Preferred Stock. C. PREFERENCE STOCK 1. ISSUANCE OF PREFERENCE STOCK. The Company is authorized to issue the following two classes of Preference Stock: $3.00 Preference Stock $2.80 Preference Stock A. The shares of $3.00 Preference Stock may be divided into and issued in series. Each series shall be so designated as to distinguish the shares thereof from the shares of all other series. All shares of $3.00 Preference Stock shall be identical except as to the relative rights and preferences, set forth in this Certificate. There may be variations between different series, namely, the amount payable upon shares in the event of liquidation of the Company and the price or prices at which shares may be redeemed. The Board of Directors is hereby expressly vested with authority, by resolution, to divide the $3.00 Preference Stock into series and, within the limitations prescribed by law and by this Certificate, to fix and determine at the time of the establishment of any series the relative rights and preferences of any series so established. The series of the authorized shares of $3.00 Preference Stock of the Company designated $3.00 Cumulative Convertible Preference Stock shall consist of ninety-four thousand, three hundred sixteen (94,316) shares; and the shares of said series shall have, in addition to the rights and preferences granted by law and by the other provisions of this Certificate, the following relative rights and preferences: (i) The amount which, in the event of voluntary or involuntary liquidation of the Company, shall be payable for shares of said series prior to any payment to the holders of Common Stock or of any other class of stock of the Company ranking as to assets subordinate to the $3.00 Preference Stock shall be Eighty Dollars ($80.00) for each share of said series (in addition to accrued and unpaid dividends). (ii) The price for each share at which shares may be redeemed at the option of the Company is Eighty-Two Dollars ($82.00). B. The authorized shares of $2.80 Preference Stock shall have, in addition to the rights and preferences granted by law and by the other provisions of this Certificate, the following rights and preferences: (i) The amount which, in the event of voluntary or involuntary liquidation of the Company, shall be payable for said shares prior to any payment to the holders of Common Stock or any other class of stock of the Company ranking as to assets subordinate to the $2.80 Preference Stock shall be Seventy Dollars ($70.00) for each share (in addition to accrued and unpaid dividends). (ii) The price for each share at which shares may be redeemed at the option of the Company is Seventy Dollars ($70.00). 2 2. DIVIDENDS. The holders of shares of Preference Stock shall be entitled to receive, when and as declared by the Board of Directors, dividends at the rate of Three Dollars ($3.00) per share per year for $3.00 Preference Stock and at the rate of Two Dollars and Eighty Cents ($2.80) per share per year for $2.80 Preference Stock, and no more, payable quarterly on the twentieth day of each March, June, September and December. Such dividends shall be cumulative from the quarterly dividend payment date next preceding the date of issue of each share, unless the date of issue is a quarterly dividend payment date or a date between the record date for the determination of holders of Preference Stock entitled to receive a quarterly dividend and the date of payment of such quarterly dividend, in either of which events such dividends shall be cumulative from such quarterly dividend payment date. In case dividends for any quarterly dividend period are not paid in full, all shares of Preference Stock and all shares of any class or classes of stock of the Company ranking as to dividends on a parity with the Preference Stock shall participate ratably in the payment of dividends for such period in proportion to the full amounts of dividends for such period to which they are respectively entitled. No dividends shall be paid or set apart for payment or declared on the Common Stock or on any other class of stock of the Company ranking as to dividends subordinate to the Preference Stock (other than dividends payable in Common Stock or in any other class of stock of the Company ranking as to dividends and assets subordinate to the Preference Stock or dividends paid or set apart for payment or declared in order to comply with law or with a governmental or court order or decree), and no payment shall be made to any sinking fund for any class of stock of the Company ranking as to dividends or assets on a parity with or subordinate to the Preference Stock, until dividends payable for all past quarterly dividend periods on all outstanding shares of Preference Stock have been paid, or declared and set apart for payment, in full. 3. LIQUIDATION OF THE COMPANY. In the event of voluntary or involuntary liquidation of the Company, the holders of shares of Preference Stock shall be entitled to receive from the assets of the Company (whether capital or surplus), prior to any payment to the holders of Common Stock or of any other class of stock of the Company ranking as to assets subordinate to the Preference Stock, the amount per share which shall have been fixed and determined with respect to such Preference Stock plus an amount equal to the accrued and unpaid dividends thereon computed to the date on which payment thereof is made available, whether or not earned or declared. After such payments to the holders of shares of Preference Stock, any balance then remaining shall be paid to the holders of the Common Stock or of any other class of stock of the Company ranking as to assets subordinate to the Preference Stock, as they may be entitled. If, upon liquidation of the Company, its assets are not sufficient to pay in full the amounts so payable to the holders of shares of Preference Stock, all shares of Preference Stock shall participate ratably in the distribution of assets in proportion to the full amounts to which they are respectively entitled. 4. RANK. The Preferred Stock shall be subordinate with respect to dividends and rights upon liquidation, dissolution or winding up to the Preference Stock. 5. CONVERSION PROVISIONS. (a) Shares of Preference Stock, may, at the option of the holder, be converted into Common Stock of the Company (as such shares may be constituted on the conversion date) at the rate of six and eight-tenths (6.8) shares of Common Stock for each share of $3.00 Preference Stock, and at the rate of two and four- tenths (2.4) shares of Common Stock for each share of $2.80 Preference Stock, subject to adjustment as provided herein, provided that, as to any shares of Preference Stock which shall have been called for redemption, the conversion right shall terminate at the close of business on the fifth full business day prior to the date fixed for redemption or at such later time as may be fixed by the Board of Directors of the Company. 3 (b) The holder of a share or shares of Preference Stock may exercise the conversion right as to any share or shares thereof by delivering to the Company during regular business hours, at the office of any transfer agent of the Company for the Preference Stock or at such other place as may be designated by the Company, the certificate or certificates for the shares to be converted, duly endorsed or assigned in blank or to the Company (if required by it), accompanied by written notice stating that the holder elects to convert such shares and stating the name or names (with address or addresses) in which the certificate or certificates for Common Stock are to be issued. Conversion shall be deemed to have been effected on the date when such delivery is made and such date is referred to herein as the "conversion date." As promptly as practicable thereafter the Company shall issue and deliver to or upon the written order of such holder, at such office or other place designated by the Company, a certificate or certificates for the number of full shares of Common Stock to which the stockholder is entitled and a check, cash, scrip certificate or other adjustment in respect of any fraction of a share as provided in subparagraph 5(d) below. The person in whose name the certificate or certificates for Common Stock are to be issued shall be deemed to have become a stockholder of record on the conversion date unless the transfer books of the Company are closed on that date, in which event the stockholder shall be deemed to have become a stockholder of record on the next succeeding date on which the transfer books are open, but the conversion rate shall be that in effect on the conversion date. (c) No payment or adjustment shall be made for dividends accrued on any shares of Preference Stock converted or for dividends on any shares of Common Stock issuable on conversion, but until all dividends accrued and unpaid on such Preference Stock up to the quarterly dividend payment date next preceding the conversion date shall have been paid to the holder of the shares of Preference Stock converted or to his assigns, or declared and set apart for such payment, in full, no dividends shall be paid or set apart for payment or declared on the Common Stock or on any other class of stock of the Company ranking as to dividends subordinate to the Preference Stock (other than dividends payable in Common Stock or in any other class of stock of the Company ranking as to dividends and assets subordinate to the Preference Stock or dividends paid or set apart for payment or declared in order to comply with law or with a governmental or court order or decree) and no payment shall be made to any sinking fund for any class of stock of the Company ranking as to dividends or assets on a parity with or subordinate to the Preference Stock. (d) The Company shall not be required to issue any fraction of a share upon conversion of any share or shares of Preference Stock. If more than one share of Preference Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the total number of shares of Preference Stock so surrendered. If any fractional interest in a share of Common Stock would be deliverable upon conversion, the Company shall make an adjustment therefor in cash unless its Board of Directors shall have determined to adjust fractional interests by issuance of scrip certificates or in some other manner. Adjustment in cash shall be made on the basis of the current market value of one share of Common Stock, which shall be taken to be the last reported sale price of the Company's Common Stock on the New York Stock Exchange on the last business day before the conversion date or, if there was no reported sale on that day, the average of the closing bid and asked quotations on that Exchange on that day or, if the Common Stock was not then listed on that Exchange, the average of the lowest bid and the highest asked quotations in the over-the- counter market on that day. (e) The issuance of Common Stock on conversion of Preference Stock shall be without charge to the converting holder of Preference Stock for any tax in respect of the issuance thereof, but the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares in any name other than that of the holder of record on the books of the Company of the shares of Preference Stock converted, and the Company shall not be required to issue or deliver any certificate for shares of Common Stock unless and until the person requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. (f) The conversion rates provided in subparagraph 5(a) shall be subject to the following adjustments, which shall be made to the nearest one- hundredth of a share of Common Stock or, if none to the next lower one- hundredth: 4 (i) If the Company shall pay to the holders of its Common Stock a dividend in shares of Common Stock or in securities convertible into Common Stock, the conversion rate in effect immediately prior to the record date fixed for the determination of the holders of Common Stock entitled to such dividend shall be proportionately increased, effective at the opening of business on the next following full business day. (ii) If the Company shall split the outstanding shares of its Common Stock into a greater number of shares or combine the outstanding shares into a smaller number, the conversion rate in effect immediately prior to such action shall be proportionately increased in the case of a split or decreased in the case of a combination, effective at the opening of business on the full business day next following the day such action becomes effective. (iii) If the Company shall issue to the holders of its Common Stock rights or warrants to subscribe for or purchase shares of its Common Stock at a price less than the Current Market Price (as defined below in this subparagraph) of the Company's Common Stock at the record date fixed for the determination of the holders of Common Stock entitled to such rights or warrants, the conversion rate in effect immediately prior to said record date shall be increased, effective at the opening of business on the next following full business day, to an amount determined by multiplying such conversion rate by a fraction the numerator of which is the number of shares of Common Stock of the Company outstanding immediately prior to said record date plus the number of additional shares of its Common Stock offered for subscription or purchase and the denominator of which is said number of shares outstanding immediately prior to said record date plus the number of shares of Common Stock of the Company which the aggregate subscription or purchase price of the total number of shares so offered would purchase at the Current Market Price of the Company's Common Stock at said record date. Notwithstanding the preceding sentence, if the Established Market Price (as defined below in this subparagraph) of the rights or warrants in the case of a particular issue thereof is less than Thirty-seven and One-half Cents ($0.375) per right or warrant in the case of $3.00 Preference Stock or is less than One Dollar ($1.00) per right or warrant in the case of $2.80 Preference Stock, the increase in the conversion rate shall be postponed and the amount of such Established Market Price shall be carried forward and applied as provided in subparagraph 5(f)(v). As used in this subparagraph 5(f)(iii) the term "Current Market Price" at said record date shall mean the average of the daily last reported sale prices per share of the Company's Common Stock on the New York Stock Exchange during the twenty (20) consecutive full business days commencing with the thirtieth (30th) full business day before said record date, provided that if there was no reported sale on any such day or days there shall be substituted the average of the closing bid and asked quotations on that Exchange on that day, and provided further that if the Common Stock was not listed on that Exchange on any such day or days there shall be substituted the average of the lowest bid and the highest asked quotations in the over-the- counter market on that day. As used in this subparagraph 5(f)(iii) the term "Established Market Price" of the rights or warrants shall mean the average of the means between the reported high and low sale prices per right or warrant on the New York Stock Exchange during the first three business days on which the rights or warrants are traded on that Exchange, provided that if an over-the- counter market for the rights or warrants is established on any day before they are traded on that Exchange there shall be substituted the mean between the lowest bid and the highest asked quotations in the over-the-counter market on that day. (iv) If the Company shall distribute to the holders of its Common Stock any evidences of its indebtedness, or any rights or warrants to subscribe for any security other than its Common Stock, or any other assets (excluding dividends and distributions in cash to the extent permitted by law), the conversion rate in effect immediately prior to the record date fixed for the determination of the holders of Common Stock entitled to such distribution shall be increased, effective at the opening of business on the next following full business day, to an amount determined by multiplying such conversion rate by a fraction the numerator of which is the Current Market Price (as defined in subparagraph 5(f)(iii), of the Company's Common Stock at said record date and the denominator of which is such Current Market Price less the fair market value (as determined by the Board of Directors, whose determination, in the absence of fraud, shall be conclusive) of the amount of evidences of indebtedness, rights, warrants or other assets (excluding cash dividends and 5 distributions as aforesaid) so distributed which is applicable to one share of Common Stock. Notwithstanding the preceding sentence, if such fair market value in the case of a particular distribution is less than Thirty-seven and One-half Cents ($0.375) in the case of $3.00 Preference Stock or One Dollar ($1.00) in the case of $2.80 Preference Stock, the increase in the conversion rate shall be postponed and the amount of such fair market value shall be carried forward and applied as provided in subparagraph 5(f)(v). (v) Whenever the amounts of Established Market Price and the amounts of fair market value being carried forward as provided in subparagraphs 5(f)(iii) and (iv) plus any similar amount determined in connection with a particular issue of rights or warrants or a particular distribution aggregate Thirty-seven and One-half Cents ($0.375) or more in the case of $3.00 Preference Stock or One Dollar ($1.00) in the case of $2.80 Preference Stock, the conversion rate in effect immediately prior to the record date fixed for the determination of the holders of Common Stock entitled to such particular issue or distribution shall be increased, effective at the opening of business on the next following full business day, by the aggregate of the increases in the conversion rate which were postponed as provided in subparagraphs 5(f)(iii) and (iv) plus the increase resulting from such particular issue or distribution. (vi) If the Company shall pay to the holders of its Common Stock a dividend in shares of Common Stock or if it shall split or combine the outstanding shares of its Common Stock, the amount of Thirty-seven and One-half Cents ($0.375) in the case of $3.00 Preference Stock and One Dollar ($1.00) in the case of $2.80 Preference Stock referred to in subparagraphs 5(f)(iii), (iv) and (v) (as theretofore decreased or increased) and also all amounts of Established Market Price and all amounts of fair market value then being carried forward as provided in subparagraphs 5(f)(iii) and (iv) (as theretofore decreased or increased) shall forthwith be proportionately decreased in the case of a stock dividend or split or increased in the case of a combination, so as to appropriately reflect the same, and all increases in the conversion rate then being postponed as provided in subparagraphs 5(f)(iii) and (iv) (as theretofore increased or decreased) shall forthwith be proportionately increased in the case of a stock dividend or split or decreased in the case of a combination, so as to appropriately reflect the same. No adjustment of the conversion rate provided in subparagraph 5(a) shall be made by reason of the issuance of Common Stock for cash except as provided in subparagraph 5(f)(iii), or by reason of the issuance of Common Stock for property or services. Whenever the conversion rate is adjusted pursuant to this subparagraph 5(f) the Company shall (i) promptly place on file at the office of each of its transfer agents for Preference Stock a statement signed by the Chairman of the Board, the President or a Vice President of the Company and by its Treasurer or an Assistant Treasurer or Secretary showing in detail the facts requiring such adjustment and the conversion rate after such adjustment, and shall make such statement available for inspection by shareholders of the Company and (ii) cause a notice to be published at least once in a newspaper printed in the English language and of general circulation in the Borough of Manhattan, the City of New York, New York, stating that such adjustment has been made and the adjusted conversion rate. (g) In case of any reclassification or change of the outstanding shares of Common Stock of the Company (except a split or combination of shares) or in case of any consolidation or merger to which the Company is a party (except a merger in which the Company is the surviving corporation and which does not result in any reclassification of or change in the outstanding Common Stock of the Company except a split or combination of shares) or in case of any sale or conveyance to another corporation of all or substantially all of the property of the Company, effective provision shall be made by the Company or by the successor or purchasing corporation (i) that the holder of each share of Preference Stock then outstanding shall thereafter have the right to convert such share into the kind and amount of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock of the Company into which such share of Preference Stock might have been converted immediately prior thereto, and 6 (ii) that there shall be subsequent adjustments of the conversion rate which shall be equivalent, as nearly as practicable, to the adjustments provided for in subparagraph 5(f) above. The provisions of this subparagraph 5(g) shall similarly apply to successive reclassifications, changes, consolidations, mergers, sales or conveyances. (h) Shares of Common Stock issued on conversion of shares of Preference Stock shall be issued as fully paid shares and shall be non- assessable by the Company. The Company shall at all times reserve and keep available, free from preemptive rights, for the purpose of effecting the conversion of Preference Stock, such number of its duly authorized shares of Common Stock as shall be sufficient to effect the conversion of all outstanding shares of Preference Stock. (i) Shares of Preference Stock converted as provided herein shall not be reissued. 6. REDEMPTION AND ACQUISITION. The Company, at its option to be exercised by its Board of Directors, may redeem the whole or any part of the Preference Stock or of any class thereof or of any series thereof at any time at the applicable price for each share which shall have been fixed and determined with respect thereto, plus an amount equal to the accrued and unpaid dividends thereon computed to the date fixed for redemption, whether or not earned or declared (hereinafter collectively called the "redemption price"). If at any time less than all of the $3.00 Preference Stock then outstanding is to be called for redemption, the Board may select one or more series of $3.00 Preference Stock to be redeemed and if less than all of the outstanding $3.00 Preference Stock of any series is to be called for redemption, the shares to be redeemed may be selected by lot or by such other equitable method as the Board in its discretion may determine. If at any time less than all of the $2.80 Preference Stock then outstanding is to be called for redemption, the shares to be redeemed may be selected by lot or by such other equitable method as the Board in its discretion may determine. The Board may determine that all shares of Preference Stock or all shares of either class of Preference Stock or all shares of any series of $3.00 Preference Stock shall be redeemed pro rata. Notice of every redemption, stating the redemption date, the redemption price, and the place of payment thereof, and, if less than all of either class of the Preference Stock then outstanding is called for redemption, identifying the shares of such class of Preference Stock to be redeemed, shall be published at least twice in a newspaper printed in the English language and of general circulation in the Borough of Manhattan, the City of New York, New York, the first publication to be not less than thirty (30) nor more than sixty (60) days prior to the date fixed for redemption. Successive publications may be made in the same or in a different newspaper or newspapers meeting the foregoing requirements. Copies of such notice shall be mailed at least thirty (30) days and not more than sixty (60) days prior to the date fixed for redemption to the holders of record of the shares of Preference Stock to be redeemed at their addresses as the same shall appear on the books of the Company, but failure to give such additional notice by mail or any defect therein or failure of any addressee to receive it shall not affect the validity of the proceedings for redemption. The Company, upon publication of the first notice of redemption as aforesaid or upon irrevocably authorizing the bank or trust company hereinafter mentioned to publish or to complete publication of such notice as aforesaid, may deposit or cause to be deposited in trust with a bank or trust company in the City of New York, New York, an amount equal to the redemption price of the shares to be redeemed, which amount shall be payable to the holders of the shares to be redeemed upon surrender of certificates therefor on or after the date fixed for redemption or prior thereto if so directed by the Board of Directors of the Company. Upon such deposit, or if no such deposit is made then from and after the date fixed for redemption unless the Company shall default in making payment of the redemption price upon surrender of certificates as aforesaid, the shares called for redemption or a pro rata part of each share in cases of redemption pro rata shall cease to be outstanding and the holders thereof shall cease to be stockholders with respect to such shares or pro rata parts and shall have no interest in or claim against the Company with respect to such shares or pro rata parts other than the right to receive the redemption price from such bank or trust company or from the Company, as the case may be, without interest thereon, upon surrender of certificates as aforesaid; provided that conversion rights of shares called for redemption shall terminate at the close of business on the fifth full business day prior to the date fixed for redemption or at such later time as may be fixed by the Board of Directors of the Company. Any funds so deposited which shall not be required for such redemption because of the exercise of conversion rights 7 subsequent to the date of such deposit shall be returned to the Company. In case any holder of shares of Preference Stock which have been called for redemption shall not, within six (6) years after the date of such deposit, have claimed the amount deposited with respect to the redemption thereof, such bank or trust company, upon demand, shall pay over to the Company such unclaimed amount and shall thereupon be relieved of all responsibility in respect thereof to such holder, and thereafter such holder shall look only to the Company for payment thereof. Any interest which may accrue on funds so deposited shall be paid to the Company from time to time. The Company shall, subject to applicable law, have the right to acquire Preference Stock from time to time at such price or prices as the Company may determine, provided that unless dividends payable for all past quarterly dividend periods on all outstanding shares of Preference Stock have been paid, or declared and set apart for payment, in full, the Company shall not acquire for value any shares of Preference Stock except in accordance with an offer (which may vary as to terms offered with respect to shares of different series but not with respect to shares of the same series) made in writing or by publication (as determined by the Board of Directors) to all holders of record of shares of Preference Stock. Preference Stock redeemed by the Company shall not be reissued and the appropriate officers of the Company shall take appropriate action from time to time to certify reductions in the number of shares of Preference Stock which the Company is authorized to issue. Preference Stock acquired otherwise than upon redemption or conversion shall not be cancelled or retired except by action of the Board of Directors and shall have the status of treasury stock which may be reissued by the Board until cancelled and retired by action of the Board. 7. ACTION BY COMPANY REQUIRING APPROVAL OF PREFERENCE STOCK. The Company shall not, without the affirmative vote at a meeting of the holders of at least two-thirds of the then outstanding $3.00 Preference Stock or of at least two-thirds of the then outstanding $2.80 Preference Stock: (a) change the preferences, qualifications, privileges, limitations, restrictions, or other special or relative rights granted to or imposed upon the shares of such class of Preference Stock in any material respect adverse to the holders thereof, provided that if any such change will affect any particular class or series of a class materially and adversely as contrasted with the effect thereof upon any other class or series of a class, no such change may be made without, in addition, such vote of the holders of at least two-thirds of the then outstanding shares of the particular class or series of a class which would be so affected; or (b) create or increase the authorized number of shares of any class of stock ranking as to dividends or assets prior to the class of Preference Stock; and the Company shall not, without the affirmative vote at a meeting of the holders of at least a majority of the then outstanding $3.00 Preference Stock of all series and of at least a majority of the then outstanding $2.80 Preference Stock; (c) create any class of stock ranking as to dividends or assets on a parity with the Preference Stock or increase the authorized number of shares of the Preference Stock or of any class of stock ranking as to dividends or assets on a parity with it; or (d) sell, lease or convey (which terms shall not include a mortgage) all or substantially all of the property or business of the Company; or (e) become a party to a merger or consolidation unless the surviving or resulting corporation will have immediately after such merger or consolidation no stock either authorized or outstanding (except such stock of the Company as may have been authorized or outstanding immediately before such merger or consolidation or such stock of the surviving or resulting corporation as may be issued upon conversion thereof or in exchange therefor) ranking as to dividends or assets prior to or on a parity with the Preference Stock or the stock of the surviving or resulting corporation issued upon conversion thereof or in exchange therefor. 8 8. VOTING RIGHTS. (a) Each holder of record of $3.00 Preference Stock shall have the right to eight votes for each share of $3.00 Preference Stock standing in his name on the books of the Company. Each holder of record of $2.80 Preference Stock shall have the right to two votes for each share of $2.80 Preference Stock standing in his name on the books of the Company. In each election of directors in which holders of Preference Stock are entitled to vote, every holder of Preference Stock entitled to vote shall have the right to multiply the number of votes to which he may be entitled by the total number of directors to be elected in the same election by the holders of the class or classes or series of Preference Stock of which his shares are a part, and he may cast the whole number of such votes for one candidate or he may distribute them among any two or more candidates. If the Company shall make a distribution to the holders of its Common Stock in the form of a dividend in shares of Common Stock, or split the Common Stock, the vote to which each holder of record of Preference Stock shall be entitled immediately prior to the record date fixed for the determination of the holders of Common Stock entitled to additional shares resulting from such dividend or split shall be proportionately increased effective at the opening of business on the next following full business day. Except as required by law or as otherwise specifically provided in this Article IV of this Certificate the holders of $3.00 Preference Stock, the holders of $2.80 Preference Stock and the holders of Common Stock shall vote together as one class. (b) If the Company shall have failed to pay, or declare and set apart for payment, dividends on all outstanding shares of $3.00 Preference Stock in an amount equal to six quarterly dividends at the rates payable upon such shares, the number of directors of the Company shall be increased by two at the first annual meeting of the stockholders of the Company held thereafter, and at such meeting and at each subsequent annual meeting until dividends payable for all past quarterly dividend periods on all outstanding shares of each series of $3.00 Preference Stock shall have been paid, or declared and set apart for payment, in full, the holders of shares of $3.00 Preference Stock shall have the right, voting as a class, to elect such two additional members of the Board of Directors to hold office for a term of one year. Upon such payment, or such declaration and setting apart for payment, in full, the terms of the two additional directors so elected shall forthwith terminate, and the number of directors of the Company shall be reduced by two, and such voting right of the holders of shares of $3.00 Preference Stock shall cease, subject to increase in the number of directors as aforesaid and to revesting of such voting right in the event of each and every additional failure in the payment of dividends in an amount equal to six quarterly dividends as aforesaid. (c) If the Company shall have failed to pay, or declare and set apart for payment, dividends on all outstanding shares of $2.80 Preference Stock in an amount equal to six quarterly dividends at the rate payable upon such shares, the number of directors of the Company shall be increased by two at the first annual meeting of the stockholders of the Company held thereafter, and at such meeting and at each subsequent annual meeting until dividends payable for all past quarterly dividend periods on all outstanding shares of $2.80 Preference Stock shall have been paid, or declared and set apart for payment, in full, the holders of shares of $2.80 Preference Stock shall have the right, voting as a class, to elect such two additional members of the Board of Directors to hold office for a term of one year. Upon such payment, or such declaration and setting apart for payment, in full, the terms of the two additional directors so elected shall forthwith terminate, and the number of directors of the Company shall be reduced by two, and such voting right of the holders of shares of $2.80 Preference Stock shall cease, subject to increase in the number of directors as aforesaid and to revesting of such voting right in the event of each and every additional failure in the payment of dividends in an amount equal to six quarterly dividends as aforesaid. D. COMMON STOCK 1. Each holder of record of Common Stock shall have the right to one vote for each share of Common Stock standing in his name on the books of the Company. Except as required by law or as otherwise specifically provided in this Article IV, the holders of $3.00 Preference Stock, the holders of $2.80 Preference Stock and the holders of Common Stock shall vote together as one class. 9 E. PREEMPTIVE RIGHTS 1. Neither the holders of Preferred Stock, nor the holders of $3.00 Preference Stock, nor the holders of $2.80 Preference Stock, nor the holders of Common Stock shall have preemptive rights, and the Company shall have the right to issue and to sell to any person or persons any shares of its capital stock or any option rights or any securities having conversion or option rights without first offering such shares, rights or securities to any holders of the Preferred Stock, the $3.00 Preference Stock, the $2.80 Preference Stock or the Common Stock. ARTICLE V ANNUAL AND SPECIAL MEETINGS OF STOCKHOLDERS A. Any action required or permitted to be taken by the holders of the Capital Stock of the Company must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preference over the Common Stock, special meetings of stockholders of the Company may be called only by the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors or by the Chairman of the Board or by the President. B. Notwithstanding anything contained in this Certificate to the contrary, the affirmative vote of at least 66 2/3% of all votes entitled to be cast by the holders of Capital Stock entitled to vote generally in the election of directors voting together as a single class shall be required to amend or repeal this Article V or to adopt any provision inconsistent herewith. ARTICLE VI DIRECTORS A. Except as otherwise fixed by or pursuant to the provisions of Article IV relating to the rights of the holders of any class or series of stock having a preference over the Common Stock, the number of the directors of the Company shall be fixed from time to time by or pursuant to the By-Laws of the Company. The directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock, shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as reasonably possible, with the directors in each class to hold office until their successors are elected and qualified. Each member of the Board of Directors in the first class of directors shall hold office until the Annual Meeting of Stockholders in 1986, each member of the Board of Directors in the second class of directors shall hold office until the Annual Meeting of Stockholders in 1987 and each member of the Board of Directors in the third class of directors shall hold office until the Annual Meeting of Stockholders in 1988. At each annual meeting of the stockholders of the Company, the successors to the class of directors whose terms expire at that meeting shall be elected to hold office for terms expiring at the later of the annual meeting of stockholders held in the third year following the year of their election or the election and qualification of the successors to such class of directors. B. Subject to the rights of holders of any class or series of stock having a preference over the Common Stock, nominations for the election of directors may be made by the Board of Directors or by any record owner of Capital Stock of the Company entitled to vote in the election of directors generally. However, any such stockholder may nominate one or more persons for election as director at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the 10 Company not later than (i) with respect to an election to be held at an annual meeting of stockholders, one hundred twenty (120) days in advance of such meeting, and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the seventh day following the earlier of (x) the date on which notice of such meeting is first given to stockholders and (y) the date on which a public announcement of such meeting is first made. Each such notice shall include: (a) the name and address of each stockholder of record who intends to appear in person or by proxy to make the nomination and of the person or persons to be nominated; (b) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (c) such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the Board of Directors; and (d) the consent of each nominee to serve as a director of the Company if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. C. Except as otherwise provided for, or fixed by, or pursuant to the provisions of Article IV relating to the rights of the holders of any class or series of stock having a preference over the Common Stock, newly created directorships resulting from any increase in the number of directors or any vacancy on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. D. Subject to the rights of holders of any class or series of stock having a preference over the Common Stock, any one or more directors may be removed only for cause by the stockholders as provided herein. At any annual meeting of stockholders of the Company or at any special meeting of stockholders of the Company, the notice of which shall state that the removal of a director or directors is among the purposes of the meeting, the holders of Capital Stock entitled to vote thereon, present in person or by proxy, by the affirmative vote of at least 66 2/3% of all votes entitled to be cast by the holders of Capital Stock of the Company entitled to vote generally in an election of directors voting together as a single class, may remove such director or directors for cause. E. The Board of Directors shall have the power to adopt, amend and repeal By-Laws of the Company. Notwithstanding anything in this Certificate or the By-Laws of the Company to the contrary (and notwithstanding that a lesser percentage may be specified by law or in the By-Laws), the By-Laws shall not be amended or repealed by vote of the stockholders of the Company and no provision inconsistent therewith shall be adopted by vote of the stockholders of the Company without the affirmative vote of at least 66 2/3% of all votes entitled to be cast by the holders of Capital Stock of the Company entitled to vote generally in the election of directors voting together as a single class. F. Notwithstanding anything contained in this Certificate to the contrary, the affirmative vote of at least 66 2/3% of all votes entitled to be cast by the holders of Capital Stock entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal this Article VI or to adopt any provision inconsistent herewith. 11 ARTICLE VII PROHIBITION OF "GREENMAIL" A. Any purchase or other acquisition, directly or indirectly, in one or more transactions, by the Company or any Subsidiary (as hereinafter defined) of the Company of any share of Voting Stock (as hereinafter defined) or any Voting Stock Right (as hereinafter defined) known by the Company to be beneficially owned by any Interested Stockholder (as hereinafter defined) who has beneficially owned such security or right for less than two years prior to the date of such purchase shall, except as hereinafter expressly provided, require the affirmative vote of at least 66 2/3% of all votes entitled to be cast by the holders of the Voting Stock voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or any agreement with any national securities exchange, or otherwise, but no such affirmative vote shall be required with respect to any purchase or other acquisition by the Company or any of its Subsidiaries of Voting Stock or Voting Stock Rights purchased at or below Fair Market Value (as hereinafter defined) or made as part of a tender or exchange offer made on the same terms to all holders of such securities and complying with the applicable requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations thereunder or in a Public Transaction (as hereinafter defined). B. For the purposes of this Article VII: 1. An "Affiliate" of, or a person "Affiliated" with, a specified person, is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. 2. The term "Associate" used to indicate a relationship with any person, means (1) any corporation or organization (other than the Company or a Subsidiary of the Company) of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of 5% or more of any class of equity securities, (2) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity, and (3) any relative or spouse of such person, or any relative of such spouse, who has the same home as such person. 3. A Person shall be a "beneficial owner" of any Voting Stock or Voting Stock Right: (a) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or (b) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) any right to vote pursuant to any agreement, arrangement or understanding; or (c) which is beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any security of any class of the Company or any of its Subsidiaries. (d) For the purposes of determining whether a person is an Interested Stockholder, the relevant class of securities outstanding shall be deemed to include all such securities of which such person is deemed to be the "beneficial owner" through application of this subparagraph 3, but shall not include any other securities of such class which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise, but are not yet issued. 12 4. "Fair Market Value" means, for any share of Voting Stock or any Voting Stock Right, the average of the closing sale prices during the 90-day period immediately preceding the repurchase of such Voting Stock or Voting Stock Right, as the case may be, on the Composite Tape for New York Stock Exchange- Listed Stocks, or, if such Voting Stock or Voting Stock Right, as the case may be, is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such Voting Stock or Voting Stock Right, as the case may be, is not listed on such Exchange, on the principal United States securities exchange registered under the Exchange Act on which such Voting Stock or Voting Stock Right, as the case may be, is listed, or if such Voting Stock or Voting Stock Right, as the case may be, is not listed on any such exchange, the average of the closing bid quotations with respect to a share of such Voting Stock or Voting Stock Right, as the case may be, during the 90-day period immediately preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the Fair Market Value on the date in question of a share of such Voting Stock or Voting Stock Right, as the case may be, as determined by the Board of Directors in good faith. 5. "Interested Stockholder" shall mean any person (other than (i) the Company, (ii) any of its Subsidiaries, (iii) any benefit plan or trust of or for the benefit of the Company or any of its Subsidiaries, or (iv) any trustee, agent or other representative of any of the foregoing) who or which: (a) is the beneficial owner, directly or indirectly, of more than 3% of any class of Voting Stock (or Voting Stock Rights with respect to more than 3% of any such class); or (b) is an Affiliate of the Company and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of more than 3% of any class of Voting Stock (or Voting Stock Rights with respect to more than 3% of any such class); or (c) is an assignee of or has otherwise succeeded to any shares of any class of Voting Stock (or Voting Stock Rights with respect to more than 3% of any such class) which were at any time within the two-year period immediately prior to the date in question beneficially owned by an Interested Stockholder, unless such assignment or succession shall have occurred pursuant to any Public Transaction or a series of transactions including a Public Transaction. 6. A "person" shall mean any individual, firm, corporation or other entity (including a "group" within the meaning of Section 13(d) of the Exchange Act). 7. A "Public Transaction" shall mean any (i) purchase of shares offered pursuant to an effective registration statement under the Securities Act of 1933 or (ii) open market purchases of shares if, in either such case, the price and other terms of sale are not negotiated by the purchaser and seller of the beneficial interest in the shares. 8. The term "Subsidiary" shall mean any corporation at least a majority of the outstanding securities of which having ordinary voting power to elect a majority of the board of directors of such corporation (whether or not any other class of securities has or might have voting power by reason of the happening of a contingency) is at the time owned or controlled directly or indirectly by the Company or one or more Subsidiaries or by the Company and one or more Subsidiaries. 9. The term "Voting Stock" shall mean stock of all classes and series of the Company entitled to vote generally in the election of directors. 10. The term "Voting Stock Right" shall mean any security convertible into, and any warrant, option or other right of any kind to acquire beneficial ownership of, any Voting Stock, other than securities issued pursuant to any of the Company's employee benefit plans. 13 C. A majority of the Board of Directors shall have the power and duty to determine for the purposes of this Article VII, on the basis of information known to it after reasonable inquiry, all facts necessary to determine compliance with this Article VII, including without limitation, 1. whether: (a) a person is an Interested Stockholder; (b) any Voting Stock and Voting Stock Right is beneficially owned by any person; (c) a person is an Affiliate or Associate of another; (d) a transaction is a Public Transaction; and 2. the Fair Market Value of any Voting Stock or Voting Stock Right. D. Notwithstanding anything contained in this Certificate to the contrary, the affirmative vote of at least 66 2/3% of all votes entitled to be cast by the holders of Capital Stock entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal this Article VII or to adopt any provision inconsistent herewith. ARTICLE VIII INCORPORATOR The name and mailing address of the incorporator is: L. M. Custis Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801 ARTICLE IX DIRECTOR'S LIABILITY To the fullest extent permitted by the General Corporation Law of Delaware as the same exists or may hereafter be amended, a director of the Company shall not be liable to the Company or its Stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law of Delaware is amended after approval by the Stockholders of this provision to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Company shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. Any repeal or modification of this Article IX by the Stockholders of the Company shall not adversely affect any right or protection of a director of the Company existing at the time of such repeal or modification or with respect to events occurring prior to such time. I, Secretary of Atlantic Richfield Company, hereby certify that the foregoing is a true and correct copy of the Certificate of Incorporation of said Company now in force. WITNESS my hand and the seal of said Company this day of . ____________________________________ Secretary 14 BY-LAWS OF ATLANTIC RICHFIELD COMPANY (A DELAWARE CORPORATION) MEETING OF STOCKHOLDERS AND RECORD DATES 1. Annual meeting. An annual meeting of stockholders for the election of directors and the transaction of such other business as may properly come before the meeting shall be held on the first Tuesday in May of each year, at 10:00 a.m. Pacific Standard Time, or at such other hour as the Board of Directors may designate, or on such other day and at such hour as the Board of Directors may designate. If the day fixed for the meeting is a legal holiday, the meeting shall be held at the same hour on the next succeeding full business day which is not a legal holiday. 2. Special meetings. Special meetings of stockholders may be called at any time in the manner provided in Article V of the Certificate of Incorporation. 3. Place. Each annual or special meeting of stockholders shall be held at the principal office of the Company or at such other place in Delaware or elsewhere as the Board of Directors may designate. 4. Notice. Written notice stating the place, day and hour of each meeting of stockholders and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be mailed by the Secretary at least ten days and not more than sixty days before the meeting to each stockholder of record entitled to vote at the meeting to his address appearing on the books of the Company. 5. Quorum. The presence, in person or by proxy, of stockholders entitled to cast at least a majority of the votes which all stockholders are entitled to cast on a particular matter shall constitute a quorum for the purpose of considering such matter at a meeting of stockholders. If a quorum is not present in person or by proxy, those present may adjourn from time to time to reconvene at such time and place as they may determine. 6. Record dates. The Board of Directors may fix a time not less than ten and not more than sixty days prior to the date of any meeting of stockholders and not more than sixty days prior to the date fixed for the payment of any dividend or distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares will be made or take effect, as a record date for the determination of the stockholders entitled to notice of or to vote at any such meeting, or to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of shares or for the purpose of any other lawful action. In such case, only such stockholders as shall be stockholders of record at the close of business on the date so fixed shall be entitled to notice of or to vote at such meeting, or to receive payment of such dividend or distribution, or to receive such allotment of rights, or to exercise such rights in respect to any change, conversion or exchange of shares, as the case may be, notwithstanding any transfer of any shares on the books of the Company after the record date fixed as aforesaid. DIRECTORS 7. Number. The number of directors constituting the entire Board shall be such number as shall be fixed from time to time by resolution of the Board of Directors. 8. Age qualification. Except as the Board may otherwise determine, upon recommendation of the Nominating Committee of the Board, the retirement age for directors is age 72. 9. Annual meeting. An annual meeting of the Board of Directors shall be held each year in 1 conjunction with the annual meeting of stockholders, at the place where such meeting of stockholders was held or at such other place as the Board may determine, for the purposes of organization, election or appointment of officers and the transaction of such other business as shall come before the meeting. No notice of the meeting need be given. 10. Regular meetings. Regular meetings of the Board of Directors may be held without notice at such times and at such places in Delaware or elsewhere as the Board may determine. 11. Special meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or a majority of the directors in office, to be held at such time (as will permit the giving of notice as provided in the section) and at such place (in Delaware or elsewhere) as may be designated by the person or persons calling the meeting. Notice of the place, day and hour of each special meeting shall be given to each director by the Secretary by written notice mailed on or before the third full business day before the meeting or by notice received personally or by other means at least twenty-four hours before the meeting. The notice need not refer to the business to be transacted at the meeting. 12. Quorum. A majority of the directors in office shall constitute a quorum for the transaction of business but less than a quorum may adjourn from time to time to reconvene at such time and place as they may determine. 13. Meeting by telephone. One or more directors may participate in a meeting of the Board of Directors or of a committee of the Board of Directors by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. 14. Compensation. Directors shall receive such compensation for their services as shall be determined by the Board of Directors. 15. Committees. The Board of Directors may by resolution adopted by a majority of the directors then in office, appoint an Executive Committee of three or more directors. To the extent provided in such resolution, the Executive Committee shall have and may, subject to applicable law, exercise the authority of the Board in the management of the business of the Company. The Board may appoint such other committees as it may deem advisable, and each such committee shall have such authority and perform such duties as the Board may determine. At each meeting of the Board all action taken by each committee since the preceding meeting of the Board shall be reported to it. 16. Consent action. Any action which may be taken at a meeting of the directors or a meeting of the Executive Committee may be taken without a meeting, if a consent or consents in writing, setting forth the action so taken, shall be signed by all of the directors or all of the members of the Executive Committee, as the case may be, and shall be filed with the minutes of proceedings of the Board of Directors or the Executive Committee. OFFICERS AND AGENTS 17. Officers. The Board of Directors at any time may elect a Chairman of the Board, a President, one or more Vice Presidents, a Treasurer and a Secretary, may designate any one or more Vice Presidents as Executive Vice Presidents, Senior Vice Presidents, Financial Vice Presidents or otherwise, and may elect or appoint such additional officers and agents as the Board may deem advisable. Any two or more offices may be held by the same person except the offices of the Chairman of the Board and Secretary and the offices of President and Secretary. 18. Term. Each officer and each agent shall hold office until the next annual meeting of the Board of 2 Directors or until his successor is elected or appointed and qualified, whichever occurs first, or until his death, resignation or removal by the Board of Directors. 19. Authority, duties and compensation. All elected or appointed officers and agents shall have such authority and perform such duties as may be provided in the By-Laws or as may be determined by the Board of Directors or the Chairman of the Board. They shall receive such compensation for their services as may be determined by the Board of Directors or in a manner approved by it. Notwithstanding any other provisions of these By-Laws, the Board shall have the power from time to time by resolution to prescribe by what officers or agents particular documents or instruments or particular classes of documents or instruments shall be signed, countersigned, endorsed or executed, provided, however, that any person, firm or corporation shall be entitled to accept and to act upon any document or instrument signed, countersigned, endorsed or executed by officers or agents of the Company pursuant to the provisions of these by-laws unless prior to receipt of such document or instrument such person, firm or corporation has been furnished with a certified copy of a resolution of the Board prescribing a different signature, countersignature, endorsement or execution. 20. Chairman of the Board. The Chairman of the Board shall preside at all meetings of stockholders and of the Board of Directors. The Board at its discretion may designate the Chairman of the Board as chief executive officer of the Company, in which event the Chairman of the Board shall be charged with and shall have the discretion and supervision of all its business and operations. The Chairman of the Board shall sign all certificates of stock of the Company or shall cause them to be signed in facsimile or otherwise as permitted by law. 21. President. In the absence or disability of the Chairman of the Board, the President shall preside at all meetings of stockholders and of the Board of Directors. The Board at its discretion may designate the President as chief executive officer of the Company, in which event the President shall be charged with and shall have the direction and supervision of its business and operations. If the office of Chairman of the Board is vacant, the President shall have the authority and shall perform the duties of the Chairman of the Board. 22. Treasurer. The Treasurer shall keep and account for all moneys, funds, and property of the Company which shall come into the Treasurer's hands, and shall render such accounts and present such statements to the Board of Directors as may be required of the Treasurer. Unless the Board shall prescribe otherwise, the Treasurer shall deposit all funds of the Company which may come into the Treasurer's hands in such bank or banks as the Board may designate and in accounts in the name of the Company, shall endorse for collection bills, notes, checks and other negotiable instruments received by the Company, shall sign all bills, notes, checks and other negotiable instruments of the Company or cause them to be signed in facsimile or otherwise as the Board may determine, shall countersign all certificates of stock of the Company or cause them to be countersigned in facsimile or otherwise as permitted by law, and shall pay out money as the business of the Company may require, taking proper vouchers therefor. In the absence or disability of the Treasurer, an Assistant Treasurer shall have the authority and shall perform the duties of the Treasurer. 23. Secretary. The Secretary shall give or cause to be given all required notices of meetings of stockholders and of the Board of Directors, shall attend such meetings when practicable, shall record and keep the minutes and all other proceedings thereof, shall attest to such records after every meeting by signature, shall safely keep all documents and papers which shall come into the Secretary's possession, shall truly keep the books and accounts of the Company appertaining to the Secretary's office, and shall present statements thereof when required by the Board. In the absence or disability of the Secretary, an Assistant Secretary shall have the authority and shall perform the duties of the Secretary. 24. Corporate seal. A corporate seal shall be prepared and shall be kept in the custody of the 3 Secretary of the Company. The seal or a facsimile thereof may be impressed, affixed or reproduced, and attested to by the Secretary or an Assistant Secretary, for the authentication of documents or instruments requiring the seal and bearing the signature of a duly authorized officer or agent. INDEMNIFICATION 25. (a) Right to Indemnification. Each person who was or is a party or is threatened to be made a party to or is involved or is threatened to be involved (as a witness or otherwise) in or otherwise requires representation by counsel in connection with any threatened, pending or completed action, suit or proceeding, or any inquiry that such person in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, and the basis of such proceeding is alleged action or inaction in an official capacity or in any other capacity while serving as such a director, officer, employee or agent, shall be indemnified and held harmless by the Company to the fullest extent authorized by the General Corporation Law of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment with reference to events occurring prior to the effective date thereof, only to the extent that such amendment permits the Company to provide broader indemnification rights than such law permitted the Company to provide prior to such amendment), against all costs, charges, expenses, liabilities and losses (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director or officer (or to serve another entity at the request of the Company) and shall inure to the benefit of such person's heirs, personal representatives and estate: provided, however, that, except as provided in paragraph (b) hereof, the Company shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person against the Company only if such proceeding (or part thereof) was authorized prior to its initiation by a majority of the disinterested members of the Board of Directors of the Company. The rights to indemnification conferred in this Section shall include the right to be paid by the Company any expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the General Corporation Law of Delaware requires, payment shall be made to or on behalf of such person only upon delivery to the Company of an undertaking, by or on behalf of such person, to repay all amounts so advanced if it shall ultimately be determined that such person is not entitled to be indemnified under this Section or otherwise. The rights to indemnification conferred in this Section shall be deemed to be a contract between the Company and each person who serves in the capacities described above at any time while this Section is in effect. Any repeal or modification of this Section shall not in any way diminish any rights to indemnification of such person or the obligations of the Company arising hereunder. (b) Right of claimant to bring suit. If a claim under paragraph (a) of this Section is not paid in full by the Company within sixty days after a written claim has been received by the Company, the claimant may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim. If successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting or defending such claim. In any action brought by the claimant to enforce a right to indemnification hereunder or by the Company to recover payments by the Company of expenses incurred by a claimant in a proceeding in advance of its final disposition, the burden of proving that the claimant is not entitled to be indemnified under this Section or otherwise shall be on the Company. Neither the failure of the Company (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because the claimant has met the applicable standard of conduct set forth in the General Corporation Law of Delaware, nor an actual determination by the Company (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, 4 shall create a presumption that the claimant has not met the applicable standard of conduct or, in the case of such an action brought by the claimant, be a defense to the action. (c) Non-exclusivity of rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Company's Certificate of Incorporation, any By-Law, any agreement, a vote of Company stockholders or of disinterested Company directors, or otherwise, both as to action in that person's official capacity and as to action in any other capacity by holding such office, and shall continue after the person ceases to serve the Company as a director or officer or to serve another entity at the request of the Company. (d) Insurance. The Company may maintain insurance, at its expense, to protect itself and any director or officer of the Company or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of Delaware. (e) Indemnity agreements. The Company may from time to time enter into indemnity agreements with the persons who are members of its Board of Directors and with such officers or other persons as the Board may designate, such indemnity agreements to provide in substance that the Company will indemnify such persons to the fullest extent of the provisions of this Section 25. (f) Indemnification of employees and agents of the Company. The Company may, under procedures authorized from time to time by the Board of Directors, grant rights to indemnification, and to be paid by the Company the expenses incurred in defending any proceeding in advance of its final disposition, to any employee or agent of the Company to the fullest extent of the provisions of this Section 25. FISCAL YEAR AND ANNUAL REPORT 26. Fiscal year. The fiscal year of the Company shall be the calendar year. 27. Annual report. The Board of Directors shall cause an annual report to be prepared and mailed to the stockholders in accordance with the rules and regulations of the Securities and Exchange Commission and the New York Stock Exchange. SHARE TRANSFERS AND RECORDS 28. Share transfers and records. The Board of Directors may appoint a transfer agent or transfer agents and a registrar or registrars to make and record all transfers of shares of stock of the Company or any class. EMERGENCY BY-LAWS 29. When operative. The emergency By-Laws provided by the following sections shall be operative during any emergency resulting from an attack on the United States, any nuclear disaster, earthquake or during the existence of any catastrophe, as a result of which a quorum of the Board of Directors or the Executive Committee thereof cannot be readily convened for action notwithstanding any different provision in the preceding sections of the By-Laws or in the Certificate of Incorporation of the Company or in the General Corporation Law of the State of Delaware. To the extent not inconsistent with the emergency By-Laws, the By-Laws provided in the preceding sections shall remain in effect during such emergency and upon the termination of such emergency, the emergency 5 By-Laws shall cease to be operative unless and until another such emergency shall occur. 30. Meetings. During any such emergency: (a) Any meeting of the Board of Directors may be called by any director. Whenever any officer of the Company who is not a director has reason to believe that no director is available to participate in a meeting, such officer may call a meeting to be held under the provisions of this section. (b) Notice of each meeting called under the provisions of this section shall be given by the person calling the meeting or at his request by any officer of the Company. The notice shall specify the time and the place of the meeting, which shall be the head office of the Company at the time if feasible and otherwise any other place specified in the notice. Notice need be given only to such of the directors as it may be feasible to reach at the time and may be given by such means as may be feasible at the time, including publication or radio. If given by mail, messenger, telephone or telegram, the notice shall be addressed to the director at his residence or business address or such other place as the person giving the notice shall deem suitable. In the case of meetings called by an officer who is not a director, notice shall also be given similarly, to the extent feasible, to the persons named on the list referred to in part (c) of this section. Notice shall be given at least two days before the meeting if feasible in the judgment of the person giving the notice and otherwise the meeting may be held on any shorter notice that he shall deem to be suitable. (c) At any meeting called under the provisions of this section, the director or directors present shall constitute a quorum for the transaction of business. If no director attends a meeting called by an officer who is not a director and if there are present at least three of the persons named on a numbered list of personnel approved by the Board of Directors before the emergency, those present (but not more than nine appearing highest in priority on such list) shall be deemed directors for such meeting and shall constitute a quorum for the transaction of business. 31. Lines of succession. The Board of Directors, during as well as before any such emergency, may provide, and from time to time modify, lines of succession in the event that during such an emergency any or all officers or agents of the Company shall for any reason be rendered incapable of discharging their duties. 32. Offices. The Board of Directors, during as well as before any such emergency, may, effective during the emergency, change the head office or designate several alternative head offices or regional offices, or authorize the officers so to do. 33. Liability. No officer, director or employee acting in accordance with these emergency By-Laws shall be liable except for willful misconduct. 34. Repeal or change. The emergency By-Laws shall be subject to repeal or change by action of the Board of Directors or by the affirmative vote of at least 66 2/3% of all votes entitled to be cast by the holders of Capital Stock of the Company entitled to vote generally in the election of directors voting together as a single class, except that no such repeal or change shall modify the provisions of the next preceding section with regard to action or inaction prior to the time of such repeal or change. 6 I Secretary of Atlantic Richfield Company, hereby certify that the foregoing is a true and correct copy of the By-laws of the Company now in force. WITNESS my hand and the seal of said Company the ______ day of ___________________________. __________________________________ Secretary January 23, 1989 7 EX-10.3 3 EXEC MEDICAL INS PLAN Summary Plan Description Atlantic Richfield Executive Medical Insurance Plan As in Effect on January 1, 1994 1994 Table of Contents - ----------------- Your Medical Benefits -- An Overview 1 Who's Eligible 1 You 1 Your Dependents 1 How To Enroll 3 You 3 Your Dependents 3 How To Change Coverage 3 What Coverage Costs 3 How the Plan Works 4 Medically Necessary/ Reasonable and Customary 4 Plan Maximums 4 Covered Expenses 5 Expenses Not Covered 12 Coordination of Benefits 14 Coordinating with Other Plans 14 Coordinating with Medicare 14 How To File a Claim 16 Doctors' Services 17 Hospitalization 17 How To File an Appeal 17 Claim Denial 17 Claim Review 17 When Coverage Ends 18 You 18 Your Dependents 18 How To Continue Coverage 18 On a Leave of Absence 18 For Disabling Conditions Only 18 At Retirement 19 Understanding COBRA Coverage 19 Who Qualifies 19 When COBRA Coverage Is Extended 20 When COBRA Coverage Ends 21 When the Plan Ends 21 How to Convert Your Coverage 21 Glossary 22
YOUR MEDICAL BENEFITS -- AN OVERVIEW The following information gives you an overview of the Atlantic Richfield Executive Medical Insurance Plan. It's called a summary plan description (SPD). The full terms of the plan are contained in the plan document available by request from Executive Relations. The information presented in this summary plan description doesn't replace the official documents that legally govern the plan's operation. In the event of any conflict between this summary and the official documents, the official documents will govern. For other information, as well as information on your ERISA rights, refer to the ERISA booklet at the end of the summary plan description binder. ARCO reserves the right to change or terminate this plan at any time. If you have any questions about your medical benefits, contact Executive Relations. WHO'S ELIGIBLE You You're eligible to participate in the plan if you're an active executive of ARCO or one of its participating subsidiaries and are headquartered in the United States or paid on a U.S. dollar payroll. If you're employed by an ARCO subsidiary and wish to know whether it participates in this plan, you may request that information from Executive Relations. Your Dependents If you join the plan, you may also enroll your eligible dependents. Eligible dependents include: .your spouse; and .your children (see Children's Eligibility on the next page). 1 Children's Eligibility
==================================================================================================================================== Natural or Adopted Child Stepchild Grandchild Other Child ==================================================================================================================================== Eligible if: Eligible if child: Eligible if child: Eligible if child: .unmarried; and .meets the rules that .meets the rules that .meets the rules that apply to Natural or apply to Natural or apply to Natural or .under age 19; or Adopted Child; Adopted Child; Adopted Child; .ages 19 through 22 and and and - regularly attends school; and .you provide at least .you provide at least .you provide at least - you provide at least 50% of the child's 50% support for both 50% of the child's 50% of the child's support; and either your grandchild and support; and support; or your child .the child lives with you, (grandchild's parent); .you have, or are .age 23 or over or and obtaining, legal - the child has a guardianship; and disability; and .your spouse has joint .your grandchild lives - the disability custody. with you. .legal guardianship is occurred while the expected to last for at child was covered by If you do not provide at least 1 year; and the plan and before least 50% of your child's reaching age 23; and support, your grandchild is .the child has lived with - you provide proof of not eligible for coverage you for at least the disability to the unless you have, or are preceding three months. carrier prior to the obtaining, legal guardian- child reaching plan ship. limiting age; and - you provide at least 50% of the child's support. ====================================================================================================================================
Divorced children are considered to be unmarried. A child is considered to be living with you if the child lives in the same residence with you on a day-to-day basis unless away at school and not living with another parent. Children ages 19 through 22 may work full or part-time, as long as the child is attending school on a regular basis and is dependent upon you for at least 50% of support. Eligible students through age 22 will be covered for up to six months after graduation while waiting to begin post-graduate studies. Also, if a medical condition prevents the child from attending school, the child is still eligible as long as the intention is to return to school. The plan will cover your children to the extent required by a state Qualified Medical Child Support Order (QMCSO). The plan secretary will notify you if the plan receives a QMCSO. The plan secretary's office has prepared guidelines which are available through Executive Relations or the plan secretary's office. It is recommended that proposed QMCSOs be reviewed by the plan secretary's office for compliance with plan provisions and federal law. 2 How to Enroll You To join the plan, you must return a completed enrollment form to Executive Relations within 31 days after your first day of work. If you submit the enrollment form within 31 days of becoming eligible, coverage is effective the later of: .the date Executive Relations receives the form; .your date of hire; or .the first day you're actively at work following your date of hire. If you apply after the initial 31-day deadline, or if you withdraw from the plan and later reapply during open enrollment, coverage begins on the date Executive Relations receives the enrollment form. If you're disabled and away from work when coverage would otherwise begin, your coverage begins as soon as you return to work. If you transfer to an executive position from an employee group that isn't eligible for coverage under this plan, your Executive plan coverage automatically begins on the date of your transfer, and any coverage you had under any other Company-provided medical plan ends on that same date. Once you're enrolled in the plan, Executive Relations will issue you an ID card. Listed on the card are important telephone numbers you may need to call. Your Dependents You may obtain coverage for your dependents by electing family coverage when you join the plan. You may be required to provide proof of dependent status. If you apply for family coverage more than 31 days after your first day of work, coverage begins on the date Executive Relations receives the enrollment form. If you're disabled and away from work when coverage would otherwise begin, your dependents' coverage begins as soon as you return to work. If your dependent (other than a newborn) is confined to a hospital, medical facility or the home due to illness or injury when coverage would otherwise begin, coverage begins 31 days after the confinement ends. How to Change Coverage When you start work at the Company, you choose the type of coverage -- single or family -- you wish to have. Once your coverage begins, you need to inform Executive Relations if you wish to change from single to family coverage. Information about changes in coverage is necessary so that we can adjust your coverage level and ensure prompt coverage when you add dependents. When you report a change in coverage, your coverage will be adjusted as of the date of the change or the date Executive Relations receives written notice of the change, whichever happens later. You may discontinue your own or your dependents' coverage at any time. What Coverage Costs The Company pays the full cost of the medical premiums for you and your eligible dependents. 3 HOW THE PLAN WORKS There are a number of terms you need to know in order to understand how the plan works. The first time each of these terms is used, it will appear in boldface type and will be followed by its definition or a page reference indicating where that definition is located. We've also included a glossary at the end of this SPD, which lists each term and shows you on which page its definition appears. Medically Necessary/Reasonable and Customary The plan pays 100% of covered expenses once Aetna Health Plans, the claims administrator, determines that the medical service or supply is medically necessary and the fees are reasonable and customary for benefit purposes. Aetna considers charges for a treatment or service medically necessary if the treatment or service is required for the diagnosis and care of the medical problem, and commonly and customarily recognized as appropriate throughout the medical profession. The only exceptions are wellness services (see page 5), which may be covered whether or not they're associated with an illness or injury. If you have any questions regarding Aetna's definition of "medically necessary", you should call the Customer Service number on your ID card before obtaining the service or supply. Fees that are reasonable and customary are within the range of fees usually charged by most doctors in their area for similar treatments or services. Not only does the plan pay 100% for covered expenses, but you have no deductible to meet. In other words, the plan pays all of your medical care... provided the care is medically necessary and reasonable and customary. Plan Maximums There's no lifetime maximum benefit for most covered expenses. However, for those medical services and supplies listed in the chart below, there's a maximum lifetime benefit of $2,000,000 for each covered person. ================================================================================ $2,000,000 Lifetime Maximum ================================================================================ Wellness benefits - -------------------------------------------------------------------------------- Inpatient hospital expenses -- incurred after the first 365 days for each period of a continuous disability - -------------------------------------------------------------------------------- Outpatient hospital or doctor expenses for treatment of non-surgical illness that isn't related to an accident or medical emergency - -------------------------------------------------------------------------------- Surgery expenses, including post-operative care received and surgeon expenses incurred more than 14 days after surgery - -------------------------------------------------------------------------------- Emergency medical care -- received more than 96 hours after an accident or the start of a medical emergency - -------------------------------------------------------------------------------- Inpatient doctor's care and treatment -- after the first 365 days of a hospital stay and after the first 30 days of a convalescent facility stay - -------------------------------------------------------------------------------- Prescription drugs - -------------------------------------------------------------------------------- Diagnostic x-ray and laboratory services -- performed on an outpatient basis - -------------------------------------------------------------------------------- Radiation, radium and radioactive isotope therapy -- performed on an out- patient basis - -------------------------------------------------------------------------------- Dental expenses and oral surgery resulting from an accident, including the prompt repair of natural teeth or dental tissue damaged in an accident - -------------------------------------------------------------------------------- Non-surgical cosmetic expenses -- resulting from an accident ================================================================================ Physical, occupational and speech therapy ================================================================================ Chart cont'd on next page 4 ================================================================================ $2,000,000 Lifetime Maximum ================================================================================ Prosthetic devices - -------------------------------------------------------------------------------- Rental or purchase of special durable medical supplies and equipment - -------------------------------------------------------------------------------- Private duty nursing - -------------------------------------------------------------------------------- Convalescent care expenses -- incurred after the first 30 days of a convalescent facility stay - -------------------------------------------------------------------------------- Home health care - -------------------------------------------------------------------------------- Hospice care - -------------------------------------------------------------------------------- Outpatient treatment of psychiatric conditions, alcoholism and drug addiction ================================================================================ Covered Expenses The plan covers most hospital and convalescent facility expenses, doctors' fees, and charges for other medical services and supplies, as follows. "Wellness" services -- Performed by a doctor even though the service isn't related to a particular injury or illness, or considered medically necessary. The plan covers up to $250 of wellness expenses each year for each covered person and up to $750 for a family of three or more. A partial list of covered wellness services includes: .routine physical exams; .eye exams; .hearing exams; .well baby care; .immunizations; .cholesterol screenings; .routine mammograms; .routine pap smears (including the office visit); and .routine prostate exams. Some services and supplies, such as chiropractic care, hearing aids, eyeglasses and prescription drugs, aren't covered under the wellness benefit. To find out if a particular service or supply is covered under the wellness benefit, call the Customer Service number that appears on your ID card. The following expenses are covered at 100% if they're medically necessary and reasonable and customary: Inpatient hospital expenses -- Including: .room and board at a private room rate; .general nursing services provided by the staff; .well baby nursery charges for newborns during the mother's hospitalization; .miscellaneous hospital expenses for each period of continuous disability provided the patient is confined to his or her bed. Covered expenses include charges for: - the use of the operating, labor, delivery, recovery and treatment rooms and the intensive care unit; - drugs and dressings provided by the hospital; - diagnostic X-ray and laboratory services; - radiation, radium and radioactive isotope therapy; - administration of anesthesia by an anesthesiologist; - administration of blood and blood plasma by a member of the hospital staff; - physiotherapy and hydrotherapy; and 5 - professional ambulance service, when medically necessary, whether charged by the hospital or an outside ambulance service, from the place of the illness/site of the accident to the nearest hospital; .consultation fees for services provided by a legally qualified doctor called in by the attending doctor while the patient is in the hospital. This coverage doesn't include: - consultations involving hospital staff members; or - consultations that result in surgery performed by the consulting doctor. In this case, such fees are included in the charge for the operation. All hospital stays will be considered as having occurred during a single period of continuous disability unless you can provide acceptable evidence that: .you returned to active work for at least one full day between periods of disability; .you or your dependent hasn't been hospitalized for at least 90 days; .the latest hospital stay isn't related to earlier hospital stays; or .although there were earlier hospital stays, you or your dependent has completely recovered from the illness or injury which caused the earlier hospital stay. Outpatient hospital expenses -- Including: .treatment of illness or injury sustained in an accident or resulting from a medical emergency -- that is, a sudden and unexpected change in a person's physical condition requiring immediate care or treatment. Without this medical attention, the person's life could be in jeopardy or his/her ability to function could be significantly impaired; .treatment of any non-surgical illness that isn't related to an accident or a medical emergency; .hospital or freestanding ambulatory surgical facility charges in connection with a surgical procedure which are incurred on the same day the procedure is performed; .freestanding birthing center services in connection with normal vaginal deliveries only; .home intravenous therapy that follows a hospital stay. The therapy must be recommended by a hospital, pharmacist or attending doctor to be considered a covered expense. Hospital charges for the necessary training of the patient, family members or other persons responsible for administering the intravenous medication are covered, but nutritional supplements aren't; and .diagnostic X-rays and laboratory services performed on an outpatient basis within 14 days before or after admission to the hospital for the condition that caused the hospitalization. Surgery -- Services of qualified surgeons and assistant surgeons for procedures performed in a hospital, a doctor's office or at your home. A legally qualified dentist will be considered a "surgeon" when performing some of the oral surgery procedures listed below. Also covered are charges for the related pre-operative and post-operative care given during the period of confinement in which the surgery is performed. If more than one surgical procedure is being performed at one time, call Aetna in advance of the surgery to determine how the reimbursement may be affected by these multiple procedures. 6 If you or a covered dependent requires non-emergency surgery, you may request that your doctor provide Aetna with an estimate of surgical expenses. This estimate allows Aetna to determine in advance whether or not the proposed charges meet the reasonable and customary guidelines. For details, call the Customer Service number that appears on your ID card. The plan covers most surgical procedures. Listed below are some procedures about which questions are most frequently asked: .circumcision; .cosmetic surgery necessary for the prompt repair of an injury resulting from an accident; .obstetrical care. You should file a claim for prenatal care, delivery and post-natal care at the time of delivery. If this isn't possible, you need to call the Customer Service number that appears on your ID card; .oral surgery for the following procedures only: - the excision of partially or completely unerupted, impacted teeth; - apicoectomy, which is the excision of a tooth root without the extraction of the entire tooth. However, root canal therapy isn't covered. - the closed or open reduction of fractures or dislocations of the jaw; - the prompt repair of natural teeth or dental tissue damaged in an accident; - other incision or excision procedures on the gums and tissues of the mouth when not performed in connection with tooth repair or extraction. Keep in mind that dental cleaning, root scaling, planing or other scraping procedures aren't covered; and - alteration of the jaw, jaw joints or bite relationships by a cutting procedure when appliance therapy alone cannot result in functional improvement; .vasectomies and tubal ligations (lawfully performed voluntary sterilization operations). Hospital expenses won't be covered for routine vasectomies, since these usually can be performed in the doctor's office. Voluntary secondary opinions -- A voluntary second opinion is a voluntary consultation with a physician other than the first physician who recommended and proposed to perform a surgery. Emergency care and treatment -- Provided by a doctor in the doctor's office, a hospital outpatient department or emergency room, or at home following an accident or a medical emergency. Inpatient doctor's care and treatment -- Provided by a doctor or psychiatrist in a hospital or convalescent facility if the patient is ill or injured and confined as a bed patient. Outpatient doctor's care and treatment -- Provided in the doctor's office or at home for any illness. Prescription drugs -- Drugs and medications which can be obtained only with a doctor's prescription. Certain other drugs and medications which normally don't require a prescription may be covered if ordered by your doctor on his/her prescription forms. The plan offers you three alternatives for paying for prescription drugs. 7 ARCO Executive Medical Plan
=========================================================================================================== Prescription Drug Service Comparison Chart =========================================================================================================== Express Pharmacy Services APM Pharmacy Standard Program (mail order) (network pharmacy) (any pharmacy) =========================================================================================================== You Pay: Nothing Nothing Full un-discounted price - ----------------------------------------------------------------------------------------------------------- Claims to file for No No Yes - for the full price reimbursement: - ----------------------------------------------------------------------------------------------------------- Recommended when: Long-term or Network pharmacy is Network pharmacy is not maintenance supply is available and short-term available needed supply is needed ===========================================================================================================
Standard Drug Coverage You may have your prescriptions filled at any pharmacy you choose. Simply pay the full cost of the prescription and then file a claim with Aetna for reim- bursement. Your covered prescriptions will be reimbursed at 100%. Aetna Pharmacy Management The Aetna Pharmacy Management (APM) program involves a network of pharmacies that have agreed to provide discounted prices to plan members for short-term prescription drug supplies (30 days or less). Major pharmacy chains, as well as numerous independents, participate in the APM program nationwide. Your Aetna claim office can provide you with a list. APM is also a partnership -- one from which plan members, ARCO and participating pharmacies can all benefit. By offering discount rates, network pharmacies attract more customers and increase their business volume. ARCO saves money by taking advantage of the participating pharmacies' lower, preferred rates, which in turn controls the Company's overall expenditure for medical insurance. APM network pharmacies automatically fill your prescriptions with approved generic drugs, unless you or your doctor specifies otherwise on your prescription. Generic drugs have the same ingredients as brand-name drugs but are less expensive. The APM program is easy to use. Take your prescription to a participating pharmacy and present your Aetna ID card. The full discounted cost of the prescription will be reimbursed directly to the pharmacy by the plan. You pay nothing and there are no claims to file. If you're interested in finding out more about the APM program, contact Executive Relations or your claim office. Express Pharmacy Services If you or one of your covered dependents relies on prescription drugs for the treatment of long-term or chronic conditions, such as diabetes, arthritis or heart disease, ARCO can offer you another alternative: the mail order prescription drug program, which is administered by Express Pharmacy Services of the Thrift Drug Company (a division of J.C. Penney). As under the APM program, your prescriptions will automatically be filled with approved generic drugs, unless you or your doctor specifies otherwise on your prescription. 8 When you order prescription drugs through Express Pharmacy Services, the plan pays 100% of the cost of each prescription. The program saves you the time of waiting at a drug store, since prescriptions are delivered to your home within 14 days of your order. In addition, you pay nothing and there are no claim forms to file. Prescription drugs not covered by the plan, such as oral contraceptives and minoxidil, may be ordered through the mail order program. Though you will pay the entire cost of the prescription, you will be able to take advantage of the mail order discounted prices. Selected non-prescription vitamins are also available. If you're interested in finding out more about Express Pharmacy Services, contact Executive Relations. The chart on page 8 shows you how your prescription drug services work together. With a little thought and planning, you can use these programs to your advantage. Diagnostic X-ray and laboratory services -- Relating to an illness or injury and performed while the patient isn't confined in a hospital. If these tests are performed while the patient is hospitalized, the charges are considered miscellaneous hospital expenses. Fees for the doctor interpreting the findings are also covered. Radiation, radium and radioactive isotope therapy -- Relating to an illness or injury and performed while the patient isn't confined in a hospital. Non-surgical cosmetic expenses -- Incurred in connection with cosmetic surgery required for the prompt repair of an injury resulting from an accident. Spinal manipulation and modalities -- And other related services, including cervical manipulation and modalities. The services include office visits, X-rays, examinations, consultations, and spinal and cervical manipulations directly related to the treatment of an injury. Services may be performed by doctors, chiropractors, osteopaths and other providers, but doesn't apply to services provided if you're hospitalized. Maintenance therapy isn't covered under the plan. Physical, occupational and speech therapy prescribed by a doctor -- For treatment of an illness or injury while not confined in a hospital, if determined to be medically necessary by Aetna. Prosthetic devices -- Including: .artificial limbs; .the first external breast prosthesis, the first brassiere designed exclusively for use with the prosthesis or the cost of an internal breast prosthesis made necessary by a mastectomy; .the first set of contact lenses and/or eyeglasses made necessary by cataract surgery, if purchased within one year after the surgery; and .the first hearing aid purchased after inner-ear surgery or to correct an impairment directly caused by an accident. To be a covered expense, the device must be purchased within one year after the accident or surgery. Because eyeglass-type hearing aids are elective, covered expenses for such items are limited to the cost of hearing aids that have a standard design. The plan covers the repair of prosthetic devices when it's less expensive than the cost of replacement. However, the plan will cover the replacement of prosthetic devices when: .the existing device cannot be repaired; or .the replacement is recommended by your doctor because of a change in your physical condition. 9 Rental or purchase of special durable medical supplies and equipment -- Such as hospital beds, wheelchairs and crutches. To find out if a particular supply or piece of equipment is covered under the plan, you should request prior authorization from Aetna. Private duty nursing -- If medically necessary and ordered by your doctor and performed by a registered nurse who isn't a member of your family or your spouse's family. To find out if a benefit will be paid, you should request prior authorization from Aetna before engaging a private duty nurse. Convalescent Care -- At a facility that provides skilled nursing care. Coverage includes room and board at a private room rate and miscellaneous charges for medical supplies and services, such as medication, dressings and physiotherapy provided by the facility. The patient must be under the continuous care of a doctor. To be covered, the confinement: .must be medically necessary as determined by Aetna; .must begin within 14 days of a hospital stay that lasts at least three consecutive days; and .must be for care in connection with the same illness or injury which caused the hospital stay. The plan does not cover: .custodial care; .convalescent care for chronic psychiatric conditions or drug addiction; or .care that can't reasonably be expected to lessen the degree of the patient's disability and enable the patient to live outside an institution. Home health care -- Skilled nursing services determined by Aetna to be medically necessary and provided at home. The plan covers: .part-time or intermittent nursing care by a registered nurse or licensed practical nurse. A care provider cannot be a member of your family or your spouse's family; .part-time or intermittent home health aide services supervised by a registered nurse, consisting primarily of caring for the patient; .medical supplies and laboratory services, but only if they would have been covered had the patient remained in a hospital or an extended care facility; .medicines and drugs prescribed by a doctor; and .physical, occupational and speech therapy. Your doctor must submit a written home health care plan to Aetna certifying that without home health care, the patient would have to be hospitalized or confined in a convalescent facility. Benefits are payable only if Aetna pre-approves the home health care plan. Coverage is limited to 120 home health care visits, up to four hours for each visit, per covered person per year. The plan does not cover: .the services of a member of the patient's family or a person who normally lives with the patient; .any period when the patient isn't under the continuing care of a doctor; 10 .care or treatment not specified in the home health care plan submitted by your doctor and approved by Aetna; .transportation services; or .custodial care. Hospice care -- Through an accredited facility or agency offering care designed to meet the physical, psychological and social needs of terminally ill patients and their families. Covered expenses for inpatient hospice care include room and board at a private room rate, fees for hospice care and doctors' services, and miscellaneous charges for services and supplies provided by the hospice. Outpatient hospice care must be provided by an accredited hospice care agency that offers around-the-clock skilled nursing services, medical social services and psychological counseling. Your doctor and the appropriate hospice personnel must provide Aetna with a written care plan that assesses the patient's medical and social needs and describes the care required to meet those needs. The plan must be reviewed periodically by your doctor and the appropriate hospice personnel for plan coverage to continue. The plan does not cover: .charges for services provided by a homemaker or caretaker; .bereavement, pastoral, financial or legal counseling; or .funeral arrangements. Treatment of psychiatric conditions .Inpatient hospital The plan covers: ------------------ - hospital services and supplies (see page 5); - doctors' charges for as long as medically necessary, but only if a comprehensive treatment program, including after-care, is prescribed and supervised by a legally qualified doctor; and - charges for family consultations (that is, conjoint therapy) when necessary while the person requiring treatment is hospitalized. .Outpatient care (non-hospital) If treatment is received on an outpatient ---------------------------- basis, the plan covers charges for care provided by a legally qualified doctor plus drugs prescribed for the treatment of the condition. Care provided for non-medical conditions, such as marriage counseling, isn't covered. Treatment by a licensed psychologist or licensed clinical social worker (LCSW) is covered on the same basis as psychiatric care by a doctor if it's required for the diagnosis or treatment of a psychiatric condition under the plan. If a licensed marriage, family and child counselor (MFCC) provides the necessary care, those charges will be considered if the counselor has been referred by a psychiatrist, licensed psychologist or medical doctor. In states where an LCSW or MFCC license isn't available, Aetna will consider charges from a therapist holding an equivalent license on the same basis as described above if the therapist has an accredited master's degree or higher, is in clinical practice, has had at least two years of supervised experience, and is under the direct supervision of a psychiatrist, licensed psychologist or physician. 11 Treatment of alcoholism and drug addiction . Inpatient hospital The plan covers: ------------------ - hospital services and supplies (see page 5); - doctors' charges for as long as medically necessary, but only if a comprehensive treatment program, including after-care, is prescribed and supervised by a legally qualified doctor; and - charges for family consultations (that is, conjoint therapy) when necessary while the person requiring treatment is hospitalized. .Non-Hospital Treatment Center The plan pays a benefit only if treatment is ----------------------------- received at a facility that's approved by Aetna, such as The Betty Ford Center or Hazelden. To find out if a facility is Aetna-approved, call the Customer Service number that appears on your ID card. Once the facility and plan of treatment are approved, the plan covers: - facility services and supplies for 30 days; - doctors' charges directly related to the treatment program; and - charges for conjoint therapy during the confinement. Confinement in an Aetna-approved non-hospital treatment center is limited to 30 days per confinement, up to a maximum lifetime benefit of 90 days. .Outpatient care (non-hospital) If treatment is received on an outpatient ------------------------------ basis, the plan covers charges for care provided by a legally qualified doctor or licensed psychologist, plus drugs prescribed for the treatment of the condition. Expenses Not Covered The plan won't pay for medical services and supplies which: .are not considered medically necessary (see page 4). This applies even if the diagnosis, care or treatment is prescribed, recommended or approved by your doctor or dentist; .exceed reasonable and customary charges (see page 4); .exceed the plan's maximum benefits (see page 4); .exceed the wellness benefit of $250 per person and $750 per family; .you're not legally required to pay; .are for services provided by an immediate family member; or .wouldn't have been charged to you had you not been covered under the plan. The plan also doesn't cover medical expenses resulting from or associated with: .any illness or accidental injury for which benefits are payable under workers' compensation or similar law; .illness or injury suffered during service in the military; .services or supplies provided under any law of a government; .treatment, services or supplies not prescribed, recommended or approved by your doctor; 12 .procedures, services, drugs or other supplies considered experimental in terms of generally accepted medical standards or still under clinical investigation by medical professionals. This exclusion does not apply to care, treatment, services or supplies (other than drugs) received in connection with a disease if Aetna determines that: - in the absence of effective treatment, the disease can be expected to cause death within one year; and - scientific data indicate that the care or treatment is effective for that disease or shows promise of being effective for that disease. In making this determination, Aetna will take into account the results of a review by a panel of independent medical professionals, selected by Aetna, including professionals who treat the type of disease involved; .the following types of treatment for psychiatric conditions: - primal therapy - rolfing - psychodrama - megavitamin therapy - bioenergetic therapy - vision perception training - carbon monoxide therapy; .the purchase and fitting of eyeglasses and contact lenses, except if needed after cataract surgery and purchased within one year after the surgery; .any eye surgery performed mainly to correct refractive errors (radial keratotomy); .dental care, except if needed to correct damage caused by injury, impaction or surgery not connected with the extraction or repair of teeth; .the purchase and fitting of hearing aids, except to correct an impairment directly caused by an accident or if needed after inner-ear surgery and purchased within one year after the surgery; .cosmetic surgery, unless prompt repair is needed to correct damage caused by an accident; .treatment of obesity or for diet or weight control, unless approved by Aetna; .acupuncture therapy. This exclusion does not apply to acupuncture performed by a covered health care provider as a form of anesthesia in connection with surgery that's covered under the plan; .services or supplies related to organ or tissue transplants. This exclusion does not apply to charges made to a covered person who either receives or donates an organ or tissue transplant listed below: - heart - lung - kidney - cornea - bone marrow* - liver* - pancreas* * Call your Aetna claim office to determine if your medical condition is covered under the plan; .treatment of infertility, including in vitro fertilization, artificial insemination or embryo transfer procedures; .the pregnancy of a surrogate mother; .reversal of any sterilization procedures; 13 .sex change surgery or any treatment related to gender identity; .therapy, supplies or counseling services for sexual dysfunctions or inadequacies; .custodial care; and .missed medical appointments. The plan also won't pay charges for services or supplies which any school system is legally required to provide, including: .education, special education or job training; or .services of a doctor, physical therapist, occupational therapist, speech therapist or audiologist provided to covered children who are physically or mentally impaired or learning disabled. The preceding list of the plan's exclusions and limitations may not be complete. If you have questions about coverage for a specific medical expense, call the Customer Service number that appears on your ID card. Coordination of Benefits Coordinating with Other Plans The plan has been designed to help you meet the cost of illness or injury. It's not intended that your reimbursement ever exceed your actual medical expenses. As a result, the plan coordinates the benefits it pays by taking into account any coverage you or your covered dependents may have under any other group plans or government programs or coverage provided by law. (A group plan provides benefits or services for medical or dental care or treatment.) Here's how coordination of benefits works. When you receive medical care that's also covered under another plan, one of the plans is the primary plan, and the other plan is the secondary plan. If the Executive plan is primary, it pays its benefits first. If the Executive plan is secondary, it adjusts its benefits so that the total amount of benefits you receive isn't more than 100% of your allowable expenses. These expenses are defined as reasonable and customary charges payable under the plan. A plan with no provision for coordination with other benefit plans becomes the primary plan and pays its benefits first. See page 15 for a look at how a benefit is paid if all plans coordinate payments. In addition, if you're covered as an active employee under one plan and as a retiree under another plan, the plan covering you as an active employee pays first, and the plan covering you as a retiree (or as an inactive employee) pays second. If none of the rules above apply, the plan under which you've been covered for the longest period of time pays first. Coordinating with Medicare You should contact your local Social Security office for details about Medicare enrollment as soon as you or your dependent begins to receive Social Security disability payments or at least three months before you or your spouse reaches age 65. Totally Disabled and Not Retired If you're totally disabled, you may be eligible for Medicare. If you choose to be covered under both the Executive plan and Medicare, the Executive plan is the primary plan, and Medicare is the secondary plan. 14 Coordination of Benefits Chart
================================================================================================================================= When you're an ARCO employee, covered under both the Executive plan and your spouse's employer's plan, and... ================================================================================================================================= The medical Which plan pays expenses are for... Which plan pays first? second? Which plan pays third? ================================================================================================================================= You Executive plan Spouse's plan - --------------------------------------------------------------------------------------------------------------------------------- Your spouse Spouse's plan Executive plan - --------------------------------------------------------------------------------------------------------------------------------- Your dependent children if: .You're married .Plan of parent whose .Plan of parent with later birthday falls earlier in birthday the year - --------------------------------------------------------------------------------------------------------------------------------- .You're divorced or .Executive plan .Plan of natural parent separated and have without custody custody - --------------------------------------------------------------------------------------------------------------------------------- .You're divorced or .Plan of natural parent .Executive plan separated and don't with custody have custody - --------------------------------------------------------------------------------------------------------------------------------- .You're remarried with .Executive plan .Custodial stepparent's .Plan of natural parent custody plan without custody - --------------------------------------------------------------------------------------------------------------------------------- .You're divorced .Plan of natural parent .Custodial stepparent's .Executive plan without custody; and with custody plan the natural parent wit h custody has remarried =================================================================================================================================
From the time you become eligible for Medicare, you may choose to have your medical coverage provided through: .the Executive plan only; .the Executive plan supplemented by Medicare; or .Medicare only. If you choose primary coverage under Medicare, Medicare pays its usual benefit, the Executive plan doesn't pay benefits -- and you're responsible for any additional costs. You'll need to contact Executive Relations if you choose to be covered under Medicare. Age 65 and Still Working Government regulations require that ARCO offer you a choice of medical plans if you continue working past age 65. From age 65 on, you may choose to have your medical coverage provided through: .the Executive plan only; .the Executive plan supplemented by Medicare; or .Medicare only. 15 If you chose to be covered under both the Executive plan and Medicare, the Executive plan is the primary plan -- since you're an active employee -- and Medicare is the secondary plan. If you chose coverage under Medicare only, Medicare pays its usual benefit, the Executive plan doesn't pay benefits -- and you're responsible for any additional costs. You'll need to contact Executive Relations if you choose to be covered under Medicare. At Age 65 (or Totally Disabled) and Retired Once you or your covered dependent is eligible for Medicare, you need to notify ARCO's Benefit Plans Administration-Insurance Unit at 74 N. Pasadena Avenue, Pasadena, California 91103, so that your medical coverage election can be adjusted. You'll need to provide proof of Medicare eligibility. After you become Medicare-eligible, Medicare becomes the primary plan and the Executive plan becomes the secondary plan for purposes of coordinating benefits. If you're covered under the Executive plan and don't apply for Medicare even though you're eligible to do so, the Executive plan coordinates benefits as if you were covered under Medicare. How To File a Claim The plan is designed to help process your claim as quickly as possible. You or the provider of services should send claims directly to the Aetna claim office indicated on your ID card. Claim forms and instructions for their completion are available from your Aetna claim office or Executive Relations. A fully completed claim form must be returned to Aetna for each covered family that incurs medical expenses. All family members may be listed on the same claim form. This form should be sent: .once every 12 months; or .when a family member experiences one of the changes listed on the bottom portion of the claim form which requires claim office notification. For prompt payment of your claim, you must include the following information with your claim form: .the provider's name; .the date of treatment; and .itemized bills for services performed by the provider. If you have standard drug coverage, a bill from the pharmacist must always identify the prescription dispense diagnosis, the purchase date, the person to whom the prescription is issued and the doctor who issued it. You don't need to attach a claim form with each additional claim you file. Just be sure that the patient's name and your Social Security Number appear on the bill. Additional claims may be filed as expenses are incurred, and claims for more than one covered person may be sent at the same time. You must file your claim within two years after the expense was incurred. Otherwise, covered expenses won't be paid. If you participate in the Health Care Account and wish to file claim for eligible medical expense, you must do so by March 31 of the year following the year that the expenses was incurred, subject to the Health Care Account claim filing instructions included in your Health Care Account summary plan description. 16 Doctor's Services After receiving the claim, Aetna will screen it for completeness, verify eligibility and determine if the expense is covered under the plan. If Aetna needs more information to make a benefit determination, you or your doctor will be asked to provide Aetna with that information. Payments will be made directly to you unless you've: .signed the section of the claim form authorizing Aetna to pay the doctor directly; or .executed an assignment of benefits to the provider, which is kept on file in the doctor's office. Hospitalization Generally, to receive benefits under the plan, you need only present your ID card to the provider, who in turn will submit all necessary claim information to Aetna. Providers include hospitals, convalescent facilities or other health care institutions that have been recognized and approved by Aetna. When services are provided in hospitals in foreign countries, you may be required to send benefit claims directly to Aetna. After receiving the claim, Aetna will screen it for completeness, verify eligibility and determine if the expense is covered under the plan. If Aetna needs more information to make a benefit determination, you or the hospital will be asked to provide Aetna with that information. Aetna will pay the provider directly. However, if you've paid the hospital and the hospital has marked the bill "paid in full," payment will be made to you. How to File an Appeal Claim Denial If you file a benefit claim that is partially or wholly denied, you'll receive written notice of the denial within 90 days after Aetna receives the claim. This time limit may be extended for an additional 90 days in special cases, but you'll be notified of the reasons for the delay. In no event will this extension exceed 90 days. The denial notice will explain the reasons for the denial, state the plan provisions on which the denial is based, describe any additional information or material required and discuss the procedures you must follow if you want a further review of your claim. Claim Review If your benefit claim is partially or wholly denied, you may contact your Aetna claim office within 60 days after receiving the denial notice and request a claim review. When you do, you need to provide: .the name(s) and address(es) of both patient and employee; .the employee's Social Security Number; .the date service or treatment was received; .the provider's name (doctor, hospital, etc.); and .the reason you think the claim should be reviewed. In addition, you or a designated authorized representative may review pertinent documents and submit additional issues in writing. 17 Within 60 days (or 120 days in some cases) after you file your request, Aetna will notify you in writing of its final decision, including the specific reasons for its determination. If Aetna finally denies the claim because of the patient's ineligibility to participate in the plan or other issues unrelated to the payment of claims, you may request that ARCO's Welfare Plans Administrative Committee review the claim. Contact Executive Relations for information on how to file this type of appeal. When Coverage Ends You Except as discussed under COBRA (see page 19), your coverage under the plan ends on whichever of the following happens first: .the last day of the month in which you're no longer an active executive; .the last day of the month in which you're granted a formal unpaid leave of absence which doesn't allow for continuation of medical coverage; or .the date the plan is terminated. Your Dependents Coverage for your eligible dependents terminates the last day of the month in whichever of the following happens first: .your coverage ends for any reason (including your death); or .your dependents become ineligible. If you die while covered under the plan, coverage for your eligible dependents will continue until the end of the month in which you die. Their coverage will then be transferred to the Atlantic Richfield Comprehensive Medical Plan, and the Company will continue to pay the full premiums. This option is available only if your spouse or dependents waive COBRA continuation coverage (see page 19). For more information, contact Executive Relations. How To Continue Coverage On a Leave of Absence If you're granted a leave of absence, your right to continue medical coverage during the leave depends on the provisions of the leave you've taken. For more details on medical coverage during leaves of absence, contact Executive Relations. For Disabling Conditions Only If you or one of your covered dependents is totally disabled, as determined by Aetna, when your medical coverage ends, any medical expenses related to the illness or injury that caused the disability are covered until whichever of the following happens first: .one year after coverage for you or your dependent would otherwise end; .the person with the disability is covered by another group plan that offers similar benefits; or .the person is no longer totally disabled. 18 You're considered totally disabled under this plan if, as the result of illness or injury: .you can't perform the regular duties of a job for which you're reasonably qualified because of your education, training or experience; and .you're not performing any work of any kind for pay or profit. Your dependents are considered totally disabled if illness or injury prevents them from engaging in the normal activities of a healthy person of similar age. All extended benefits are subject to this plan's provisions and are limited to the treatment of the disabling condition only. At Retirement As a retiree, you may be able to continue your medical coverage if, at the time of your retirement, the Company offers retiree coverage and you don't elect COBRA continuation coverage. To be eligible for retiree coverage, you must be enrolled in this plan when you retire and, while you're a plan member, you: .leave the Company once you reach age 62; .leave the Company at any time that you're eligible for an immediate retirement allowance from a qualified retirement plan; or .leave the Company and are eligible for retiree coverage under the Company's special termination policy Understanding COBRA Coverage As required by the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), you and your covered dependents have the option to continue your medical coverage for a specified time when such coverage would otherwise end. To continue coverage due to divorce or loss of dependent status, you or a family member must inform Executive Relations within 60 days of the occurrence of either of these events. Who Qualifies You You may continue your coverage in this plan or the Atlantic Richfield Comprehensive Medical Plan for up to 18 months if you would otherwise lose coverage because: .your hours of work are reduced; .you're laid off; or .you leave the Company for reasons other than gross misconduct. If you elect COBRA coverage under the Atlantic Richfield Comprehensive Medical Plan, you cannot change your coverage to the Atlantic Richfield Executive Medical Plan during a subsequent open enrollment. If you leave the Company under a special termination policy that offers Company-provided medical coverage under the Executive plan, you may choose to be covered under either the terms of the special termination policy or COBRA coverage as described here. 19 The cost of COBRA coverage equals 102% of the plan's premiums. You'll be informed of the cost of COBRA coverage when you apply. Your Spouse If your spouse is covered under the plan, he/she may continue coverage for himself/herself for up to 18 months under the circumstances described under "Who Qualifies -- You" (see page 19). Your spouse may continue coverage for up to 36 months if coverage would otherwise end because: .you die; or .you and your spouse divorce. If your spouse elects COBRA coverage under the Atlantic Richfield Comprehensive Medical Plan, he/she cannot change coverage to the Executive Medical Plan during a subsequent open enrollment. At your death, your spouse may choose either COBRA coverage or survivor coverage under the terms of the ARCO Comprehensive Medical Plan covering your spouse at that time. The cost of spouse COBRA coverage equals 102% of the plan's premiums. Your spouse will be informed of the cost of COBRA coverage when he/she applies. Your Dependent Children If your dependent children are covered under the plan, they may continue coverage for up to 18 months under the circumstances described under "Who Qualifies -- You'' (see page 19). Your covered children may continue coverage for up to 36 months if their coverage would otherwise end because: .you die; .you and your spouse divorce; or .your covered children lose their dependent status under the plan. If your dependent children elect COBRA coverage under the Atlantic Richfield Comprehensive Medical Plan, they cannot change coverage to the Executive Medical Plan during a subsequent open enrollment. The cost of COBRA coverage for dependent children equals 102% of the plan's premiums. Your covered children will be informed of the cost of COBRA coverage when they apply. When COBRA Coverage is Extended Disability Continuation Coverage An 18-month COBRA continuation period may be extended to a total of 29 months if: .you or your dependent is considered totally disabled under Social Security rules when coverage first begins; and .the disability continues throughout the COBRA coverage period. However, this coverage applies only to the person with the disability and not to any other dependents. 20 To qualify for the additional 11 months of COBRA coverage, you or your dependent must notify Executive Relations: .within 60 days of being classified as totally disabled under Social Security; and .during the original 18-month COBRA continuation period. You may be asked to provide proof of the disabling condition. Likewise, if Social Security determines that you or your dependent is no longer totally disabled, you must notify Executive Relations within 31 days. The cost for the additional 11 months of disability continuation coverage equals 150% of the cost of the plan's premiums. You or your dependent will be notified of the exact cost when you or your dependent applies. Additional Events If one of the events listed on pages 19 & 20 occurs while you, your spouse or your dependents are covered during the 18-month COBRA continuation period, coverage will be considered to have begun on the date of the first event and may be extended for up to 36 months after that date. When COBRA Coverage Ends COBRA coverage ends if: .you or your covered dependent fails to pay the required premiums; .you or your covered dependent becomes covered under another group plan that includes coverage for preexisting conditions for which coverage is provided under the Executive plan; .you or your covered dependent becomes eligible for Medicare; or .all ARCO medical plans are terminated. New laws and regulations may change any of the COBRA information presented above. Also, you and your dependents may have to satisfy certain notice requirements in order to receive COBRA coverage. For more details on how you can obtain COBRA coverage under the plan, contact Executive Relations. When the Plan Ends The Company expects and intends to continue the plan indefinitely, but reserves the right to amend or terminate it at any time. If the plan is terminated, your coverage will end on the plan's termination date. However, if you or one of your dependents is totally disabled at the time, benefits will continue to be available as described on page 18. All extended benefits are subject to the plan's provisions and limitations. How To Convert Your Coverage You or your covered dependents may apply for an individual insurance policy from Aetna if coverage ends. If you're interested in this coverage, contact Executive Relations. Since an individual policy isn't a continuation of coverage under the plan, the benefits that will be provided and the cost of the policy won't be the same as provided under this plan, but will be determined by Aetna. 21 Glossary Here's a list of terms you need to know in order to understand how the plan works. Page references indicate where these terms are defined. Allowable expenses 14 Coordination of benefits 14 Medical emergency 6 Medically necessary 4 Primary plan 14 Reasonable and customary 4 Secondary plan 14
22 EX-10.8 4 EXEC LIFE INS PLAN Summary Plan Description ATLANTIC RICHFIELD EXECUTIVE LIFE INSURANCE PLAN As in Effect on January 1, 1994 1994 TABLE OF CONTENTS Your Life Insurance Benefits--An Overview 1 Who's Eligible 1 You 1 Your Dependents 1 When Coverage Begins 2 Basic Life Coverage 2 You 2 Your Dependents 2 Executive Life Coverage 2 Optional Life Coverage 3 How the Plan Works 3 What the Coverage Costs 3 Basic Life Coverage 3 Executive Life Coverage 3 Optional Life Coverage 4 How To Calculate Plan Benefits 4 Basic Life Coverage 4 Life Insurance 4 AD&D Coverage 4 Executive Life Coverage 5 Optional Life Coverage 5 Who Receives a Benefit 5 Basic Life Coverage 5 You 5 Your Beneficiary 6 Executive Life Coverage 6 Optional Life Coverage 6 How Benefits Are Paid 6 Basic Life Coverage 6 Executive Life Coverage 6 Lump-Sum Option 7 Survivor Income Option 7 Optional Life Coverage 7 How To File a Claim 7 How To File an Appeal 7 Claim Denial 7 Claim Review 7 When Coverage Ends 8 Basic Life Coverage 8 Executive Life Coverage 9 Optional Life Coverage 9 How To Continue Coverage 9 Basic Life Coverage 9 On a Leave of Absence 9 If You're Totally Disabled 9 Before Retirement but After Age 65 9 At Retirement 9 Executive Life Coverage 10 On a Leave of Absence 10 If You're Totally Disabled 10 Before Retirement but After Age 65 10 At Retirement 10 Optional Life Coverage 11 On a Leave of Absence 11 If You're Totally Disabled 11 Before Retirement but After Age 65 11 At Retirement 11
i When the Plan Ends 12 How To Convert Your Policy 12 Basic Life Coverage 12 Executive Life Coverage 12 Optional Life Coverage 12 Glossary 13
ii YOUR LIFE INSURANCE BENEFITS--AN OVERVIEW ARCO's life insurance plan and accidental death and dismemberment (AD&D) coverage offer important financial security for you and your family in the event of injury or death. The Executive Life Insurance Plan includes three components: . basic life coverage, which pays the first $50,000 of your life insurance benefit, as well as an additional benefit if your death or dismemberment is caused by an accident. This coverage also provides some insurance on the lives of your spouse and each of your children; . executive life coverage, which provides insurance on your life only and pays a benefit equal to three times your annual base pay, less the $50,000 benefit provided by basic life coverage. Executive life coverage also lets you choose the form of survivor payments which best meet your beneficiaries' needs; and . optional life coverage, which gives you the opportunity to purchase additional life insurance for yourself of up to twice your annual base pay. You and the Company share the cost of this coverage. The Executive Life Insurance Plan is just part of ARCO's "Business of Benefits" effort to address your benefit needs with the same care with which we build our business relationships. This booklet gives you an overview of the Atlantic Richfield Company Executive Life Insurance Plan, including a summary plan description (SPD) of ARCO's Basic Life Plan. The full terms of the Executive Life Insurance Plan are contained in the plan document on file with the Company. The information presented in this booklet doesn't replace the official documents that legally govern the plan's operation. In the event of any conflict between this booklet and the official documents, the official documents will govern. ARCO reserves the right to change or terminate this plan at any time. There are a number of terms you need to know in order to understand how the plan works. The first time each of these terms is used, it will appear in BOLDFACE TYPE and will be followed by its definition or a page reference indicating where that definition is located. We've also included a glossary at the end of this booklet, which lists each term and shows you on which page its definition appears. If you have any questions about your life insurance benefits, contact Executive Relations. WHO'S ELIGIBLE YOU As an executive, you're eligible for basic life coverage, executive life coverage and optional life coverage. YOUR DEPENDENTS Basic life coverage is provided for your eligible dependents as explained on page 4. Eligible dependents include: . your legal spouse; and . your unmarried children: -to the end of the month in which their l9th birthday occurs; 1 -from their l9th birthday to the end of the month in which their 25th birthday occurs, if they're full-time students at an accredited high school or college and are PRIMARILY DEPENDENT on you for support; -from their l9th birthday to the end of the month in which their 25th birthday occurs, if they're primarily dependent on you for support; and -age 19 or over for whom you can provide proof acceptable to Aetna Life Insurance Company, the insurance carrier, of your child's physical or mental incapacity for self-support. "Primarily dependent" means that your child depends on you for more than half of his/her financial support and qualifies for dependency tax status, as defined by the Internal Revenue Code, on the date the claim was incurred. If your child can't be declared as a dependent for federal income tax purposes, he/she no longer qualifies as a covered dependent for that year. If he/she qualifies for dependency tax status in any subsequent year and meets all other eligibility requirements, he/she may again be covered as a dependent under this plan. Children include your: . natural children; . adopted children; and . any other children who: -live with you in a parent-child relationship; or -can be claimed as dependents for income tax purposes. WHEN COVERAGE BEGINS BASIC LIFE COVERAGE YOU You automatically receive basic life coverage on: . your hire date; or . the date you're first eligible for coverage; whichever occurs first. If you're disabled and away from work when coverage would otherwise begin, you're covered once you return to work. YOUR DEPENDENTS Your eligible dependents are automatically covered on the date your coverage begins. EXECUTIVE LIFE COVERAGE You must enroll for executive life coverage within 30 days of the later of: . the date of your eligibility for executive life coverage; or . the date you're notified of your eligibility. If you enroll within the 30-day deadline and the insurance carrier denies you coverage, the Company will self-insure you, as long as you've complied with the insurance carrier's underwriting requirements. This includes completion of a confidential health questionnaire, on which you're required to disclose all known health problems and pre-existing conditions to the insurance carrier. You may also be required to provide evidence of your good health. 2 If you want to enroll after the 30-day deadline, you must wait until the next open enrollment period. OPTIONAL LIFE COVERAGE You may enroll for optional life coverage when you enroll for executive life coverage. If you want to enroll after the 30-day enrollment deadline or make a change to your optional life coverage, you must wait until the next open enrollment period to do so. Coverage begins when the insurance carrier approves your application. There's no Company self-insurance for this coverage. HOW THE PLAN WORKS Basic life coverage is provided through group term life insurance. Executive life coverage is funded by Corporate Owned Life Insurance (COLI) under a split- dollar agreement. This means that the Company owns the life insurance policy and guarantees you a share in its value through endorsement. That way, both you and the Company receive part of the dollar value of the policy if you die. Under certain circumstances--for example, if the insurance carrier denies you executive life coverage--the Company may self-insure you. Optional life coverage is provided by employee-owned insurance policies in which the Company is assigned a collateral interest in the policies equal to its CUMULATIVE PREMIUM OUTLAY--that is, its contributions. You and the Company share the cost of this coverage--and both of you receive part of the dollar value of the policies if you die. WHAT COVERAGE COSTS BASIC LIFE COVERAGE ARCO pays the full cost of this coverage for both you and your dependents. EXECUTIVE LIFE COVERAGE ARCO pays the full cost of your executive life coverage. As an active employee, if you elect the LUMP-SUM OPTION form of payment (see page 7), once each year you pay a contribution equal to the amount of your imputed income on the premiums the Company has paid. See the following table for details. The Company then pays you a bonus equal to your contribution on a before-tax basis. The net cost to you is any incremental income tax you may have to pay on the bonus.
IF YOU ELECT THE LUMP-SUM OPTION AND... YOU'RE AGE THE INCOME REPORTABLE TO YOU FOR EACH $100,000 OF COVERAGE ABOVE $50,000 IS 30 $ 56 35 $ 58 40 $ 60 45 $ 80 50 $113 55 $158 60 $237 65 $460
If you're an inactive employee--that is, retired, on an approved leave of absence or terminated--and you elect the lump-sum option, you're taxed on the value of your executive life coverage. 3 There's no net cost to you if you elect the SURVIVOR INCOME OPTION (see page 7) form of payment, to be paid to your BENEFICIARIES (see page 6). OPTIONAL LIFE COVERAGE You and ARCO share the cost of this employee-owned life insurance policy. Your monthly contribution is determined by your age and coverage amount, as follows:
IF YOUR AGE IS.. YOUR MONTHLY CONTRIBUTION PER $1,000 OF COVERAGE IS..... Not more than 40 $ .05 41 - 45 $ .07 46 - 50 $ .10 51 - 55 $ .14 56 - 60 $ .24 61 - 65 $ .39 66 - 70 $ .64 71 - 75 $1.04 76 - 80 $1.61
HOW TO CALCULATE PLAN BENEFITS BASIC LIFE COVERAGE Basic life coverage consists of both life insurance and AD&D coverage. LIFE INSURANCE The plan pays the following life insurance benefit if you, your spouse or one of your children dies:
IF LIFE INSURANCE IS FOR... THE BENEFIT PAID IS... You $50,000 Your spouse $ 2,000 Each child $ 1,000
AD&D COVERAGE The plan pays additional benefits according to the schedule below if you experience the loss: . as the result of an accident that occurs while you're insured; and . within one year after the accident. The maximum AD&D benefit that will be paid for all losses resulting from one accident equals I x ANNUAL BASE PAY (see this page).
FOR LOSS OF... THE BENEFIT PAID IS... Life 1 x annual base pay Both hands Both feet 1 x annual base pay Sight in both eyes One hand and one foot One hand and one eye One foot and one eye One hand 50% x annual base pay One foot Sight in one eye
"Loss of hand or foot" means that those limbs are completely severed at or above the wrist or ankle. "Loss of sight" means the entire and irrecoverable loss of sight. If the accident results in death, an AD&D benefit is paid in addition to the plan's life insurance benefit. The AD&D benefit is calculated using your annual base pay--that is, the regular wages you were paid by the Company during the year, including all your pre-tax contributions or deferrals of income to plans such as the 4 Atlantic Richfield Executive Deferral Plan. It also includes benefit-bearing cost-of-living allowances, such as: . Foreign Service Premium for expatriates; and . Alaska Benefits Base for Alaska-based employees If your AD&D benefit isn't an even multiple of $1,000, it will be rounded to the next higher multiple of $ 1,000. For example: $166,191.12 is rounded up to $167,000. An AD&D benefit won't be paid for any loss caused by: . suicide or attempted suicide; or . sickness or infection, unless the infection results from an accident covered by the plan. EXECUTIVE LIFE COVERAGE The plan pays an executive life benefit equal to: 3 X ANNUAL BASE PAY MINUS THE BASIC LIFE BENEFIT OF $50,000. The plan automatically adjusts your executive life coverage if you receive an increase in your base pay. However, if your base pay increase causes your executive life coverage to increase at least 10%, you may have to comply with any insurance carrier underwriting requirements. Coverage increases take effect as of the date your base pay increases. The Company will self-insure you if coverage is pending with the insurance carrier. If you relocate to the lower 48 states from Alaska or overseas, your executive life benefit will be: . maintained at the level of coverage in effect before your transfer; or . based on your current base pay; whichever is greater. OPTIONAL LIFE COVERAGE Optional life coverage for yourself pays a benefit equal to: 1 X ANNUAL BASE PAY OR 2 X ANNUAL BASE PAY. The actual amount of your coverage is subject to the insurance carrier's approval, and you may be required to comply with additional underwriting requirements. If you receive an increase in your base pay, additional optional life coverage is subject to the insurance carrier's underwriting requirements. WHO RECEIVES A BENEFIT BASIC LIFE COVERAGE YOU The plan pays a benefit to you if: . you're dismembered; . your spouse dies; or . an eligible child dies. 5 YOUR BENEFICIARY When you die, the plan pays a benefit to your beneficiary--that is, the person(s) you designate to receive a benefit in the event of your death. To name a beneficiary, you need to obtain a beneficiary designation form from Executive Relations and return the completed form as soon as possible. You may designate anyone you wish as your beneficiary, and you may change this designation at any time. If you die and you've named more than one beneficiary, each receives the same benefit amount, unless you've left written instructions otherwise with the plan. If you're married at the time of your death, your surviving spouse may be entitled under applicable state law (e.g., community property laws) to a portion of the benefit, whether or not your spouse is your designated beneficiary. In that event, the benefits payable to any of your other designated beneficiaries may be reduced. If your beneficiary doesn't survive you and you haven't named any contingent beneficiaries, a benefit is paid to the following survivors in the order listed: . your spouse; . your child(ren); . your parent(s); . your brothers(s) and sisters(s). If you're survived by two or more persons in the applicable group of beneficiaries to whom a benefit is to be paid, the payment will be divided equally among them. If there are no survivors in any of the groups listed above, payment will be made to your estate. EXECUTIVE LIFE COVERAGE Your beneficiary will receive a benefit from this plan if you die. If your beneficiary doesn't survive you and you haven't named any contingent beneficiaries, an executive life benefit will be paid to your estate. To name a beneficiary, you'll need to complete a beneficiary designation form and return it to Executive Relations. You may change this designation at any time. See "Basic Life Coverage" on this page for additional information on beneficiary designations. OPTIONAL LIFE COVERAGE Optional life coverage operates just like executive life coverage in how it handles beneficiaries. See "Executive Life Coverage" above for details. HOW BENEFITS ARE PAID BASIC LIFE COVERAGE The $50,000 basic life benefit and the AD&D benefit are tax-free. A benefit of $10,000 or more will be automatically deposited by Aetna into an interest- bearing checking account in your beneficiary's name. The beneficiary may withdraw the account balance at any time. There are no fees or charges for this service other than those usually charged for stop payments, check copies and returned checks. However, the account is not insured by the Federal Deposit Insurance Corporation (FDIC). EXECUTIVE LIFE COVERAGE You may choose either the lump-sum option or the survivor income option as the form of payment to your beneficiary. This election may be changed once each year during open enrollment. Your new election will take effect the following January 1. 6 LUMP-SUM OPTION If you've chosen the lump-sum option, upon your death the insurance carrier will pay your beneficiary a tax-free lump-sum benefit equal to your full coverage amount. SURVIVOR INCOME OPTION If you've chosen the survivor income option, upon your death the insurance carrier will pay the Company a tax-free lump-sum payment. In turn, ARCO will make monthly survivor income payments to your beneficiary for 10 years. These payments are taxable as ordinary income. Since the Company receives a tax-free payment from the insurance carrier, the Company will increase the monthly survivor payments by its corporate tax rate to offset some or all of the tax on the benefits paid to your survivor. OPTIONAL LIFE COVERAGE After you die, the insurance carrier will pay your beneficiary a tax-free lump- sum benefit. HOW TO FILE A CLAIM To file a claim for AD&D benefits, you or your beneficiary needs to obtain a claim form from Executive Relations. After the form is completed, it should be returned to Executive Relations. In the event of death, a copy of proof of the accident that caused the death must accompany the claim form. A decision on the claim will be made within 90 days after it was filed, and you or your beneficiary will receive written notice of that decision. To file a basic life, executive life or optional life claim for death benefits, your beneficiary should obtain a claim form from Executive Relations and return the completed form, together with a certified copy of the death certificate, to Executive Relations. The claim will be processed as soon as administratively possible. HOW TO FILE AN APPEAL CLAIM DENIAL If the claim is partially or wholly denied, you or your beneficiary will receive written notice of the denial within 90 days after the Company receives the claim. This time limit may be extended for an additional 90 days in special cases, but you or your beneficiary will be notified of the reasons for the delay. In no event will this extension exceed 90 days. The denial notice will explain the reasons for the denial, state the plan provisions on which the denial is based, describe any additional information or material required and discuss the procedures that must be followed if you or your beneficiary wants a further review of the claim. CLAIM REVIEW If you or your beneficiary receives a claim denial notice, you or your beneficiary may wish to file a formal request for a claim review with the insurance carrier. This must be done in writing within 60 days of receiving the claim denial notice, and a copy of the claim review request must be forwarded to Executive Relations. In addition, you, your beneficiary or an authorized representative may review pertinent documents and submit additional issues in writing. If a claim review request isn't filed within this 60-day period, the right to do so is waived. Within 60 days (or 120 days in some cases) after the request is filed, the insurance carrier will notify you or your beneficiary in writing of its final decision, including the specific reasons for its determination. If the insurance carrier finally denies the claim because of ineligibility to participate in the plan or other issues unrelated to the payment of claims, you or your beneficiary may request that ARCO's Welfare Plans Administrative Committee review the claim. 7 Executive Relations should be contacted for information on how to file this type of appeal. WHEN COVERAGE ENDS BASIC LIFE COVERAGE Your life insurance coverage terminates if your employment ends before you reach age 62. However, if you: . retire with an immediate retirement allowance before age 62; or . leave the Company after age 62, with or without an immediate retirement allowance and are eligible for a deferred retirement allowance; coverage terminates at the end of the month in which you turn 65. You may be able to convert your terminated life insurance coverage to an individual policy. See page 12 for details. Your AD&D coverage ends at the end of the month in which you: . retire or otherwise terminate employment; . are granted a leave of absence; or . are determined by the Company to be TOTALLY DISABLED (see page 9). Your dependents' life insurance coverage terminates at the end of the month in which: . you're no longer eligible for life insurance coverage under this plan; . your dependents are no longer eligible for coverage; . you're determined by the Company to be totally disabled (see page 9); . as an active employee age 65 or older, you retire; . as a retiree, you reach age 65; . you die; or . the plan no longer offers this coverage. However, if your child: . is incapable of earning his/her living because of a mental or physical disability; . is primarily dependent on you for support; and . is covered under the plan when coverage would otherwise end because he/she has reached age 19, or age 25 if he/she is a full-time student or primarily dependent on you for support; coverage may be continued throughout the child's incapacity as long as you're covered under the plan. To qualify your child, you're required to provide proof of your child's condition to the claims administrator within 31 days after the end of the month in which he/she would no longer be eligible. This provision doesn't apply to any child who has been issued an individual policy under the conversion privilege (see page 12). 8 EXECUTIVE LIFE COVERAGE Your executive life coverage ends if you leave the Company and aren't eligible for an immediate retirement allowance. However, you may be able to convert your coverage to an individual policy. See page 12 for details. If you move to a grade position that isn't eligible for your current level of executive life coverage, your executive life benefit will be: . maintained at the level of coverage in effect before your grade change; or . based on your current base pay; whichever is greater. OPTIONAL LIFE COVERAGE Your optional life coverage ends if you leave the Company. However, you may be able to convert your coverage to an individual policy. See page 12 for details. If you move to a grade position that isn't eligible for optional life coverage, the same provisions apply as under executive life coverage (see above). HOW TO CONTINUE COVERAGE BASIC LIFE COVERAGE In general, basic life coverage may be continued as described below. However, unless you're an active employee and not totally disabled, your AD&D coverage and dependent coverage: . will be discontinued during a disability; or . will end on the last day of the calendar month in which you take a leave of absence or terminate employment. ON A LEAVE OF ABSENCE If you're granted a leave of absence, your right to continue coverage during the leave depends on the provisions of the leave of absence you've taken. For more details on basic life coverage during leaves of absence, contact Executive Relations. IF YOU'RE TOTALLY DISABLED If you're totally disabled, as defined by ARCO's Executive Long-Term Disability Plan, your basic life coverage will continue until you reach age 65. If you remain totally disabled after your 65th birthday, or if you continue to be an active employee after age 65 and then become totally disabled, your basic life insurance will end. BEFORE RETIREMENT BUT AFTER AGE 65 You may continue your basic life coverage under the plan on the same terms as before age 65 if you remain an active employee and you're not totally disabled. AT RETIREMENT At Age 65 or Earlier. You may continue your current level of life insurance and - --------------------- that of your dependents until the end of the month in which you become age 65 if: . you retire with an immediate retirement allowance before age 62; or . after reaching age 62, you leave the Company with or without an immediate retirement allowance and you're eligible for a deferred retirement allowance. 9 The Company continues to pay the full cost of your basic life coverage after your retirement. After Age 65. If you retire after age 65, your basic life coverage ends at the - ------------- end of the month in which you retire. EXECUTIVE LIFE COVERAGE ON A LEAVE OF ABSENCE Your executive life coverage continues if you're on an approved paid or unpaid leave of absence. IF YOU'RE TOTALLY DISABLED If you become totally disabled--as defined by ARCO's Executive Long-Term Disability Plan--while you're an active Company employee, your coverage will be the same as if you retired with an immediate retirement allowance at the age you became disabled (see this page). BEFORE RETIREMENT BUT AFTER AGE 65 You may continue your executive life coverage on the same terms as before age 65 if you remain an active employee. AT RETIREMENT You may continue your current level of executive life coverage until the end of the month in which you become age 65 if you leave the Company and are eligible for an immediate retirement allowance. At the end of the month in which you reach age 65, your executive life coverage will be reduced to: 1 X FINAL ANNUAL BASE PAY. Unreduced Benefit. Before your coverage is reduced, you'll be offered the - ------------------ opportunity to keep your pre-age 65 executive life coverage. If you do, you'll be required to make contributions toward its cost. Retirement Income Offer (RIO). Before you retire, the Company, at its sole - ------------------------------ discretion and subject to the terms and conditions it believes are appropriate, may offer you the opportunity to irrevocably convert your post-age 65 executive life coverage--I x final annual base pay--to additional retirement income. This income is paid monthly for 15 years beginning one month after your retirement date. Payments are taxable as ordinary income, but the Company will increase the amount of these payments by its corporate tax rate to offset some or all of the tax on the benefits you receive. If you die after retirement and before age 65, your survivor will receive any unpaid RIO payments plus a RIO-adjusted executive life benefit equal to: 2 X YOUR FINAL ANNUAL BASE PAY MINUS THE BASIC LIFE BENEFIT OF $50,000. This total benefit is paid in equal monthly installments over ten years. Payments are taxable as ordinary income, but the Company will increase the amount of these payments by its corporate tax rate to offset some or all of the tax on the benefits your survivor receives. If you die after retirement and at age 65 or later, your survivor receives only your remaining RIO payments. Policy Roll-Out. At its discretion, the Company may decide to roll-out the - ---------------- insurance policy that's funding your final post-retirement benefit. At the time of the roll-out, the policy's death benefit will be 100% of your final base pay. 10 The Company will withdraw the cash value that's equal to all premiums paid by the Company during the policy's premium period. The remaining cash value will be transferred to you when ownership of the policy is changed from the Company to you. Any portion of the policy's transferred equity which exceeds your cost while you're an active employee may be taxed. Once the policy has been rolled-out to you, the Company will have no other obligation to provide you with a post-retirement death benefit under this plan. You'll have full ownership rights to the policy. This means you can withdraw or borrow against the policy's cash value to maintain the same or reduced level of coverage. In general, roll-out will occur once: . the policy's premium period has ended (currently, 10 years); and . you've reached age 65 or you've retired, whichever is later. The policy won't be rolled-out if: . you've accepted the RIO; or . the Company has elected to pay your premiums on a pay-for-life basis. OPTIONAL LIFE COVERAGE ON A LEAVE OF ABSENCE Your optional life coverage continues if you're on an approved paid leave of absence. If you're on an approved unpaid leave, your optional life coverage continues if you continue to make your contributions. IF YOU'RE TOTALLY DISABLED If you become disabled while you're actively employed by the Company, your optional life coverage continues as long as you continue to make your contributions. BEFORE RETIREMENT BUT AFTER AGE 65 You may continue your optional life coverage on the same terms as before age 65 if you remain an active employee. AT RETIREMENT At your retirement, the Company will withdraw its cumulative premium outlay for the policy. If your policy is paid up when you retire, your optional life coverage will remain at its pre-retirement coverage level throughout your retirement. If your policy isn't paid up when you retire and the Company's outlay can't be covered by the cash value, you'll be required to pay the Company the difference to keep your coverage. You may then: . continue making contributions to maintain your pre-retirement coverage level; or . discontinue making contributions and accept any residual coverage based on actual policy cash values, if any. 11 WHEN THE PLAN ENDS The Company expects and intends to continue the plan indefinitely, but reserves the right to amend or terminate it at any time. If the plan is terminated, your coverage will end on the plan's termination date. However, if you're totally disabled at that time, benefits will continue to be available as described on pages 9, 10 and 11. All extended benefits are subject to the plan's provisions and limitations. At its discretion, the Company may offer you the opportunity to purchase the life insurance policy according to the conversion procedures described below. HOW TO CONVERT YOUR POLICY BASIC LIFE COVERAGE You may convert basic life coverage to an individual insurance policy. You may convert your dependents' coverage to an individual policy only if your coverage under this plan ends. If you're interested in converting to an individual policy, contact Executive Relations. Since an individual policy isn't a continuation of coverage under this plan, the benefits that will be provided and the cost of the policy won't be the same as provided under this plan. EXECUTIVE LIFE COVERAGE If you're not eligible for an immediate retirement allowance when you leave the Company and you have at least five years of service with the Company, you may purchase the Company's interest in the life insurance policy and convert your executive life coverage to an individual insurance policy provided by the insurance carrier without having to meet additional insurance carrier underwriting requirements. The policy's purchase price will equal the Company's total cumulative cost for the policy or the cash value, whichever is greater. Payment must be made in a single lump sum. You may withdraw or borrow from the policy to help pay its purchase price. In addition, any portion of the insurance policy's equity which exceeds your cost may be taxed. OPTIONAL LIFE COVERAGE When you leave the Company, you may convert your optional life coverage to an individual insurance policy at your own expense. But first, the Company will withdraw its cumulative premium outlay or the cash value, whichever is greater. If the Company's cumulative premium outlay can't be covered by the cash value, you'll be required to pay the Company the difference. If the policy isn't fully paid up when you leave the Company and you wish to convert your optional life coverage to an individual insurance policy, you may: . continue making contributions to maintain your coverage level; or . discontinue making contributions and accept any residual coverage based on actual policy cash values, if any. 12 GLOSSARY Here's a list of terms you need to know in order to understand how the plan works. Page references indicate where these terms are defined. ANNUAL BASE PAY 4 BENEFICIARY 6 CUMULATIVE PREMIUM OUTLAY 3 LUMP-SUM OPTION 7 PRIMARILY DEPENDENT 2 SURVIVOR INCOME OPTION 7 TOTALLY DISABLED 9
13 EX-10.9 5 EXEC LONG-TERM DISABILITY Summary Plan Description ATLANTIC RICHFIELD EXECUTIVE LONG-TERM DISABILITY PLAN As in Effect on January 1, 1994 Your Executive Long-Term Disability Benefits-- An Overview 1 Who's Eligible 1 How To Enroll 1 What Coverage Costs 2 When ELTD Benefit Payments Begin 2 How To Calculate Plan Benefits 2 Defining "Earnings" 2 Defining "Disability" 3 Amount of Monthly Benefit 3 Total Disability/Presumptive Disability 3 Residual Disability 3 Cost-of-Living Adjustment 3 Payments from Other Sources 4 Rehabilitation Benefits 4 What Is Excluded 4 When ELTD Benefit Payments End 5 What Tax Issues You Should Consider 5 Individual Policies 5 Group Policy 6 Company Self-Insured Coverage 6 How Death Benefits Are Paid 6 Survivor Benefits 6 Beneficiary Designation 6 How To File a Claim 6 How To File an Appeal 7 Claim Denial 7 Claim Review 7
i When Coverage Ends 7 How To Continue Coverage 7 When the Plan Ends 8 How To Convert Your Policy 8 Glossary 9
ii YOUR EXECUTIVE LONG-TERM DISABILITY BENEFITS--AN OVERVIEW There may come a time when you're ill or injured and unable to work for an extended period. Executive Long Term Disability (ELTD) benefits from ARCO provide you and your family with a financial safety net during this time. The monthly ELTD benefit is 60% of your pre-disability earnings, which include your average Annual Incentive Plan (AIP) awards. The maximum monthly benefit is $25,000 and is paid through: . two individual policies, which together provide up to $12,000 of monthly coverage; . a group insurance policy, which provides up to $13,000 of monthly coverage; and . Company self-insurance, as needed. In addition, the Cost-of-Living Allowance (COLA) adjustment feature provides you with protection against inflation while you're disabled, subject to benefit limits. The Executive Long-Term Disability Plan is just part of ARCO's "Business of Benefits" effort to address your benefit needs with the same care with which we build our business relationships. This booklet gives you an overview of the Atlantic Richfield Company Executive Long-Term Disability Plan. It's called a summary plan description (SPD). The full terms of the plan are contained in the plan document on file with the Company. The information presented in this booklet doesn't replace the official documents that legally govern the plan's operation. In the event of any conflict between this booklet and the official documents, the official documents will govern. ARCO reserves the right to change or terminate this plan at any time. There are a number of terms you need to know in order to understand how the plan works. The first time each of these terms is used, it will appear in BOLDFACE TYPE and will be followed by its definition or a page reference indicating where that definition is located. We've also included a glossary at the end of this SPD, which lists each term and shows you on which page its definition appears. If you have any questions about your ELTD benefits, contact Executive Relations. WHO'S ELIGIBLE As an executive, senior manager (that is, grade 9, 10 or the equivalent), or an employee with an ANNUAL BASE PAY (see page 2) of at least $175,000, you're eligible for coverage under this plan. Your plan participation is in lieu of coverage under the Long-Term Disability Plan of Atlantic Richfield Company and Its Participating Subsidiaries, which covers other Company employees. HOW TO ENROLL You're temporarily covered under the plan on: . your hire date; or . the date you're first eligible for coverage. 1 To continue coverage, you must enroll within 31 days of the date: . you're first eligible for coverage; or . you receive notice of your eligibility; whichever is later. In addition, you must complete a confidential health questionnaire, on which you're required to disclose all known health problems and pre-existing conditions to the insurance carrier. You also may be required to provide evidence of your good health. WHAT COVERAGE COSTS The Company pays the full cost of your ELTD coverage. However, all or a portion of the insurance premiums paid by the Company will be reported as imputed (taxable) income to you (see page 5). WHEN ELTD BENEFIT PAYMENTS BEGIN Your ELTD benefit payments begin after you've been disabled for 180 days. These 180 days make up the ELIMINATION PERIOD. No ELTD benefits are payable during this time. Disabilities lasting less than 180 days are considered short-term disabilities. During the elimination period, you may receive regular pay, any sick pay you've accrued, any federal and state disability benefits for which you may be eligible, and/or retirement benefits from a Company retirement plan if you choose to retire. Any disability that recurs within 12 months will be considered the same disability, and you won't be subject to an additional elimination period. Instead, the time you're disabled will be combined and treated as one period of total disability. HOW TO CALCULATE PLAN BENEFITS DEFINING "EARNINGS" The ELTD benefit you receive depends on your predisability EARNINGS. This first component of your earnings is calculated using your annual base pay on the date you first became disabled. Annual base pay is the regular wages you were paid by the Company during the year, including all your pre-tax contributions or deferrals of income to plans such as the Atlantic Richfield Executive Deferral Plan (EDP). It also includes benefit-bearing cost-of-living allowances. such as: . Foreign Service Premium for expatriates; and . Alaska Benefits Base for Alaska-based employees. Another component of your earnings is the average of the AIP awards you received for the three years before your disability began. However: . if you were recently promoted and haven't yet received an AIP award, a percentage of your annual base pay, based on a guideline for your grade, is used to estimate your AIP average; . if you were eligible for fewer than three AIP awards, the average of the awards you did receive is used to determine your earnings; or . if you were eligible for an AIP award but didn't receive one, "0" will be used for that year to calculate the average of your awards. 2 The sum of these two components equals your earnings for purposes of calculating your ELTD benefit. The plan provides for automatic coverage increases resulting from increases in your earnings, effective immediately on the date of your increase. DEFINING "DISABILITY" After the elimination period, the following three categories of disabilities qualify for ELTD benefits: . You're considered to have a TOTAL DISABILITY if: - as the result of illness or injury, you can't perform the substantial and material duties of your occupation; and - you're receiving medical care that's appropriate for the condition causing the disability. . Although your disability may not fit the definition of "total disability," you'll qualify for ELTD benefits if you're considered to have a PRESUMPTIVE DISABILITY--that is, if illness or injury causes the entire and permanent loss of: - speech; - hearing in both ears; - sight in both eyes; or - the use of both hands, both feet, or of one hand and one foot. . You're considered to have a RESIDUAL DISABILITY--that is, partial disability--if: - during the elimination period and as the result of illness or injury, you: -- can't perform one or more of the substantial and material daily business duties of your occupation; -- lost at least 20% of your pre-disability earnings; and -- are receiving the medical care that's appropriate for the condition causing the disability; and - after the elimination period and whether or not you can perform some or all of your occupation duties, you continue to: -- lose at least 20% of your pre-disability earnings; and -- receive appropriate medical care. AMOUNT OF MONTHLY BENEFIT TOTAL DISABILITY/PRESUMPTIVE DISABILITY After the elimination period, the plan pays an ELTD benefit if you have a total disability or a presumptive disability. This amount is equal to: 60% OF YOUR PRE-DISABILITY EARNINGS, UP TO $25,000 A MONTH RESIDUAL DISABILITY A partial benefit is paid if you have a residual disability once the elimination period is over. This amount is equal to: 60% OF YOUR LOST EARNINGS For example: Let's assume that you have a residual disability. Your pre- disability monthly earnings were $10,000, and you're now earning $8,000 a month. Your monthly ELTD benefit is calculated this way: [$10,000--$8,000] X 60%=$1,200. COST-OF-LIVING ADJUSTMENT After you've been disabled for 12 months--including the elimination period--your benefits will be adjusted once each year, up to age 65, according to the All Urban Consumer Price Index. COLA adjustments are subject to maximum ELTD benefit limits. 3 PAYMENTS FROM OTHER SOURCES Your ELTD benefit won't be reduced if you receive payments from any other sources such as: . Social Security disability and retirement benefits; . any benefits available under federal, state or local disability laws, workers' compensation and occupational disease laws, or similar legislation; . any occupational or non-occupational disability payments you receive from a Company-provided sick pay plan; . any retirement allowance you receive from the Atlantic Richfield Retirement Plan II or any other basic or supplemental retirement plan sponsored by the Company or any subsidiary; or . any work-related earnings, including income from self-employment, except if you're participating in a rehabilitation program as described below. REHABILITATION BENEFITS Under certain circumstances, if you're totally or presumptively disabled and wish to participate in a rehabilitation program, you may continue to receive an ELTD benefit if you: . actively participate in the rehabilitation program; and . are unable to perform the substantial and material duties of your occupation. A rehabilitation program may include training and part-time work in your old job. Before you enroll in a rehabilitation program, you must obtain the approval of the Company and the insurance companies. Then, if your attending physician and/or independent medical examiner certifies that you can participate and if you're offered a suitable position, you must accept the position before ELTD payments can begin. If you participate in a rehabilitation program, you'll continue to receive monthly ELTD payments. However, they may be reduced by your earnings from the rehabilitation program so that when they're added to the sum of these earnings, they don't exceed your pre-disability earnings. WHAT IS EXCLUDED The plan won't pay an ELTD benefit for any illness or injury which: . is intentionally self-inflicted; . results when you commit or attempt to commit a felony; or . results from war or any act of war. ELTD group policy and Company self-insured benefits may be limited if your disability results from psychiatric conditions, alcoholism or drug addiction. In these cases, an ELTD benefit will be paid during the first two years you're totally disabled. After that two-year period, benefit payments will be made only if you're confined in a hospital and for the three-month period immediately after your discharge. 4 WHEN ELTD BENEFIT PAYMENTS END The maximum benefit period varies among the individual, group and Company self- insured policies. In general, an ELTD benefit is paid as indicated in the table below. IF A CONTINUING COVERED DISABILITY BEGINS... AN ELTD BENEFIT IS PAYABLE... On or before age 60 Up to age 65 After age 60 and up to age 68 Up to age 70 or for up to 60 months, whichever happens first After age 68 but before age 75 For 24 months On or after age 75 For 12 months WHAT TAX ISSUES YOU SHOULD CONSIDER The tax status of ELTD benefits varies among the individual, group and Company self-insured policies, and for the individual policies, depends on the imputed income option you've elected. The amount of imputed income depends on such factors as your age, the amount of your coverage and your effective rate of income tax. INDIVIDUAL POLICIES Under the individual policies and while you're a Company employee, you may choose: . to report any imputed income for the Company's premium costs. In that case, any ELTD benefits you receive from the individual policies are tax- free; or . not to report any imputed income for the Company's premium costs that are in excess of the COLA premiums. However, any ELTD benefits you receive from the individual policies will be taxed as ordinary income when paid. You may change your imputed income option once each year during the annual open enrollment period. Your change will become effective on the following January 1. Keep in mind that the Company's premium costs attributable to COLA adjustments are reported as imputed income, but benefits derived from COLA are tax-free when paid. The following table outlines the additional reportable income to you, depending on the imputed income option you elect and the benefit amount you receive.
IMPUTED INCOME PER $5,000 IMPUTED INCOME PER $10,000 MONTHLY ELTD BENEFIT MONTHLY ELTD BENEFIT AGE ($2,500 EACH CARRIER) ($5,000 EACH CARRIER) --- ------------------------- -------------------------- COLA BASE TOTAL COLA BASE TOTAL ---- ---- ----- ---- ---- ----- 30 $357 $1,145 $1,503 $ 715 $2,121 $2,835 35 $435 $1,355 $1,790 $ 870 $2,540 $3,410 40 $538 $1,679 $2,217 $1,075 $3,188 $4,263 45 $604 $2,063 $2,667 $1,208 $3,955 $5,163 50 $630 $2,554 $3,184 $1,261 $4,937 $6,198 55 $552 $3,102 $3,654 $1,103 $6,034 $7,138 60 $334 $3,310 $3,644 $ 667 $6,451 $7,118
5 GROUP POLICY You must report the Company's premium costs for the group policy as imputed income. However, any ELTD benefits you receive from the group policy are tax- free. COMPANY SELF-INSURED COVERAGE Premiums for the Company's self-insured coverage can't be reported as imputed income, since no reportable income is associated with these benefits. As a result, you must pay tax on any self-insured benefits you receive. HOW DEATH BENEFITS ARE PAID SURVIVOR BENEFITS If you die while receiving ELTD benefit payments, a benefit may be paid to your BENEFICIARY (see this page). Payment is made if you die before age 65. In this case, one of the two individual policies pays a lump-sum benefit to your beneficiary equal to three times the monthly ELTD benefit you were receiving at the time of your death, as long as you'd been disabled for at least six months. The group policy also pays your beneficiary a lump-sum benefit equal to three times the monthly ELTD benefit you were receiving at the time of your death. However, this benefit is paid only if your death occurs after you'd been receiving ELTD benefit payments for at least six months. Neither the other individual policy nor Company self-insurance coverage pays a survivor benefit. BENEFICIARY DESIGNATION Your beneficiary is the person(s) you designate to receive a benefit under the plan in the event of your death. If you die and you've named more than one beneficiary, each receives the same benefit amount, unless you've left written instructions otherwise with the plan. To name a beneficiary, you'll need to complete a beneficiary designation form and return it to Executive Relations. You may change this designation at any time. If you're married at the time of your death, your surviving spouse may be entitled under applicable state law (e.g., community property laws) to a portion of the benefit, whether or not your spouse is your designated beneficiary. In that event, the benefits payable to any other of your designated beneficiaries may be reduced. For survivor benefits associated with the individual policy, payment will be made to your estate if your beneficiary doesn't survive you and you haven't named any contingent beneficiaries. For the group policy survivor benefit, if your beneficiary doesn't survive you and you haven't named any contingent beneficiaries, benefits will be paid in equal amounts to your children under age 25. If there are no eligible survivors in this case, payment will be made to your estate. HOW TO FILE A CLAIM To file a claim for ELTD benefits, you should contact Executive Relations once you become disabled to obtain claim forms. After you and your doctor have filled out the claim forms, you or, if you lack the legal or mental capacity, your spouse or legal representative must sign the forms. 6 YOU SHOULD FILE YOUR CLAIMS WITH EXECUTIVE RELATIONS WITHIN 60 DAYS BEFORE THE SIX-MONTH ELIMINATION PERIOD ENDS. HOW TO FILE AN APPEAL CLAIM DENIAL If your claim is partially or wholly denied, you'11 receive written notice of the denial within 90 days after the claims administrator receives the claim, as long as you've fulfilled the insurance carrier's requirements. This time limit may be extended for an additional 90 days in special cases. The denial notice will explain the reasons for the denial, state the plan provisions on which the denial is based, describe any additional information or material required and discuss the procedures you must follow if you want a further review of your claim. CLAIM REVIEW If you receive a claim denial notice, you may wish to file a formal request for a review of your claim with the claims administrator. You must do so in writing within 90 days of receiving the claim denial notice and forward a copy of your request to Executive Relations. If you fail to file a request within this 90- day period, you waive your right to do so. Within 60 days (or 120 days in some cases) after you file your request, the claims administrator will notify you in writing of its final decision, including the specific reasons for its determination. WHEN COVERAGE ENDS Your coverage under the plan ends on whichever of the following happens first: . the day you begin a formal, approved unpaid leave of absence; . the day in which you leave the Company, including retirement; . the last day of the month in which you transfer to a position with the Company which isn't eligible for plan benefits; . the date you die; or . the date the plan is terminated. If you're disabled and receiving an ELTD benefit at the time one of these events occurs, benefit payments will continue to be paid according to the benefit schedule on page 5. HOW TO CONTINUE COVERAGE Whether you: . take an unpaid leave of absence; . leave the Company before age 65; or . become ineligible for ELTD benefits because of a change in your position; you may continue coverage under the individual policies only by paying the required premiums. You must also pay the required premiums to continue your coverage if you've been disabled for less than 180 days. 7 However, group insurance and Company self-insured coverage may not be continued. Should you continue coverage under the individual policies and receive any ELTD benefits, those benefits are non-taxable when paid. In addition, if you become ineligible for an ELTD benefit because of a change in your position, you may participate in the long-term disability plan offered to members of your new classification. WHEN THE PLAN ENDS The Company expects and intends to continue the plan indefinitely, but reserves the right to amend or terminate it at any time. If you're under age 65, or over age 65 and actively at work, the Company may offer you, at its discretion, the opportunity to convert your policy. HOW TO CONVERT YOUR POLICY You may convert your ELTD coverage under the individual policies to an individual insurance policy only by paying the required premiums. However, neither the group insurance policy nor Company self-insured coverage may be converted. 8 GLOSSARY Here's a list of terms you need to know in order to understand how the plan works. Page references indicate where these terms are defined. ANNUAL BASE PAY 2 BENEFICIARY 6 EARNINGS 2 ELIMINATION PERIOD 2 PRESUMPTIVE DISABILITY 3 RESIDUAL DISABILITY 3 TOTAL DISABILITY 3
9 EX-22 6 SUBSIDIARIES OF THE REG. EXHIBIT 22 SUBSIDIARIES OF THE REGISTRANT
Percentage of Voting Securities Owned by Organized Immediate Name of Company Under Laws of Parent --------------- ------------- ------------- Atlantic Richfield Company (Registrant) ........................................ Delaware Significant subsidiaries of Registrant in consolidated financial statements, as of December 31, 1993: ARCO Alaska, Inc. .......................................................... Delaware 100.0 ARCO Chemical Company ...................................................... Delaware 83.3 ARCO Transportation Alaska, Inc. ........................................... Delaware 100.0 Vastar Resources, Inc. ..................................................... Delaware 100.0
The subsidiaries whose names are not listed above, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. EX-23 7 CONSENT OF ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the following registration statements of Atlantic Richfield Company, Registration Statement on Form S-8 (No. 33-43830), Registration Statement on Form S-8 (No. 33-21558), Post- Effective Amendment No. 4 to Registration Statement on Form S-8 (No. 33- 21160), Post-Effective Amendment No. 4 to Registration Statement on Form S-8 (No. 33-23639), Post-Effective Amendment No. 4 to Registration Statement on Form S-8 (No. 33-21162), Post-Effective Amendment No. 4 to Registration Statement on Form S-8 (No. 33-21553), Post-Effective Amendment No. 4 to Registration Statement on Form S-8 (No. 33-23640), and Post-Effective Amendment No. 4 to Registration Statement on Form S-8 (No. 33-21552) of our report dated February 11, 1994, on our audits of the consolidated financial statements and financial statement schedules of Atlantic Richfield Company as of December 31, 1993 and 1992 and for each of the three years in the period ended December 31, 1993, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND Los Angeles, California March 1, 1994 -----END PRIVACY-ENHANCED MESSAGE-----