-----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, fqLlF+iTEz91pyRQzCPRqxzEX13xkjyoIFVwqPDVWcH9e8d+K1rrrHXVfYjbFDMp 2WIQflve1jvdOzoHhfSTQQ== 0000898430-95-000254.txt : 19950601 0000898430-95-000254.hdr.sgml : 19950601 ACCESSION NUMBER: 0000898430-95-000254 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950301 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC RICHFIELD CO /DE CENTRAL INDEX KEY: 0000775483 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 230371610 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-01196 FILM NUMBER: 95517411 BUSINESS ADDRESS: STREET 1: 515 S FLOWER ST CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134863511 10-K 1 FORM 10-K 1994 --------------- 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, 1994 Commission file number 1--1196 [LOGO OF ARCO] ATLANTIC RICHFIELD COMPANY (Exact name of registrant as specified in its charter) Delaware 23-0371610 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No. 515 South Flower Street, Los Angeles, California 90071 (Address of principal executive offices) (Zip Code) 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 Three year 9% Exchangeable Notes due September 15, 1997 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, 1994, based on the closing price on the New York Stock Exchange composite tape on that date, was $16,596,957,043. Number of shares of Common Stock, $2.50 par value, outstanding as of December 31, 1994: 160,753,966. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1994 are incorporated by reference under Part III. TABLE OF CONTENTS PART I
ITEM PAGE ---- ---- 1. and 2. Business and Properties....................................... 1 Corporate History and Organization......................... 1 Financial Information about Industry Segments.............. 2 Upstream................................................... 2 Worldwide Oil and Gas Operations........................ 2 Worldwide Coal Operations............................... 6 Downstream................................................. 7 Refining and Marketing.................................. 7 Transportation.......................................... 9 Intermediate Chemicals and Specialty Products........... 9 Equity Interest in Lyondell................................ 11 Capital Program............................................ 12 Patents.................................................... 12 Competition................................................ 12 Human Resources............................................ 13 Research and Development................................... 13 Environmental Matters...................................... 13 3. Legal Proceedings............................................. 16 4. Submission of Matters to a Vote of Security Holders........... 18 ---------------- Executive Officers of the Registrant.......................... 19 Description of Capital Stock.................................. 22 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters...................................................... 26 6. Selected Financial Data....................................... 26 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 27 8. Financial Statements and Supplementary Data................... 34 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................... 54 PART III 10. Directors and Executive Officers of the Registrant............ 54 11. Executive Compensation........................................ 54 12. Security Ownership of Certain Beneficial Owners and Management................................................... 54 13. Certain Relationships and Related Transactions................ 54 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................................................... 54
(i) PART I ITEMS 1. AND 2. BUSINESS AND PROPERTIES CORPORATE HISTORY AND ORGANIZATION Atlantic Richfield Company ("ARCO" or the "Company") 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" or the "Company" as used herein refer to Atlantic Richfield Company or Atlantic Richfield Company and one or more of its consolidated subsidiaries. ARCO, including its subsidiaries, constitutes one of the largest integrated enterprises in the petroleum industry. ARCO conducts operations in two business segments: resources and products. ARCO's resources segment, known as its "upstream" operations, 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. ARCO's products segment, or its "downstream" operations, includes the refining and transportation of petroleum and petroleum products, the marketing of petroleum products on the U.S. West Coast and the worldwide manufacture and sale of intermediate chemicals and specialty products. ARCO's corporate structure is a complex of wholly-owned and majority-owned subsidiaries and various divisions or units of the parent company, ARCO, that have been delineated or defined for various operational reasons. Many of the wholly-owned subsidiaries are formed to conduct ARCO's numerous international operations. The principal majority-owned subsidiaries are ARCO Chemical Company ("ARCO Chemical") and Vastar Resources, Inc. ("Vastar"). ARCO Chemical was formed in July 1987, and it sold just under 20 percent of its common stock to the public in October 1987; ARCO currently owns 83.3 percent of ARCO Chemical. Vastar was formed in September 1993, and in July 1994 sold just under 20 percent of its common stock to the public; ARCO currently owns 82.3 percent of Vastar. Vastar is the primary vehicle through which ARCO conducts natural gas and, to a lesser extent oil, exploration and production in the Lower 48 States (the "Lower 48"). ARCO's principal subsidiaries are ARCO Chemical, Vastar, ARCO Alaska, Inc. (a wholly-owned subsidiary through which ARCO conducts its Alaska operations) and ARCO Transportation Alaska, Inc. (a wholly-owned subsidiary through which ARCO holds its interest in the Trans Alaska Pipeline System ("TAPS")). ARCO also owns a 49.9 percent equity interest in Lyondell Petrochemical Company ("Lyondell"), which operates petrochemical processing and petroleum refining businesses. ARCO originally sold just over 50 percent of Lyondell's common stock ("Lyondell Common Stock") to the public in January 1989; in August 1994, ARCO received net proceeds of approximately $958 million from the sale of its 9% Exchangeable Notes due September 1997 (the "Exchangeable Notes"). The Exchangeable Notes are exchangeable at maturity, at ARCO's option, into shares of Lyondell Common Stock, of which ARCO currently holds 39,921,400 shares, or cash with an equal value. The number of shares or amount of such cash will be determined based on a formula that takes into account the market price of Lyondell Common Stock at maturity of the Exchangeable Notes. If ARCO elects to deliver shares of Lyondell Common Stock upon maturity of the Exchangeable Notes, ARCO's equity interest in Lyondell will be substantially reduced or eliminated, depending on the market price of Lyondell Common Stock at such time. 1 FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Reference is made to Note 4 of Notes to Consolidated Financial Statements on page 40 for segment information concerning sales and other operating revenues, earnings, total assets and additional information for certain operations of the Company. UPSTREAM WORLDWIDE OIL AND GAS OPERATIONS General ARCO conducts its worldwide oil and gas exploration and production operations primarily in Alaska, the Lower 48, the North Sea and Indonesia. Reserves Estimated net quantities of ARCO's proved oil and gas reserves at December 31, 1994 were as follows:
NATURAL GAS PETROLEUM LIQUIDS (BILLION CUBIC (MILLION BARRELS) FEET) ---------------------- ---------------------- U.S. INTERNATIONAL U.S. INTERNATIONAL ----- ------------- ----- ------------- Proved reserves................... 2,246(a) 222 4,615(c) 3,493 Proved developed reserves......... 1,915(b) 87 4,301(d) 1,142
- -------- (a) Includes 95 million barrels owned by Vastar. (b) Includes 72 million barrels owned by Vastar. (c) Includes 1,982 billion cubic feet owned by Vastar. (d) Includes 1,755 billion cubic feet owned by Vastar. Reference is made to Supplemental Information, Oil and Gas Producing Activities, beginning on page 51, for additional information concerning oil and gas producing activities and estimates of proved oil and gas reserves. In 1994 and 1993, ARCO produced approximately 148 percent and 147 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 "Downstream--Refining and Marketing." Production 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, U.S.(A) INTERNATIONAL U.S.(B) INTERNATIONAL - ------------ ------- ------------- ------- ------------- 1994................................ 591,300 72,800 960 511 1993................................ 604,700 79,700 911 321 1992................................ 660,500 77,700 1,202 240
- -------- (a) Includes 43,500, 44,700, and 51,400 barrels per day produced by Vastar in 1994, 1993 and 1992, respectively. (b) Includes 782, 695, and 720 million cubic feet per day produced by Vastar in 1994, 1993, and 1992, respectively. 2 Average sales prices and average production costs per unit of petroleum liquids and natural gas were as follows:
YEARS ENDED DECEMBER 31, -------------------------------------------------------------- 1994 1993 1992 -------------------- -------------------- -------------------- U.S. INTERNATIONAL U.S. INTERNATIONAL U.S. INTERNATIONAL ------ ------------- ------ ------------- ------ ------------- Average sales price (including transfers) per barrel of petroleum liquids produced....... $10.43 $14.56 $11.67 $16.05 $12.88 $17.82 Average lifting cost per equivalent barrel of production............. 4.05 3.52 4.78 3.99 4.72 5.27 Average sales price per MCF of natural gas produced............... 1.76 2.51 1.93 2.69 1.65 2.96
Delivery Commitments ARCO has various long-term natural gas sales contracts covering the majority of its production in Indonesia and the United Kingdom North Sea, substantially all of which are reservoir specific. While annual delivery requirements may vary under these contracts, delivery obligations under the agreements are essentially limited to producible reserves from specific fields. In the Lower 48, Vastar has various long-term natural gas sales contracts under which Vastar has contracted to deliver approximately 940 MMcfd in 1995. Such obligation is presently the maximum requirement and declines to less than 100 MMcfd by 2003. The majority of these contracts are either index-based and present little or no price risk, or are reservoir-dedicated, and present no obligation to deliver if production from these reservoirs ceases. Vastar can satisfy its existing natural gas delivery commitments from the gross natural gas production controlled by Vastar, including proprietary production, royalty gas, call rights on third party gas and gas obtained through joint operating agreements. Vastar's total proprietary production was 782 MMcfd in 1994. There have been no instances in the last three years in which Vastar was unable to meet its natural gas delivery commitments. Exploration and Drilling Activity The following table shows the number of wells drilled to completion by the Company:
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------- 1994 1993 1992 --------------------- --------------------- --------------------- U.S.(a) INTERNATIONAL U.S.(b) INTERNATIONAL U.S.(c) INTERNATIONAL ------- ------------- ------- ------------- ------- ------------- Net productive exploratory wells drilled................ 12 3 13 8 16 9 Net dry exploratory wells drilled.......... 29 5 65 13 70 15 Net productive development wells drilled................ 245 11 228 31 164 22 Net dry development wells drilled.......... 27 1 21 2 19 1
- -------- (a) Includes 11, 25, 89, and 11 wells, respectively, drilled by Vastar. (b) Includes 11, 46, 90, and 11 wells, respectively, drilled by Vastar. (c) Includes 11, 50, 72, and 7 wells, respectively, drilled by Vastar. 3 The Company's current activities, as of December 31, 1994, were as follows:
U.S. INTERNATIONAL ---- ------------- Gross wells in process of drilling (including wells temporarily suspended)..................................... 129 33 Net wells in process of drilling (including wells temporarily suspended)..................................... 47 14 Waterflood projects in process.............................. 25 -- Pressure maintenance and waterflood operations.............. 14 3
The following table shows the approximate number of productive wells at December 31, 1994:
OIL GAS --------------------------- --------------------- U.S.(A)(B) INTERNATIONAL(C) U.S.(D) INTERNATIONAL ---------- ---------------- ------- ------------- Total gross productive wells.................. 12,382 478 3,151 190 Total net productive wells.................. 5,432 201 1,344 47
- -------- (a) Includes approximately 1,579 gross and 289 net multiple completions for ARCO, of which there are 235 gross and 98 net multiple completions for Vastar. (b) Includes approximately 1,243 gross and 617 net wells, respectively, owned by Vastar. (c) Includes approximately 85 gross and 39 net multiple completions. (d) Includes approximately 2,127 gross and 1,057 net wells, respectively, owned by Vastar. As of December 31, 1994, 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 ----- ----- ------ ------ U.S. Alaska.............................................. 208 368 945 1,247 Lower 48(a)......................................... 1,414 2,554 3,397 4,958 ----- ----- ------ ------ Total U.S......................................... 1,622 2,922 4,342 6,205 International......................................... 96 296 31,506 46,874 ----- ----- ------ ------ Total............................................. 1,718 3,218 35,848 53,079 ===== ===== ====== ======
- -------- (a) Includes 981,000 net developed acreage, 1,603,000 gross developed acreage, 2,701,000 net undeveloped acreage and 3,770,000 gross undeveloped acreage, respectively, held by Vastar. Alaska Approximately 63 percent of ARCO's worldwide petroleum liquids production came from ARCO's interests in Alaska, primarily in the Prudhoe Bay, Kuparuk River and the Greater Point McIntyre area fields on the North Slope of Alaska. ARCO's net liquids production from Alaska in 1994 increased to 421,200 barrels per day as a full year's benefit from the new Point McIntyre field and from the full implementation of Prudhoe Bay's second major gas handling expansion facility ("GHX-2") was recognized. ARCO's interests in Alaska provided net proved reserves of 1,981 million barrels of oil equivalent at December 31, 1994. ARCO 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 1994, a 39.9 percent working interest in the NGLs produced. ARCO's net petroleum liquids production from the Prudhoe Bay field averaged 236,600 barrels per day in 1994, compared to 250,800 barrels per day in 1993. In third quarter 1994, the GHX-2 project, a joint undertaking among the working interest owners, was completed. The project, designed to increase the field's average gas handling capacity and thereby mitigate declining oil production, increased annual average gas handling capacity to 7.5 billion cubic feet per day and should increase gross liquids production by approximately 100,000 barrels per day. The project is expected to increase field recovery by an estimated 435 million gross barrels. 4 ARCO 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 147,200 net barrels per day of petroleum liquids during 1994, compared to 151,500 net barrels per day during 1993. ARCO plans to begin expending capital in 1995 on an enhanced oil recovery project, subject to final approval by ARCO's partners. NGLs, obtained from the Prudhoe Bay field, will be injected into existing wells in the Kuparuk field in order to maintain reservoir pressure and offset natural field decline. ARCO estimates that this project will result in an additional 160 million gross barrels (80 million net barrels to ARCO) of incremental oil from the Kuparuk River field. ARCO operates four of the five fields which encompass the Greater Point McIntyre area, and holds working interests in four of them as follows: 30.1 percent in Point McIntyre, 40.0 percent in Lisburne, 50.0 percent in both West Beach and North Prudhoe Bay State. All five fields are produced through the Lisburne Production Facility, which ARCO operates. During 1994, liquids produced through the Lisburne Production Facility averaged 139,000 gross barrels per day, and 37,400 net barrels per day. ARCO's exploration program in Alaska focused on projects near existing infrastructure in 1994. Following delineation work in 1994, ARCO determined that the 1991 Sunfish discovery was non-commercial on a stand alone basis. ARCO is currently negotiating with its partner and others to trade its 60 percent working interest in the project. All petroleum liquids shipped from the North Slope fields are transported to market through TAPS to terminal facilities at Valdez, and from there to West Coast locations by ocean-going tankers. Lower 48 During 1994, ARCO's consolidated Lower 48 operations had net production of 338 billion cubic feet of natural gas and 62 million barrels of petroleum liquids as compared to 321 billion cubic feet and 68 million barrels in 1993, respectively. Reserves were reduced by 25 million barrels of oil equivalent, primarily due to production. Development and exploration activities replaced 79 percent of 1994 net production on a barrel-of-oil-equivalent basis. The primary vehicle for ARCO's Lower 48 exploration and production operations is Vastar, of which ARCO owns 82.3 percent. 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/Rockies and the midcontinent areas. For additional information about Vastar, a copy of Vastar's 1994 Annual Report to Stockholders and 1994 Annual Report on Form 10-K can be obtained by writing to Manager, Investor Relations, Vastar Resources, Inc., 15375 Memorial Drive, Houston, Texas 77079. Vastar's telephone number is (713) 584-6000. ARCO's other Lower 48 operations accounted for reserves at December 31, 1994 of 608 million barrels of oil equivalent, of which 86 percent were petroleum liquids. In 1994 net production from ARCO's other Lower 48 interests was 56 million barrels of oil equivalent, down from 63 million barrels in 1993, the result of natural field decline. International ARCO's international operations include both exploration and production. ARCO's 1994 international production of petroleum liquids averaged 72,800 barrels of oil equivalent per day, and came primarily from Indonesia and the United Kingdom. Natural gas production averaged 511 million cubic feet per day. The Pagerungan and the Offshore Northwest Java natural gas fields in Indonesia accounted for 40 percent of ARCO's 1994 international natural gas production. Natural gas production from the United Kingdom sector of the North Sea accounted for 56 percent. 5 ARCO's net proved reserves from international interests at December 31, 1994 were 804 million barrels of oil equivalent. ARCO replaced 187 percent of its international production, primarily from the 1992 Villano discovery in Ecuador, which accounted for the addition of 75 million barrels of proved reserves in 1994. ARCO's principal development activities in 1994 were conducted offshore in the United Kingdom, China and Indonesia. In the United Kingdom, ARCO will bring its first operated U.K. oil field onstream when the Blenheim field in the Central North Sea begins production in the first half of 1995. ARCO and its partner are developing the Gawain gas field, and production is expected to begin in late 1995. In the North Sea Southern Gas Basin, ARCO is moving forward with a development plan for the Trent and Tyne fields; start up is expected in 1996. In the South China Sea, a 500-mile subsea pipeline from the Yacheng 13-1 field to Hong Kong was completed. In addition, development of the Yacheng 13-1 natural gas field continued, and production is expected to begin in early 1996. Construction of another pipeline to Hainan Island continued on schedule. In Ecuador, ARCO submitted to the government development plans for the Villano discovery. ARCO's principal exploration activities in 1994 were conducted in the South China Sea, in and around producing gas fields in Indonesia, and in the North Sea Southern Gas Basin. WORLDWIDE COAL OPERATIONS ARCO operates surface and underground coal mines in the western United States and in northeastern Australia. In the United States, ARCO owns and operates two surface mines in Wyoming's Powder River Basin, Black Thunder and Coal Creek, that produce low-sulfur steam coal, and owns and operates West Elk, an underground mine in western Colorado that uses longwall technology to produce its low-sulfur, high-BTU steam coal. Total U.S. coal shipments for 1994 were 38.3 million tons of coal. In Queensland, Australia, ARCO has interests in three mines in the Bowen Basin: Curragh, Blair Athol and Gordonstone. ARCO operates and holds an effective 87 percent interest in Curragh, a surface mine which produces high- grade coking and steam coal. ARCO holds a non-operating 31.4 percent interest in Blair Athol, a surface mine which produces steam coal. ARCO operates and has an 80 percent interest in Gordonstone, an underground mine that uses longwall technology to produce its high-grade coking and steam coal. ARCO's net share of total shipments in 1994 from Australian operations was 11.3 million tons. As of December 31, 1994, ARCO had long-term contracts to supply U.S. utility companies with steam coal from its Black Thunder, Coal Creek and West Elk mines. These contracts have various termination dates with the longest being December 31, 2017. 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, Coal Creek and West Elk in 1995. Approximately 75 percent of planned 1995 production in Australia is committed under both long and short-term contract arrangements. In total, ARCO shipped 49.6 million tons of coal during 1994 and had 1,506 million tons of recoverable coal reserves as of December 31, 1994. Reference is made to Supplemental Information, Coal Operations on page 53 for further information concerning reserves and shipments of coal. 6 DOWNSTREAM REFINING AND MARKETING ARCO operates two U.S. 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. 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) ----------------------- 1994 1993 1992 ------- ------- ------- Los Angeles Refinery.................................... 237,000 237,000 223,000 Cherry Point Refinery................................... 185,000 181,000 167,000 ------- ------- ------- Total................................................. 422,000 418,000 390,000 ======= ======= =======
ARCO's crude oil refinery runs and petroleum products manufactured at its refining facilities were as follows:
YEARS ENDED DECEMBER 31, ------------------------ 1994 1993 1992 ------- ------- -------- (EQUIVALENT BARRELS PER DAY) Crude oil refinery runs.............................. 408,300 425,800 425,100 ======= ======= ======= Petroleum products manufactured: Gasoline........................................... 206,700 221,600 198,800 Jet fuels.......................................... 88,800 84,600 90,600 Distillate fuels................................... 71,900 79,500 81,600 Other (a).......................................... 66,600 69,400 79,400 ------- ------- ------- Total (b)........................................ 434,000 455,100 450,400 ======= ======= =======
- -------- (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 is also obligated to deliver approximately 50,000 barrels per day of Alaskan North Slope crude oil to the Avon, California refinery of Tosco under a 1986 agreement. Pursuant to the agreement, which has an initial term that expires in 1996, ARCO receives in exchange 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 also produces calcined coke, a refinery by-product, and operates electric cogeneration facilities. ARCO markets gasoline and other refined petroleum products to both consumers and resellers. Gasoline is marketed under the ARCO(R) trademark through independent dealers and distributors and directly to motorists at branded retail outlets located in Arizona, California, Nevada, Oregon and 7 Washington. ARCO also sells gasoline to unbranded resellers. NGLs are sold directly to end-use customers and the Watson Cogeneration Facility, which is 51 percent owned by ARCO, and are also marketed through distributors. Jet fuels are sold directly to airlines and the United States Department of Defense. Calcined coke is sold to U.S. 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, 1994, there were 1,554 branded retail outlets, which included franchisee and Company-operated am/pm(R) convenience stores and SMOGPROS(R) Service Centers, and traditional service stations. In response to anticipated federal, state and local air quality requirements, ARCO began development of reformulated automotive fuels in the late 1980s. The Environmental Protection Agency ("EPA") emission control regulations covering nine regions with the nation's highest air pollution, two of which are in Southern California, became effective January 1, 1995. In order to comply with these regulations, in 1994 ARCO completed modifications to produce EPA gasolines at the Los Angeles Refinery, which serves the Southern California market. Effective January 1, 1995, ARCO is selling reformulated gasolines and diesel that meet either California Air Resources Board ("CARB") specifications or EPA specifications. These reformulated fuels use oxygenates, such as methyl tertiary butyl ether ("MTBE"), to produce a cleaner burning fuel. ARCO has a small MTBE production unit at the Los Angeles Refinery. In addition, ARCO and ARCO Chemical entered into long-term sales agreements in 1991 providing for delivery of fixed quantities of MTBE to ARCO at contract prices. By March 1996, ARCO and the other California gasoline marketers will also be required to meet CARB standards for automobile gasolines sold in California. In order to meet the more stringent CARB standards with 100 percent of the gasoline produced at the Los Angeles Refinery, ARCO continued in 1994, and will continue in 1995, to make necessary modifications at the refinery. ARCO expects to spend a total of approximately $500 million for modifications to meet both EPA and CARB standards, most of which had been completed by the end of 1994. These new standards have not required any modifications to ARCO's Cherry Point refinery in Washington state. Total U.S. and international refined petroleum product sales, which include insignificant sales to ARCO Chemical and Lyondell, for the periods indicated, were as follows:
YEARS ENDED DECEMBER 31, ------------------------ 1994 1993 1992 -------- ------- ------- (EQUIVALENT BARRELS PER DAY) Petroleum product sales: U.S.: Gasoline............................................ 253,800 252,500 240,800 Jet fuels........................................... 97,600 97,100 104,900 Distillate fuels.................................... 73,500 78,700 81,800 Other............................................... 53,000 53,200 52,000 ------- ------- ------- Total............................................. 477,900 481,500 479,500 Brazil................................................ -- 94,400 92,800 ------- ------- ------- Total............................................. 477,900 575,900 572,300 ======= ======= =======
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. 8 TRANSPORTATION ARCO's transportation business includes ownership interests in pipelines in Alaska, ownership interests in and operations of pipelines and terminalling facilities in the Lower 48, and the operation of 10 ocean-going U.S. flag tankers, eight of which are owned by ARCO. In Alaska, ARCO has a 21.3 percent weighted average undivided ownership 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 south-central Alaska. In addition, ARCO owns approximately 21 percent of the stock of Alyeska Pipeline Service Company, which was established to design, construct, operate and maintain TAPS for the owners. ARCO's undivided interest in TAPS is proportionately consolidated for financial reporting purposes. TAPS 1994 total throughput averaged approximately 1,587,000 barrels per day. During 1993 and 1994, regulatory and owner company assessment teams completed reviews of TAPS operations and maintenance, inspection procedures and management. During 1994, numerous operations and maintenance items were addressed. This work will continue in 1995. In the Lower 48, ARCO manages facilities for transportation and terminalling of petroleum liquids, refined petroleum products, petrochemicals and natural gas. Ownership interests in petroleum liquids pipeline systems include gathering lines serving producing fields in California, Colorado, New Mexico, Oklahoma, Texas and Utah, and common carrier trunk lines extending from dock facilities and producing areas to refineries and terminals. In 1994, ARCO's ownership interests in refined petroleum product and petrochemical pipeline systems included trunk lines originating at refineries in Texas, California and Oklahoma. These pipelines moved petrochemicals and refined petroleum products for all shippers (including ARCO) that properly tendered these materials for transportation. In the third quarter of 1994, ARCO sold its refined petroleum product pipeline assets in the midcontinent. In the western United States, ARCO has interests in several other petroleum liquids and refined petroleum product pipelines and several natural gas pipeline systems. In addition, ARCO owns or leases and operates terminals that provide a variety of terminalling and transportation services both to third-party customers and ARCO. 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. ARCO Chemical's core product is propylene oxide ("PO"), which it produces through two distinct process technologies based on indirect oxidation (peroxidation) processes that yield co-products. One process yields tertiary butyl alcohol ("TBA") as the co-product; the other process yields styrene monomer ("SM") as the co-product. The two technologies are mutually exclusive such that either a dedicated PO/TBA plant or a dedicated PO/SM plant must be built. ARCO Chemical's other major products include PO derivatives (which include polyols and propylene glycols ("PG")), TBA derivatives (which include MTBE and ethyl tertiary butyl ether ("ETBE")), and SM derivatives (including polystyrenics). In January 1995, ARCO Chemical entered into a long- term arrangement with Rhone Poulenc for a supply of toulene di-isocyanate ("TDI"). ARCO Chemical will market TDI to customers. 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 9 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 South Charleston and Institute, 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 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:
PRODUCT U.S. INTERNATIONAL ------- ------ ------------- PO 2,315 1,290 Polyols 655 595 PG 520 340 TBA 2,870 2,395 SM 2,525 740 MTBE--Bbls/day 30,000 28,500
Capacities shown are the production capacities that, as of December 31, 1994, ARCO Chemical believes it can obtain based upon plant design and subject to certain onstream factors, product mix and other variable factors. Capacities shown include the full capacity of onstream 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. 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, ----------------- 1994 1993 1992 ----- ----- ----- (MILLIONS) PO and derivatives (pounds)................................... 3,699 3,356 3,055 SM and derivatives (pounds)................................... 2,496 2,084 1,434 TBA and derivatives (gallons)................................. 1,004 1,164 1,092
Total sales and other operating revenues for ARCO's intermediate chemicals and specialty products segment for the years ended December 31, 1994, 1993 and 1992 were $3,423 million, $3,192 million, and $3,100 million, respectively, including immaterial amounts for sales and services to Lyondell. In addition to raw material purchase agreements and product sales or processing agreements with unrelated third parties, ARCO Chemical has agreements with ARCO 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 for use in the production of the Company's reformulated gasolines. During 1991, ARCO 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 1994 Annual Report to Stockholders and 1994 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. 10 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. In August 1994, ARCO completed an offering of Exchangeable Notes due 1997 which can be exchanged at maturity into Lyondell Common Stock or, at ARCO's option, cash of an equal value. If ARCO elects to deliver shares of Lyondell Common Stock at maturity, ARCO's equity interest in Lyondell will be substantially reduced or eliminated. ARCO currently owns 39.9 million shares of Lyondell Common Stock. See Notes 7 and 20 of Notes to Consolidated Financial Statements on pages 43 and 49, respectively, and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Lyondell is a manufacturer and marketer of petrochemicals and, through its interest in LYONDELL-CITGO Refining Company Ltd. ("LCR"), of refined petroleum products. Lyondell manufactures a wide variety of petrochemicals, including olefins (ethylene, propylene, butadiene, butylenes and specialty products), polyolefins (polyethylene and polypropylene), methanol and MTBE. Lyondell's refining business is conducted through its approximate 90 percent participation interest in LCR, which operates a 265,000-barrel-per-day refinery in Houston, Texas (the "Houston Refinery"). LCR sells the majority of the gasoline, jet fuel and heating oil it produces to CITGO Petroleum Corporation ("CITGO"), which currently has an approximate 10 percent interest in LCR. LCR also produces fuel oil, aromatics and lubricants. For the year ended December 31, 1994, Lyondell recorded total revenues of approximately $309 million from sales to ARCO Chemical. Lyondell also provides certain plant services at ARCO Chemical's Texas facilities. ARCO Chemical in turn provides certain feedstocks and supplies to Lyondell. See "Downstream-- 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 and Vastar 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 1994, Lyondell paid ARCO and its consolidated subsidiaries an aggregate of $44 million under these agreements, arrangements and transactions and received an aggregate of $314 million. In July 1993, Lyondell entered into arrangements with CITGO and other affiliates of the Venezuelan National Oil Company, Petroleos de Venezuela, S.A. ("PDVSA") that, among other things, established LCR as the entity that owns and operates the Houston Refinery. LCR is undertaking a major upgrade project to create a world-class facility capable of refining very heavy grades of crude oil into valuable light products, including reformulated gasoline and low-sulfur diesel. Completion of the upgrade project is anticipated in late 1996 or early 1997. An affiliate of PDVSA, Lagoven, has entered into a 25-year supply agreement pursuant to which it supplies Venezuelan crude oil to LCR. CITGO has entered into a long-term agreement to purchase the Houston Refinery's gasoline, jet fuel, heating oil and low-sulfur diesel at market- based prices. Upon completion of the upgrade project, when it receives credit for its project-related contributions, CITGO's interest in LCR will increase to approximately 40 percent. CITGO also has a one-time option following completion of the upgrade to make an additional contribution to LCR in order to increase its interest up to 50 percent. For additional information about Lyondell, a copy of Lyondell's 1994 Annual Report to Stockholders and 1994 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. 11 CAPITAL PROGRAM The Company's capital expenditures for additions to fixed assets (including dry hole costs) totaled approximately $1.65 billion in 1994 and are budgeted at $1.9 billion for 1995. 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 U.S. coal industry serves competitive U.S. markets, where the availability of specific transportation arrangements, primarily rail transportation, 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 U.S. coal customers are electric utilities. The Company's Australian mines are export-oriented, largely to North Asia, and face worldwide competition 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. 12 HUMAN RESOURCES As of December 31, 1994, ARCO had approximately 23,200 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 products and methods for operating its businesses principally at three facilities located at Plano, Texas, Newtown Square, Pennsylvania and Anaheim, California. Total research and development expenses were $109 million, $109 million and $89 million in 1994, 1993 and 1992, 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 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, sites associated with discontinued operations and sites that were formerly owned by ARCO. 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. In addition, environmental loss contingencies include claims for personal injuries allegedly caused by exposure to toxic materials manufactured or used by ARCO. 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 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 Company's earnings. The Company's environmental remediation reserve of $670 million at December 31, 1994 covers federal Superfund and state-managed sites as well as other clean-up sites, including service stations, refineries, terminals, chemical facilities, third-party landfills, former nuclear processing facilities, sites associated with discontinued operations and sites formerly owned by ARCO. The Company has been named a potentially responsible party ("PRP") for 126 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 reserved by as much as $1 billion. 13 Approximately half of the reserve relates to sites associated with the Company's discontinued operations, primarily mining activities in the states of Montana, Utah and New Mexico. Another significant component relates to currently and formerly owned chemical, nuclear processing, and refining and marketing facilities, and other sites that 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 reserved 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. 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 EPA requirements became effective January 1, 1995 for the nine U.S. cities, including Los Angeles and San Diego, with the worst ozone pollution. The CARB's specifications for reformulated gasoline, which are stricter than the EPA requirements, become effective March 1, 1996. To comply with the EPA air quality requirements, during 1994 ARCO completed major modifications at its Los Angeles Refinery. In order to meet the CARB standards with 100 percent of the gasoline produced at the Los Angeles Refinery, ARCO is continuing to make additional modifications. 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 ("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 monitors emission reductions and provides companies with "credits" for achieving emission reductions below targeted levels. These "credits" may be bought and sold to satisfy compliance. Under this program, 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 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 $320 million per year. The Company anticipates environment-related capital programs of approximately $275 million and $140 million for 1995 and 1996, 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 $176 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 $260 million per year. 14 In addition to the reserve for environmental remediation costs, the Company has also accrued, as of December 31, 1994, $848 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 (S)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). In January 1995, the State revised its demand for payment of damages from ARCO for alleged injuries to natural resources resulting from mining and mineral processing operations. The revised demand is for $635.4 million. ARCO is contesting the amount of this demand and defending the lawsuit. In addition, on October 17, 1994, The Confederated Salish and Kootenai Tribes of the Flathead Reservation ("Tribes"), filed a motion to intervene in Montana v. ARCO. Pursuant to this motion, the Tribes, as trustees, have asserted claims against ARCO for alleged damage to and loss of natural resources located in the Clark Fork River Basin in southwest Montana. The Court has not yet ruled on the Tribes' motion. 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. 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. While this claim has not been actively pursued by the State, it currently remains unresolved. 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 numerous individuals and several 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 seeks extensive relief on behalf of the individual and class plaintiffs, broad injunctive and declaratory relief pursuant to CERCLA, and seeks attorneys' fees and costs. 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. In October 1994, the Department of Energy determined that the government will indemnify ARCO and ARHCO for any judgment or settlement in the action pursuant to the contract between ARHCO and the Atomic Energy Commission and the provisions of the Price-Anderson Act. 15 Following the March 1989 EXXON VALDEZ oil spill, numerous lawsuits seeking compensatory and punitive damages and injunctions were filed by the State of Alaska, the United States and private plaintiffs against Exxon, Alyeska Pipeline Service Company ("Alyeska"), and Alyeska's owner companies (including ARCO, which owns approximately 21 percent). Alyeska and its owner companies have settled the civil damage claims by federal and state governments and the lawsuits by all but a handful of private plaintiffs. Certain issues relating to liability for the spill remain unresolved between the Exxon companies, on the one hand, and Alyeska and its owner companies, on the other hand. 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 pages 44-45, and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 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. In September 1993, the United States Court of Appeals for the Federal Circuit affirmed, without opinion, the trial court's judgment against ARCO. In October 1994, the Court of Appeals denied the Company's request for reconsideration. The parties have settled the case and the settlement has been approved by the District Court. 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. The court has dismissed plaintiffs' negligence and strict liability claims and, pursuant to stipulation, dismissed with prejudice plaintiffs' claims for indemnification arising from third-party personal injury claims resolved before March 15, 1993, and dismissed without prejudice claims for indemnification brought after that date. On June 2, 1994, the trial court entered an order dismissing plaintiffs' remaining claims for restitution and indemnification, from which plaintiffs noticed an appeal on June 20, 1994. Plaintiffs' only remaining claim in the trial court is their fraud claim. 16 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), which 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, enterprise, or alternative liability causes of action in this case. On December 8, 1994, the Ohio State Court of Appeals reversed the final court's rulings on market share and alternative liability and affirmed its ruling on enterprise liability. On January 13, 1995, defendants' motion asking the Court of Appeals to reconsider its decision was denied. 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. 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. 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. In 1994, ARCO Chemical entered into a Consent Order and Agreement (the "Consent Agreement") with the Pennsylvania Department of Environmental Resources ("PADER") pursuant to which ARCO Chemical and PADER agreed upon a work plan for testing and remedial process design with regard to the conditions at the plant. Under the terms of the Consent Agreement, ARCO Chemical paid civil penalties totaling $363,000 in 1994. Under the terms of the Consent Agreement, ARCO Chemical must pay an additional penalty of $63,000 each year until the commencement of active remediation at the plant, after which the amount of such annual penalty shall be reduced based on the extent of remediation commenced at the plant. ARCO Chemical has an agreement with Beazer East, Inc., the successor to Koppers Inc. (the previous owner of the Beaver Valley plant), whereby Beazer East, Inc. agreed to pay for approximately 50 percent of the cost of the remediation. ARCO and Snyder Oil Corporation received Notices of Violation ("NOV") from the United States Environmental Protection Agency Region VIII alleging that certain equipment at the Riverton Dome Gas Plant had been installed and operated without permits required by the Clean Air Act's Prevention of Significant Deterioration regulations. ARCO's NOV related to the period of time during which ARCO owned and operated the plant; Snyder's related to the period of time after it purchased the plant from ARCO. ARCO and Snyder entered into a consent decree with the United States to settle these claims; the decree has now been entered by the court. The decree assessed the penalty against both ARCO and Snyder without specifying an allocation between the two; pursuant to the indemnity provisions of the purchase and sale agreement between it and Snyder, ARCO paid Snyder's portion of the penalty also; the civil penalty agreed to in the decree totalled $875,000. 17 In January 1994, the California Air Resources Board ("CARB") requested information regarding any failure by a terminal, within the period starting January 1, 1992 and ending December 31, 1993, to meet CARB's minimum additive injection standards for gasoline. CARB's regulations require monthly records at each terminal of the volume of each grade of gasoline, the volume of additive injected, and the minimum volume of additive required, as a way of monitoring compliance. Although some terminals' monthly records showed less than the minimum amount of additive injected during one month in 1992, the other terminals' monthly records demonstrated compliance with CARB's minimum additive injection rules. Nonetheless, CARB has obtained the daily additive injection records from each terminal. These daily records were not maintained in a manner designed to measure compliance, because CARB's regulations required monthly, not daily, record keeping. If CARB is able to use these daily records to measure compliance for the last two years, ARCO believes that CARB may impose penalties for failure to comply; in such event, ARCO would negotiate with CARB the amount of such penalty. On January 17, 1994, Southern California experienced a major earthquake that caused widespread property damage and major disruptions to utilities and highways. Certain of ARCO's assets located in the region experienced varying degrees of damage. A common carrier crude oil pipeline suffered ruptures, one of which was involved in a fire of unknown origin. In addition, there was one person injured, property damage, and oil spills into the Santa Clara and Los Angeles Rivers. Each of the Los Angeles District Attorney and the State of California Attorney General have notified the Company that pursuant to various state statutes, some of which impose liability without fault, penalties and damages in excess of $100,000 may be imposed on the Company. Negotiations are currently in progress. A class action lawsuit has been filed seeking damages in excess of $10 million plus punitive damages on behalf of individuals alleged to have been injured in the pipeline ruptures. 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). TAX MATTERS On December 23, 1994, the Internal Revenue Service issued a Notice of Deficiency for income tax relating to tax years 1983 through 1988. The Notice was issued shortly in advance of the expiration of the applicable statute of limitations. The aggregate amount of income tax asserted on the face of the Notice is $537 million plus interest. ARCO has paid to the Internal Revenue Service the amount of tax (and interest) that it believes is due and intends to file a petition in the U.S. Tax Court in March 1995 challenging the balance of the additional federal income tax set forth in the Notice. 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 1994. ---------------- 18 EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the executive officers of Registrant as of February 27, 1995.
NAME, AGE AND PRESENT POSITION WITH ATLANTIC BUSINESS EXPERIENCE DURING PAST RICHFIELD FIVE YEARS AND PERIOD SERVED AS OFFICER(A)(B) ---------------------- --------------------------------------------- Lodwrick M. Cook, 66 Mr. Cook has been Chairman of the Board of ARCO since January Chairman of the Board 1986 and a director since June 1980. He served as Chief Exec- and Director utive Officer (October 1985-June 1994), President (October 1985-January 1986), Chief Operating Officer--Products (May 1984-October 1985), Executive Vice President (June 1980-May 1984) and a Senior Vice President of ARCO (September 1977- June 1980), and President of ARCO Transportation Company (January 1979-June 1980). He has been an officer of the Com- pany since 1970. Mike R. Bowlin, 52 Mr. Bowlin has been Chief Executive Officer since July 1, President, Chief 1994, President and Chief Operating Officer of ARCO since Executive Officer, June 1, 1993 and a director since June 1992. He served as Ex- Chief Operating Officer ecutive Vice President (June 1992-May 1993) and Senior Vice and Director President of ARCO (August 1985-June 1992), President of ARCO International Oil and Gas Company (November 1987-June 1992), President of ARCO Coal Company (August 1985-July 1987), Se- nior Vice President of International Oil and Gas Acquisitions (July 1987-November 1987), a Vice President of ARCO (October 1984-July 1985) and a Vice President of ARCO Oil and Gas Com- pany (April 1981-December 1984). He has been an officer of the Company since October 1984. Ronald J. Arnault, 51 Mr. Arnault has been an Executive Vice President of ARCO and Executive Vice a director since October 1987. He is also ARCO's Chief Finan- President, Chief cial Officer (June 1984-July 1990 and July 1992 to present). Financial Officer and He was a Senior Vice President of ARCO (June 1980-October Director 1987) and President of ARCO Solar Industries (January 1980- June 1984). He has been an officer of the Company since 1977. Anthony G. Fernandes, 49 Mr. Fernandes has been an Executive Vice President of ARCO Executive Vice and a director since September 1994. He served as a Senior President and Director Vice President of ARCO and President of ARCO Coal Company (July 1990-September 1994), Vice President and Controller of ARCO (July 1987-July 1990), a Vice President of ARCO Oil and Gas Company (January 1985-July 1987) and a Vice President of Anaconda Minerals (May 1981-January 1985). He has been an of- ficer of the Company since 1987. William E. Wade, Jr., 52 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 of ARCO (May 1987-May 1993), President of ARCO Oil and Gas Company (October 1990-May 1993), President of ARCO Alas- ka, Inc. (July 1987-July 1990), a Vice President of ARCO (1985-1987) and a Vice President of ARCO Exploration Company (1981-1985). He has been an officer of the Company since 1985.
19
NAME, AGE AND PRESENT POSITION WITH ATLANTIC BUSINESS EXPERIENCE DURING PAST RICHFIELD FIVE YEARS AND PERIOD SERVED AS OFFICER(A)(B) ---------------------- --------------------------------------------- H. L. Bilhartz, 48 Mr. Bilhartz has been a Senior Vice President of ARCO since Senior Vice President July 1990 and President of ARCO Exploration and Production Technology since June 1994. He served as President of ARCO Alaska, Inc. (July 1990-May 1994), a Vice President of ARCO (June 1987-July 1990), President of ARCO Coal Company (July 1987-July 1990), Vice President and Managing Director for ARCO British Limited and ARCO Netherlands in London (1985- 1987), Vice President of Finance, Control and Planning, of ARCO International Oil and Gas Company (1984-1985) and Vice President and District Manager for ARCO Oil and Gas Company (1983-1984). He has been an officer of the Company since 1987. E. Kent Damon, Jr., 52 Mr. Damon has been a Senior Vice President of ARCO since July Senior Vice President 1990 and President of ARCO Asia Pacific Ltd. since August 1993. He was Senior Vice President, Planning and Control (July 1990-July 1993) and Vice President and Investment Offi- cer of ARCO (August 1985-February 1991) and President and Chief Investment Officer of ARCO Investment Management Com- pany (December 1987-February 1991). He has been an officer of the Company since 1985. Kenneth R. Dickerson, 59 Mr. Dickerson has been a Senior Vice President, External Af- Senior Vice President fairs, for ARCO since July 1988. He served as Vice President and General Tax Officer (October 1985-June 1988) and Deputy General Counsel--Resources of ARCO (September 1983-October 1985) and Associate General Counsel for ARCO Oil and Gas Com- pany (September 1982-September 1983). He has been an officer of the Company since 1985. Marlan W. Downey, 63 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 (1990-1992). He has been an officer of the Company since 1992. Marie L. Knowles, 48 Mrs. Knowles has been a Senior Vice President of ARCO and Senior Vice President President of ARCO Transportation Company since June 1993. She served as Vice President and Controller of ARCO (July 1990- May 1993), Vice President of Finance, Control and Planning, of ARCO International Oil and Gas Company (July 1988-July 1990), and Assistant Treasurer of Banking of ARCO (October 1986-July 1988). She has been an officer of the Company since 1990. Stephen R. Mut, 44 Mr. Mut has been a Senior Vice President of ARCO and Presi- Senior Vice President dent of ARCO Coal Company since September 1994. He was Senior Vice President of Operations for ARCO International Oil and Gas Company (1991-1994). He has been an officer of the Com- pany since 1994.
20
NAME, AGE AND PRESENT POSITION WITH ATLANTIC BUSINESS EXPERIENCE DURING PAST RICHFIELD FIVE YEARS AND PERIOD SERVED AS OFFICER(A)(B) ---------------------- --------------------------------------------- William C. Rusnack, 50 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 (July 1990-May 1993), Vice President, Corporate Planning, of ARCO (June 1987-July 1990) and Senior Vice President, Marketing and Employee Relations, of ARCO Oil and Gas Company (1985- 1987). He has been an officer of the Company since 1987. J. Kenneth Thompson, 43 Mr. Thompson has been a Senior Vice President of ARCO and Senior Vice President President of ARCO Alaska, Inc. since June 1994. He was a Vice President of ARCO and a Vice President of ARCO Exploration and Production Technology (June 1993-June 1994) and as Senior Vice President, Western District, of ARCO Oil and Gas Company (January 1990-June 1993). He has been an officer of the Com- pany since 1994. Thomas W. Velleca, 61 Mr. Velleca has been a Senior Vice President, Exploration, of Senior Vice President ARCO since September 1994. He was the Senior Vice President, Exploration, of ARCO International Oil and Gas Company (April 1993-September 1994). He retired from Shell Oil Company in 1987. He has been an officer of the Company since September 1994. Bruce G. Whitmore, 50 Mr. Whitmore has been the Senior Vice President, General Senior Vice President, Counsel and Corporate Secretary of ARCO since January 1, General Counsel and 1995. He served as Vice President and General Counsel for Corporate Secretary ARCO Chemical Company (October 1990-December 1994) and as As- sociate General Counsel, Finance and Corporate Affairs, of ARCO (June 1986-September 1990). He has been an officer of the Company since January 1995. Allan L. Comstock, 51 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 (October 1989-June 1993) and General Auditor of ARCO (November 1985-October 1989). He has been an officer of the Company since 1993. Terry G. Dallas, 44 Mr. Dallas has been a Vice President of ARCO since June 1993 Vice President and and Treasurer since January 1994. He was Vice President, Cor- Treasurer porate Planning (June 1993-January 1994) and Assistant Trea- surer, Corporate Finance of ARCO (1990-1993) and Manager, Fi- nance, Control and Planning, ARCO British, Ltd. (1988-1990). 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. 21 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 Restated Certificate of Incorporation, as of June 27, 1994, 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 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, 1994.
SHARES SHARES AUTHORIZED OUTSTANDING ----------- ----------- $3.00 Preference Stock.......................... 78,089 73,721 $2.80 Preference Stock.......................... 833,776 794,796 Preferred Stock................................. 75,000,000 -- Common Stock.................................... 600,000,000 160,753,966*
- -------- * Excludes treasury stock. Certain Treasury Stock Purchases. From time to time ARCO may purchase Common Stock on the open market and contribute it to treasury in order to satisfy its obligations upon conversion of the $3.00 and $2.80 Preference Stocks and upon exercise of stock options. In addition, in connection with ARCO's Capital Accumulation and Savings Plans, ARCO may from time to time purchase Common Stock on the open market and contribute it to treasury pending delivery of Common Stock in satisfaction of employer and employee contributions thereunder. Power of Board to Determine Terms 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. 22 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 23 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. 24 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. 25 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
1994 1993 ----------------------------------- ----------------------------------- 4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST -------- -------- -------- -------- -------- -------- -------- -------- Common Stock: Market price per share High................. $108 3/4 $109 1/2 $104 1/2 $112 3/8 $116 1/4 $117 3/8 $127 3/4 $122 Low.................. $ 97 5/8 $ 99 5/8 $ 92 1/2 $ 93 1/2 $100 1/2 $109 3/8 $113 1/8 $107 1/2 Cash dividends per share................. $1.375 $1.375 $1.375 $1.375 $1.375 $1.375 $1.375 $1.375 $3.00 Convertible Preference Stock: Market price per share High................. $717 1/2 $736 $697 $731 $749 3/4 $780 1/2 $834 1/2 $776 Low.................. $675 3/4 $711 $648 1/2 $648 1/2 $730 $760 $806 1/2 $745 1/2 Cash dividends per share................. $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $2.80 Convertible Preference Stock: Market price per share High................. $259 3/4 $259 3/4 $247 1/4 $263 1/2 $275 1/4 $279 3/4 $302 3/4 $287 Low.................. $234 1/2 $241 $226 1/2 $228 $245 $262 1/2 $277 $260 3/4 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 27, 1995 the high price per share was $109 3/8 and the low price per share was $108 5/8. As of December 31, 1994, the approximate number of holders of record of Common Stock of ARCO was 100,000. 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 23, 1995, a dividend of $1.375 per share was declared on Common Stock, payable on March 15, 1995 to stockholders of record on February 17, 1995. 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, ------------------------------------------ 1994(1)(2) 1993(1) 1992(1) 1991(3) 1990 ---------- ------- ------- ------- ------- (MILLIONS EXCEPT PER SHARE AMOUNTS) Sales and other operating revenues (including excise taxes)........... $16,552 $18,487 $18,668 $18,191 $18,836 Income before changes in accounting principles......................... $ 919 $ 269 $ 1,193 $ 709 $ 1,688 Net income.......................... $ 919 $ 269 $ 801 $ 709 $ 2,011 Earned per share before changes in accounting principles.............. $ 5.63 $ 1.66 $ 7.39 $ 4.39 $ 10.20 Earned per share.................... $ 5.63 $ 1.66 $ 4.96 $ 4.39 $ 12.15 Cash dividends per common share..... $ 5.50 $ 5.50 $ 5.50 $ 5.50 $ 5.00 Total assets........................ $24,563 $23,894 $24,256 $24,492 $23,864 Long-term debt and capital lease obligations........................ $ 7,198 $ 7,089 $ 6,227 $ 5,989 $ 5,997
- -------- (1) See Note 2 of Notes to Consolidated Financial Statements regarding unusual items on page 39. (2) Includes after-tax gain of $273 million from issuance of stock by Vastar Resources, Inc. (3) Includes a net provision of $312 million after tax related to reorganization of Lower 48 oil and gas operations, companywide work force reduction, and the writedown of certain assets. 26 ARCO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating results in 1994 improved compared to 1993 as a result of approximately $250 million after tax in first-year savings from ARCO's cost reduction program, higher earnings from ARCO's chemical interests in Lyondell Petrochemical Company (Lyondell) and ARCO Chemical Company (ARCO Chemical), and higher natural gas sales volumes. These improvements were partially offset by lower crude oil and natural gas prices and reduced refining and marketing margins. Earnings from Operations
Millions 1994 1993 1992 Net income $ 919 $ 269 $ 801 Special items (benefit) charge (40) 545 (140) Accounting changes -- -- 392 ----- ----- ------ Operating results $ 879 $ 814 $1,053 ===== ===== ======
Operations in 1993, compared to 1992, 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 (SG&A) expenses and lower after-tax earnings from transportation operations. Special Items After Tax
Millions 1994 1993 1992 Restructuring charges $(210) $(404) $ -- Gain on issuance of subsidiary stock 273 -- -- Future environmental remediation (48) (52) (73) Deferred tax impact of rate change -- (65) -- Settlement of asset nationalization -- -- 136 Deferred gain, Lyondell -- -- 111 Other, net 25 (24) (34) ----- ----- ----- Total special items benefit (charge) $ 40 $(545) $ 140 ===== ===== =====
RESULTS OF CONSOLIDATED OPERATIONS REVENUES The sale of ARCO's Brazilian marketing operations in December 1993 resulted in reduced operating revenues in 1994. At the same time, increased crude oil trading and natural gas marketing activity, higher chemical prices and volumes, natural gas volumes and excise taxes were offset by lower crude oil prices and volumes, and lower prices for refined products and natural gas. In 1993, increased natural gas marketing volumes and higher refined and chemical products sales volumes and natural gas prices were more than offset by lower crude oil prices, crude oil and natural gas volumes, decreased crude oil trading volumes and lower refined and chemical products prices. The increase in income from equity investments in 1994 primarily reflected Lyondell's higher earnings. ARCO has a 49.9% equity interest in Lyondell. The fluctuations in other revenues primarily reflected the impact of asset sales. EXPENSES The sale of ARCO's Brazilian marketing operations resulted in reduced trade purchases in 1994. At the same time, increased crude oil trading and natural gas marketing activity were offset by lower crude oil and natural gas prices. In 1993, lower crude oil trading prices and volumes and lower purchased volumes of finished refined products and chemical feedstocks resulted in reduced trade purchases. This reduction was partially offset by higher natural gas marketing volumes and prices. As a result of ARCO's cost reduction program, lease and other operating costs in oil and gas operations and refining and marketing operations were lower in 1994. These reductions were partially offset by higher operating costs as a result of increased production volumes for coal operations and ARCO Chemical, and by higher operating costs associated with the response to 27 ARCO findings of regulatory and owner company reviews of the Trans Alaska Pipeline System (TAPS). 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, resulted in higher operating costs in 1993. Partially offsetting these increases were lower lease and other operating costs in oil and gas operations. The decline in exploration expense in 1994 reflected reduced activity as part of ARCO's cost reduction program, particularly in Alaska and the Lower 48. The increase in 1993 reflected higher dry hole costs in Alaska and increased activity overseas, partially offset by decreased activity in the Lower 48. Selected Expenses
Millions 1994 1993 1992 Operating expenses $3,222 $3,293 $3,174 SG&A expenses $1,705 $1,828 $1,724 Exploration expenses $ 455 $ 667 $ 567
The sale of ARCO's Brazilian marketing operations and lower personnel costs in oil and gas operations resulted in reduced SG&A expenses in 1994. Higher compensation expense and higher delivery and advertising costs increased SG&A expenses in 1993. The sale of ARCO's Brazilian marketing operations also resulted in reduced taxes other than excise and income taxes in 1994. The decrease in 1993, compared to 1992, primarily resulted from lower production taxes related to lower crude oil prices and volumes. Excise taxes increased in 1994 as a result of the full-year effect in 1994 of the fourth quarter 1993 increase in federal excise taxes and a mandatory assumption of the collection responsibility for excise taxes on diesel fuel. The increase in 1993 primarily resulted from the fourth quarter 1993 federal excise tax increase, the full-year effect in 1993 of increased state excise taxes in 1992 and higher refined products sales volumes. Depreciation, depletion and amortization (DD&A) decreased in 1994 reflecting the absence of a $73 million accrual for plugging and abandonment of onshore wells recorded in 1993. This was partially offset by increased depreciation associated with the first full year of operation of the Gordonstone mine. The decrease in DD&A in 1993 resulted from the sale of Lower 48 oil and gas properties, partially offset by the $73 million plug and abandonment accrual. Personnel reductions associated with ARCO's cost reduction program were reported as unusual items in 1994. The fourth quarter 1993 reorganization of ARCO's Lower 48 oil and gas operations is reflected in unusual items expense and included $554 million before tax for writedowns for sale or other disposition of oil and gas properties and excess office space, in addition to charges for work force reductions. The 1992 unusual items comprised 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, partially offset by a charge related to the withdrawal by ARCO Chemical from a Korean joint venture. GAIN ON ISSUANCE OF STOCK BY VASTAR RESOURCES, INC. On July 5, 1994, Vastar Resources, Inc. (Vastar) consummated the sale of 28 ARCO 17,250,000 shares of its common stock to the public at an initial offering price of $28 per share. Prior to the offering, Vastar was a wholly owned subsidiary of ARCO. At December 31, 1994, ARCO owned 80,000,001 shares of Vastar's common stock, which represented 82.3% of Vastar's outstanding common stock. ARCO realized an after-tax gain of $273 million as a result of the initial public offering by Vastar. Vastar's results are included in ARCO's Lower 48 results in the oil and gas segment. INCOME TAXES ARCO's effective tax rate was 28.3% in 1994, compared to 51.6% in 1993 and 35.6% in 1992. The lower effective tax rate in 1994 reflected recognition of a foreign deferred tax asset, increased net foreign tax credits, a refund of paid foreign taxes and an increase in other tax credits. 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. ACCOUNTING CHANGES The 1992 results included a net after-tax charge of $392 million, or $2.43 per share, for the cumulative effect of the adoption of two new accounting standards related to non-pension postretirement benefits and income taxes. RESULTS OF SEGMENT OPERATIONS OIL AND GAS
Millions 1994 1993 1992 Net income $ 405 $ 45 $ 816 Special items (benefit) charge 75 390 (138) ----- ----- ----- Operating results $ 480 $ 435 $ 678 ===== ===== =====
Lower exploration and operating expenses and higher natural gas volumes were partially offset by lower crude oil prices and volumes and lower natural gas prices in 1994. In 1993, the effect of lower crude oil prices and volumes, natural gas volumes and higher dry hole expense was partially offset by higher natural gas prices and lower depletion and lease operating costs. Oil and Gas Special Items After Tax
Millions 1994 1993 1992 Restructuring charges $ (66) $(404) $ -- Asset sales 6 82 69 Deferred tax impact of rate change -- (40) -- Settlement of asset nationalization -- -- 136 Lower 48 downsizing costs -- -- (59) Tax-related and other, net (15) (28) (8) ----- ----- ----- Total special items benefit (charge) $ (75) $(390) $ 138 ===== ===== =====
PETROLEUM LIQUIDS PRODUCTION Worldwide petroleum liquids volumes decreased in 1994 and 1993 as a result of Lower 48 property divestitures and natural field declines. In 1994,
Petroleum liquids production -- barrels/day -- net 1994 1993 1992 Prudhoe Bay 236,600 250,800 270,500 Kuparuk River 147,200 151,500 150,800 Other Alaska 37,400 16,400 17,600 Lower 48, including Vastar 170,100 186,000 221,600 International 72,800 79,700 77,700 ------- ------- ------- Total 664,100 684,400 738,200 ======= ======= =======
increased volumes resulting from the expanded gas handling system (GHX-2) at Prudhoe Bay and new volumes from the Point McIntyre field, which began production in October 1993, were partially offset by natural field decline in Alaska from the Prudhoe Bay and Kuparuk River fields. NATURAL GAS PRODUCTION ARCO's international natural gas production grew in 1994 as a result of the new Pagerungan and Offshore Northwest Java Sea fields in Indonesia and a full year of production from the Orwell and Murdoch fields in the United Kingdom North Sea. International natural gas 29 ARCO operations in 1993 were favorably impacted by a full year of production from the Pickerill field in the U.K. North Sea, new production from the Orwell and Murdoch fields in the U.K. North Sea, which began in late 1993, and the Java Sea field in Indonesia.
Natural Gas Production Million/cubic feet per day 1992 1993 1994 U.S. 1,202 911 960 International 240 321 511 Total 1,442 1,232 1,471
U.S. natural gas production growth in 1994 came primarily from Vastar's Mustang Island 805 field in the Gulf of Mexico and fields in the San Juan Basin. The sale of Lower 48 properties and natural field declines reduced domestic natural gas production in 1993. COAL
Millions 1994 1993 1992 Net income $ 70 $ 107 $ 83 Worldwide shipments (tons) 49.6 47.7 39.8
Revenues from record volumes in 1994 were more than offset by lower international coal prices, the reopening to current market prices of a major sales contract in the U.S. and unfavorable foreign exchange rate movements. Improved earnings in 1993 reflected higher sales volumes as a result of strong electric utility demand and reduced East Coast supply as a result of a mine workers strike. The 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 mine, which was completed in January 1993. REFINING AND MARKETING
Millions 1994 1993 1992 Net income $ 195 $ 307 $ 346 Special items 80 80 40 ----- ----- ----- Operating results $ 275 $ 387 $ 386 ===== ===== =====
The 1994 results were negatively impacted by reduced U.S. West Coast margins and the absence of earnings from Brazil, partially offset by reduced operating costs. The 1994 special items included after-tax charges related to personnel reductions and future environmental remediation costs. The 1993 special items comprised primarily litigation-related accruals, a loss associated with the sale of the Brazilian marketing subsidiaries and the effect of the increase in the federal tax rate on deferred taxes. The 1992 special items included a charge of approximately $40 million after tax primarily for environmental costs related to previously divested operations. ARCO's U.S. West Coast sales volumes were relatively unchanged for the three years ended December 31, 1994. TRANSPORTATION
Millions 1994 1993 1992 Net income $172 $189 $239
The 1994 results included charges of approximately $20 million after tax related to personnel reductions, a loss on the sale of midcontinent product pipelines, and costs associated with the Southern California earthquake, partially offset by a tax credit. The 1993 earnings declined as a result of lower TAPS earnings and the effect of the federal tax rate increase, partially offset by higher commercial pipeline earnings. INTERMEDIATE CHEMICALS AND SPECIALTY PRODUCTS After-tax earnings for ARCO's intermediate chemicals and specialty products segment were $265 million in 1994, $239 million in 1993 and $210 million 30 ARCO in 1992. The segment consists of ARCO Chemical, an 83.3% owned subsidiary. ARCO Chemical reported that its 1994 results included an after-tax charge of $19 million for corporate restructuring and a $12 million benefit from insurance proceeds. ARCO Chemical's reported net income in 1993 included a $10 million after-tax loss on early debt retirement and net benefits of $20 million from lower income taxes. The 1992 results included $56 million before tax for a charge resulting from ARCO Chemical's withdrawal from a joint venture in Korea.
ARCO Chemical Sales Volumes Millions 1994 1993 1992 PO and derivatives (pounds) 3,699 3,356 3,055 SM and derivatives (pounds) 2,496 2,084 1,434 TBA and derivatives (gallons) 1,004 1,164 1,092
ARCO Chemical's reported net income was higher in 1994, compared to 1993, primarily as a result of higher sales volumes in ARCO Chemical's core products, propylene oxide (PO) and derivatives and styrene monomer (SM), and higher SM margins, partially offset by the effects of a weaker methyl tertiary butyl ether (MTBE) market. In 1993, increased sales volumes in ARCO Chemical's core products worldwide were offset by higher fixed costs associated with a new plant, lower MTBE margins, primarily in Europe, and lower overall PO and derivatives margins as a result of lower U.S. PO derivatives prices and continued weakness in the European economy. LYONDELL PETROCHEMICAL COMPANY ARCO's 49.9% equity share of Lyondell's net income was $111 million for 1994, $13 million for 1993 and $8 million for 1992. Lyondell's results in 1994 reflected improved olefins and methanol margins and increased olefins sales volumes. This more than offset lower earnings from Lyondell's approximate 90% participation interest in LYONDELL-CITGO Refining Company Ltd. (LCR), which was affected by poor industry conditions as well as downtime for major maintenance turnarounds in the fourth quarter. LCR took over Lyondell's operation of the Houston, Texas, refinery in July 1993. Lyondell's results in 1993 improved as a result of higher margins attained through the processing of greater volumes of Venezuelan crude oil. UNALLOCATED EXPENSES AND OTHER Unallocated expenses and other was a net after-tax expense of $57 million in 1994 and $140 million in 1993 compared to a net after-tax benefit of $25 million in 1992. Reductions in corporate staff expense, increased foreign tax credits and a tax refund resulted in lower unallocated expenses in 1994. In addition, increased interest income on short-term investments was more than offset by reimbursement of money market losses in certain employee benefit plans and charges for personnel reductions at ARCO's corporate headquarters. The increase in unallocated expenses in 1993 reflected the absence of a $111 million after-tax gain recognized in 1992 and discussed below, increased compensation, 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 increased corporate expenses and charges for future environmental remediation. 31 ARCO FINANCIAL POSITION AND LIQUIDITY
Millions 1994 1993 1992 - -------- ------- ------- ------- Cash flow provided (used) by: Operations $ 2,097 $ 2,762 $ 3,079 Investing activities $(2,169) $(2,237) $(2,115) Financing activities $ (2) $ (426) $ (716)
The net cash used in investing activities in 1994 included expenditures for additions to fixed assets (including dry hole costs) of $1,658 million and a net increase in short-term investments of $768 million, partially offset by proceeds from asset sales of $167 million. The net cash used in financing activities in 1994 included proceeds of $1,275 million from the issuance of long-term debt, primarily 9% Exchangeable Notes and $453 million from issuance of common stock by Vastar, offset by repayments of long-term debt of $796 million and dividend payments of $885 million. Cash and cash equivalents and short-term investments totaled $4.4 billion at year-end 1994 and short-term borrowings were $1.5 billion. Working capital was $429 million higher at the end of 1994, primarily reflecting an increase in short-term investments, partially offset by an increase in long-term debt due within one year. At December 31, 1994, ARCO had unused bank credit facilities totaling $3.2 billion and ARCO Chemical had an unused bank credit facility totaling $300 million, while Vastar had fully utilized its $1.05 billion revolving credit facility with an interest rate of 6.15%. Vastar's revolving line of credit is available until November 30, 1996. On August 8, 1994, ARCO issued 39.9 million 9% Exchangeable Notes (the Notes) due September 15, 1997, at a price of $24.75 per Note. ARCO realized proceeds of approximately $958 million. At maturity, holders will receive shares of Lyondell common stock, or at ARCO's option, cash with an equal value in exchange for the principal amount of the Notes. The number of shares or the amount of such cash will be determined using a formula based on the price of Lyondell common stock at the maturity of the Notes.
Capital Spending 1993 1994 1995 (Billions) $2.1 $1.7 $1.9
ARCO's 1995 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 future financings. ENVIRONMENTAL MATTERS ARCO is subject to federal, state and local environmental laws and regulations which require the Company to remove or mitigate the effect on the environment of the disposal or release of certain chemical, mineral and petroleum substances at various sites. 32 ARCO Environmental Reserve
Millions 1994 1993 1992 Beginning balance $ 648 $ 682 $ 729 Charges 138 172 160 Payments (116) (206) (207) ----- ----- ----- Ending balance $ 670 $ 648 $ 682 ===== ===== =====
The amount reserved represents the estimated undiscounted costs which ARCO will incur to complete the remediation of sites with known contamination. In view of the uncertainties associated with estimating these costs, such as differences of opinion between ARCO and various regulatory agencies with respect to the appropriate method for remediating contaminated sites, uncertainty as to the extent of contamination at various sites, and uncertainty regarding ARCO's ultimate share of costs at various sites, it is possible that actual costs could exceed the amount reserved by as much as $1 billion. See Note 12 to Consolidated Financial Statements regarding environmental matters. In addition to the provision for environmental remediation costs, $848 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. RISK MANAGEMENT ARCO utilizes derivative instruments for risk management purposes. The Company uses simple, non-leveraged derivative instruments denominated in major currencies with highly liquid secondary markets. The derivative instruments are placed with major international financial institutions whose creditworthiness is continually monitored. Hedging strategies are reviewed and approved by senior management before being implemented. Policy controls limit the maximum dollar amount of positions that can be taken at any given time. To minimize the effects of interest rate and foreign currency fluctuations, the Company enters into the following transactions using derivatives: 1) foreign currency forward and swap contracts; 2) interest rate swaps; and 3) financial futures contracts and OTC Treasury options which are limited to investment portfolio hedging, alteration of portfolio duration and changing asset mix. The Company and its subsidiaries engage in hedging strategies involving forward and futures contracts, swaps and options to hedge part of their crude oil and natural gas production to minimize the effects of commodity price fluctuations. In 1994, Vastar entered into a series of commodity swaps covering approximately 50% of its natural gas production for March through December. Vastar realized a $42 million pre-tax gain as a result of these swaps. EFFECTS OF INFLATION While the annual rate of inflation remained moderate during the three-year period ended December 31, 1994, ARCO continued to experience certain inflationary effects. ARCO will benefit by using current, inflated dollars to satisfy its debt obligations and other monetary liabilities. In addition, it is estimated that the replacement cost of ARCO's property, plant, equipment and inventory is greater than the historical cost reflected in the financial statements. 33 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
SCHEDULE NO. PAGE ---- ---- Report of Independent Accountants............................. 35 Financial Statements: Consolidated Statement of Income and Retained Earnings...... 36 Consolidated Balance Sheet.................................. 37 Consolidated Statement of Cash Flows........................ 38 Notes to Consolidated Financial Statements.................. 39 Supplemental Information.................................... 51 Supporting Financial Statement Schedule Covered by the Foregoing Report of Independent Accountants: II Valuation and Qualifying Accounts........................... 60
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. 34 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, 1994 and 1993, 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, 1994 and the related financial statement schedule listed in the index on page 34 of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule 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, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents 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 L.L.P. Los Angeles, California February 10, 1995 35 ARCO CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
For the year ended December 31, Millions, except per share amounts 1994 1993 1992 - ---------------------------------- --------- -------- -------- REVENUES Sales and other operating revenues (including excise taxes) $16,552 $18,487 $18,668 Income from equity investments 141 40 22 Interest 201 164 182 Other revenues 305 492 376 ------- ------- ------- 17,199 19,183 19,248 ------- ------- ------- EXPENSES Trade purchases 5,834 7,224 7,263 Operating expenses 3,222 3,293 3,174 Selling, general and administrative expenses 1,705 1,828 1,724 Depreciation, depletion and amortization 1,671 1,718 1,754 Exploration expenses (including undeveloped lease amortization) 455 667 567 Excise taxes 1,517 1,298 1,165 Taxes other than excise and income taxes 780 1,147 1,203 Interest 759 715 762 Unusual items 347 659 (271) ------- ------- ------- 16,290 18,549 17,341 ------- ------- ------- Income before gain on issuance of stock by subsidiary 909 634 1,907 Gain on issuance of stock by subsidiary 459 -- -- ------- ------- ------- Income before income taxes, minority interest and cumulative effect of changes in accounting principles 1,368 634 1,907 Provision for taxes on income 387 327 678 Minority interest in earnings of subsidiaries 62 38 36 ------- ------- ------- Income before cumulative effect of changes in accounting principles 919 269 1,193 Cumulative effect of changes in accounting principles -- -- (392) ------- ------- ------- Net income $ 919 $ 269 $ 801 ======= ======= ======= EARNED PER SHARE Before cumulative effect of changes in accounting principles $ 5.63 $ 1.66 $ 7.39 Cumulative effect of changes in accounting principles -- -- (2.43) ------- ------- ------- Net income per share $ 5.63 $ 1.66 $ 4.96 ======= ======= ======= RETAINED EARNINGS Balance, January 1 $ 5,308 $ 5,918 $ 5,990 Net income 919 269 801 Cash dividends: Preference stocks (3) (3) (3) Common stock (882) (876) (870) ------- ------- ------- Balance, December 31 $ 5,342 $ 5,308 $ 5,918 ======= ======= =======
See Notes on pages 39 through 50. 36 ARCO CONSOLIDATED BALANCE SHEET
December 31, Millions 1994 1993 - -------- -------- ------- ASSETS Current assets: Cash and cash equivalents $ 1,394 $ 1,458 Short-term investments 2,991 2,289 Accounts receivable 1,446 1,333 Inventories 797 914 Prepaid expenses and other current assets 185 237 ------- ------- Total current assets 6,813 6,231 ------- ------- Investments and long-term receivables: Investments accounted for on the equity method 348 266 Other investments and long-term receivables 297 221 ------- ------- 645 487 ------- ------- Fixed assets: Property, plant and equipment 32,248 31,494 Less accumulated depreciation, depletion and amortization 16,526 15,628 ------- ------- 15,722 15,866 Deferred charges and other assets 1,383 1,310 ------- ------- Total assets $24,563 $23,894 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 1,478 $ 1,510 Accounts payable 986 1,091 Long-term debt due within one year 630 165 Taxes payable, including excise taxes 253 272 Accrued interest 183 190 Other 958 1,107 ------- ------- Total current liabilities 4,488 4,335 ------- ------- Long-term debt 7,198 7,089 Deferred income taxes 2,721 2,779 Other deferred liabilities and credits 3,471 3,177 Minority interest 407 387 Stockholders' equity: Preference stocks 1 1 Common stock, $2.50 par value; shares issued 160,800,137 (1994), 160,746,125 (1993); shares outstanding 160,753,966 (1994), 159,953,980 (1993) 402 402 Capital in excess of par value of stock 647 661 Retained earnings 5,342 5,308 Foreign currency translation (51) (133) Pension liability adjustment (20) (29) Treasury stock, at cost (5) (83) Net unrealized loss on investments (38) -- ------- ------- Total stockholders' equity 6,278 6,127 ------- ------- Total liabilities and stockholders' equity $24,563 $23,894 ======= =======
The Company follows the successful efforts method of accounting for oil and gas producing activities. See Notes on pages 39 through 50. 37 ARCO CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31, Millions 1994 1993 1992 - -------- --------- --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 919 $ 269 $ 801 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 1,671 1,718 1,754 Dry hole expense and undeveloped leasehold amortization 251 419 331 Net gain on asset sales (3) (204) (162) Gain on issuance of stock by subsidiary (459) -- -- Income from equity investments (141) (40) (22) Dividends from equity investments 71 97 111 Transition obligation for postretirement benefits -- -- 697 Noncash provisions greater (less) than cash payments 88(a) 513(a) (207) Deferred income taxes 118 (157) 2 Changes in accounts receivable, inventories and accounts payable (169) 55 109 Changes in other working capital accounts (287) 53 (103) Other 38 39 (232)(a) ------- ------- ------- Net cash provided by operating activities 2,097 2,762 3,079 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to fixed assets, including dry hole costs (1,658) (2,070) (2,278) Net cash used by short-term investments (768) (789) (180) Proceeds from asset sales 167 582 553 Investments and long-term receivables (79) (6) (93) Other 169 46 (117) ------- ------- ------- Net cash used by investing activities (2,169) (2,237) (2,115) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (796) (886) (834) Proceeds from issuance of long-term debt 1,275 1,255 1,112 Proceeds from issuance of stock by subsidiary 453 -- -- Net cash provided (used) by notes payable (69) 30 (199) Dividends paid (885) (879) (873) Treasury stock contributed to benefit plans 56 81 110 Other (36) (27) (32) ------- ------- ------- Net cash used by financing activities (2) (426) (716) ------- ------- ------- Effect of exchange rate changes on cash 10 (55) (62) ------- ------- ------- Net increase (decrease) in cash and cash equivalents (64) 44 186 Cash and cash equivalents at beginning of year 1,458 1,414 1,228 ------- ------- ------- Cash and cash equivalents at end of year $1,394 $ 1,458 $1,414 ======= ======= =======
(a) Includes noncash unusual items of $347, $659 and ($149) in 1994, 1993 and 1992, respectively. See Notes on pages 39 through 50. 38 ARCO 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 at December 31, 1994, ARCO Chemical Company (ACC), of which ARCO owned 83.3% of the outstanding shares, and Vastar Resources, Inc. (Vastar), of which ARCO owned 82.3% of the outstanding shares. 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% and for other ventures and partnerships in which less than a controlling interest is held. Cash Equivalents 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. Cash equivalents 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 the unit-of- production or 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 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 1994. NOTE 2 UNUSUAL ITEMS During 1994, ARCO announced a restructuring program under which approximately 2,400 positions were eliminated. The program covered all operating units, excluding Lower 48 oil and gas operations, along with the corporate headquarters. ARCO provided as unusual items $347 million before tax, consisting primarily of personnel costs (pension enhancements, severance and other ancillary costs) associated with the terminations. Approximately $155 million of the accrual related to severance and other ancillary costs that will be paid from Company funds over the next two years. Approximately $110 million related to enhanced pension benefits which will be paid from the assets of qualified pension plans, not from Company funds. An additional $60 million related to enhanced non-qualified pension benefits and postretirement benefits other than pensions which are currently unfunded. These benefits will be paid after retirement and over the remaining lives of the recipients; as such, it will not be practical to track the actual payments of these benefits. In 1993, ARCO announced a reorganization of its Lower 48 oil and gas operations. ARCO provided as unusual items a pretax charge of $659 million, of which $554 million related to the writedown for sale or other disposition of oil and gas 39 ARCO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS properties and excess office space. In addition, amounts of $65 million, $35 million, and $5 million, respectively, were accrued for severance and ancillary costs, enhanced qualified pension benefits, and enhanced non-qualified pension benefits related to the elimination of approximately 1,300 positions. Through December 31, 1994, approximately 1,400 and 1,300 employees have been terminated under the 1994 and 1993 programs, respectively. Approximately $41 million and $47 million, respectively, of severance and ancillary benefits have been paid and charged against the 1994 and 1993 accruals. Payments do not necessarily correlate with the number of terminations due to the ability of employees to defer receipt of certain payments. In 1992, ARCO recognized a pretax benefit of $149 million from the settlement with Iran related to Company assets that had been nationalized in the late 1970s. ARCO also 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 certain Lyondell notes. When Lyondell repaid the notes in 1992, ARCO was released from its guarantee and accordingly recognized the gain. 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. NOTE 3 ACCOUNTING CHANGES Effective January 1, 1994, ARCO adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires investments to be carried at fair value, unless they are considered held-to-maturity securities. The effect of adopting SFAS No. 115 had no impact on 1994 net income. Effective January 1, 1992, ARCO adopted SFAS Nos. 106, 109 and 112. The cumulative effect of adopting SFAS No. 106 resulted in a charge of $435 million, or $2.70 per share, to 1992 earnings, net of income tax effects of approximately $262 million. The cumulative effect of adopting SFAS No. 109 resulted in a benefit of $43 million, or $0.27 per share. There was no cumulative effect of adopting SFAS No. 112. Excluding the cumulative effects, the effect of adopting SFAS Nos. 106, 109 and 112 was not material to 1992 net income. NOTE 4 SEGMENT INFORMATION ARCO operates primarily in the Resources (upstream) and Products (downstream) 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, styrene monomer, tertiary butyl alcohol, and methyl tertiary butyl ether. Segment information for the years ended December 31, 1994, 1993 and 1992 was as follows:
Millions 1994 1993 1992 - -------- ------- ------- ------- SALES AND OTHER OPERATING REVENUES Resources: Oil and gas $ 7,969 $ 8,357 $ 8,994 Coal 663 648 585 Products: Refining and marketing 6,529 8,603 8,461 Transportation 897 878 900 Intermediate chemicals and specialty products 3,423 3,192 3,100 Other 30 28 24 Elimination of intersegment amounts (2,959) (3,219) (3,396) ------- ------- ------- Total $16,552 $18,487 $18,668 ======= ======= =======
Intersegment sales were made at prices approximating current market values. Intersegment sales included in sales and other operating revenues were as follows:
Millions 1994 1993 1992 - -------- ------ ------ ------ Resources: Oil and gas $2,338 $2,592 $2,833 Products: Refining and marketing 21 19 16 Transportation 416 385 419 Intermediate chemicals and specialty products 154 195 104 Other 30 28 24 ------ ------ ------ Total $2,959 $3,219 $3,396 ====== ====== ======
40 ARCO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Millions 1994 1993 1992 - -------- ------- ------- ------- PRETAX SEGMENT EARNINGS Resources: Oil and gas $ 608 $ 114 $ 1,183 Coal 95 160 107 Products: Refining and marketing 303 569 547 Transportation 239 327 378 Intermediate chemicals and specialty products 502 412 396 Equity in earnings from Lyondell 111 13 8 Gain on issuance of stock by subsidiary 459 - - Unallocated expenses and other (190) (246) 50 Interest (759) (715) (762) Income taxes (387) (327) (678) Minority interest (62) (38) (36) Changes in accounting principles - - (392) ------- ------- ------- Net income $ 919 $ 269 $ 801 ======= ======= =======
Millions 1994 1993 1992 - -------- ------- ------- ------- AFTER-TAX SEGMENT EARNINGS Resources: Oil and gas(a) $ 405 $ 45 $ 816 Coal 70 107 83 Products: Refining and marketing 195 307 346 Transportation 172 189 239 Intermediate chemicals and specialty products(a) 265 239 210 Equity in earnings from Lyondell 111 13 8 Gain on issuance of stock by subsidiary 273 - - Unallocated expenses and other (57) (140) 25 Interest (515) (491) (534) Changes in accounting principles - - (392) ------- ------- ------- Net income $ 919 $ 269 $ 801 ======= ======= =======
(a) Net of minority interest.
Millions 1994 1993 1992 - -------- ------- ------- ------- TOTAL ASSETS Resources: Oil and gas $ 9,192 $ 9,349 $10,362 Coal 1,381 1,320 1,411 Products: Refining and marketing 2,841 2,789 2,830 Transportation 2,046 2,145 2,191 Intermediate chemicals and specialty products 3,737 3,502 3,599 Other 5,366 4,789 3,863 ------- ------- ------- Total $24,563 $23,894 $24,256 ======= ======= ======= ADDITIONS TO FIXED ASSETS Resources: Oil and gas $ 989 $ 1,383 $ 1,249 Coal 57 94 308 Products: Refining and marketing 376 345 315 Transportation 48 59 94 Intermediate chemicals and specialty products 186 181 295 Other 2 8 17 ------- ------- ------- Total $ 1,658 $ 2,070 $ 2,278 ======= ======= ======= DEPRECIATION, DEPLETION AND AMORTIZATION Resources: Oil and gas(a) $ 1,043 $ 1,092 $ 1,176 Coal 76 59 53 Products: Refining and marketing 191 200 178 Transportation 104 104 98 Intermediate chemicals and specialty products 235 223 199 Other 22 40 50 ------- ------- ------- Total $ 1,671 $ 1,718 $ 1,754 ======= ======= =======
(a) Excludes undeveloped leasehold amortization of $67, $98, and $110, respectively, included in exploration expense. International operations are conducted principally in the following geographic regions: Oil and gas - United Kingdom, Asia Pacific 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 1994 1993 1992 - -------- ------ ------ ------ INTERNATIONAL OPERATIONS Sales and other operating revenues: Oil and gas $1,027 $ 998 $ 952 Coal 336 304 282 Refining and marketing 2 1,920 1,794 Intermediate chemicals and specialty products 1,210 1,122 1,255 Other 30 29 23 ------ ------ ------ Total $2,605 $4,373 $4,306 ====== ====== ====== Net income (loss): Oil and gas $ 26 $ (17) $ 171(b) Coal 29 59 41 Refining and marketing 2 2 28 Intermediate chemicals and specialty products(a) 70 58 37 Other (23) (25) (26) ------ ------ ------ Total $ 104 $ 77 $ 251 ====== ====== ====== Total assets: Oil and gas $2,792 $2,691 $2,415 Coal 892 821 901 Refining and marketing - - 301 Intermediate chemicals and specialty products 1,580 1,424 1,567 Other 299 230 233 ------ ------ ------ Total $5,563 $5,166 $5,417 ====== ====== ======
(a) Includes income (losses) of equity affiliates, principally Asian joint ventures, of $2, $(2), and $(18), in 1994, 1993 and 1992, respectively. (b) Includes gain from settlement on assets nationalized by Iran (Note 2). 41 ARCO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 TAXES Taxes other than excise and income taxes for the years ended December 31, 1994, 1993 and 1992 comprised the following:
Millions 1994 1993 1992 - -------- ----- ------ ------ Property $189 $ 198 $ 205 Production/severance 306 331 389 Value added - 349 330 Other 285 269 279 ---- ------ ------ Total $780 $1,147 $1,203 ==== ====== ======
The components of the provision for taxes on income for the years ended December 31, 1994, 1993 and 1992 were as follows:
Millions 1994 1993 1992 - -------- ---- ----- ----- Federal: Current $176 $ 382 $292 Deferred 128 (159) 198 ---- ----- ---- 304 223 490 ---- ----- ---- Foreign: Current 62 69 80 Deferred (19) 13 17 ---- ----- ---- 43 82 97 ---- ----- ---- State: Current 31 33 42 Deferred 9 (11) 49 ---- ----- ---- 40 22 91 ---- ----- ---- Total provision for taxes on income $387 $ 327 $678 ==== ===== ==== Total income taxes paid in cash $447 $ 510 $675 ==== ===== ====
The deferred tax benefit in 1993 primarily resulted from book accruals associated with the Lower 48 reorganization and work force reductions. The major components of the net deferred tax liability as of December 31, 1994 and 1993 were as follows:
Millions 1994 1993 - --------- ------- ------- Depreciation, depletion and amortization $(3,648) $(3,630) Other (356) (329) ------- ------- Total deferred tax liabilities (4,004) (3,959) ------- ------- Dismantlement and environmental 522 492 Postretirement benefits 325 302 Foreign excess tax basis/loss carryforwards 208 197 Other 332 316 ------- ------- Total deferred tax assets 1,387 1,307 ------- ------- Valuation allowance (104) (127) ------- ------- Net deferred income tax liability $(2,721) $(2,779) ======= =======
ARCO has foreign loss carryforwards of $290 million which begin expiring in 1995. The valuation allowance was $102 million at December 31, 1992. 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, 1994, 1993 and 1992 were as follows:
Percent of Pretax Millions Amount Income - -------- ------ --------- 1994 Income before income taxes: Domestic $1,147 83.8 Foreign 221 16.2 ------ ----- Total $1,368 100.0 ====== ===== Tax at 35% $ 479 35.0 Increase (reduction) in taxes resulting from: Dividend exclusion (31) (2.3) Taxes on foreign income in excess of statutory rate 46 3.4 Foreign deferred tax asset recognition (30) (2.2) State income taxes (net of federal effect) 26 1.9 Tax credits (84) (6.1) Other (19) (1.4) ------ ----- Provision for taxes on income $ 387 28.3 ====== ===== 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 ====== =====
NOTE 6 INVENTORIES Inventories are recorded when purchased, produced or manufactured and are stated at the lower of cost or market. In 1994, approximately 86% of inventories, excluding 42 ARCO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 1994 and 1993 comprised the following categories:
Millions 1994 1993 - -------- ----- ----- Crude oil and petroleum products $ 172 $ 266 Chemical products 351 373 Other products 46 32 Materials and supplies 228 243 ----- ----- Total $ 797 $ 914 ===== =====
The excess of the current cost of inventories over book value was approximately $253 million and $228 million at December 31, 1994 and 1993, respectively. NOTE 7 LONG-TERM DEBT Long-term debt at December 31, 1994 and 1993 comprised the following:
Millions 1994 1993 - -------- ------ ------ 5-5/8%, due in 1997 $ 14 $ 18 5.90%, due in 2007 - 265 6-1/8%, due in 1996 102 102 8-1/4%, due in 2022 250 250 8-1/2%, due in 2012 194 250 8-3/4%, due in 2032 203 250 9% exchangeable notes, due in 1997 988 - 9%, due in 2021 286 300 9%, due in 2031 136 150 9-1/8%, due in 2011 300 300 9-1/8%, due in 2031 350 350 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 75 137 Medium-Term Notes - A Series 198 200 Medium-Term Notes - B Series 250 250 ARCO Tresop Notes 311 311 Variable rate(a), due in 2031 265 - ARCO Chemical Company: 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 French bank loans 84 94 ACNL bank loans 172 155 Vastar bank loan 1,050 1,250 Capitalized lease obligations 26 26 Other 261 287 ------ ------ Total, including debt due within one year 7,839 7,269 Less: Debt due within one year 630 165 Bonds held in sinking fund 11 15 ------ ------ Long-term debt $7,198 $7,089 ====== ======
(a) Weighted average 4.5% at December 31, 1994. Maturities and sinking fund obligations for the five years subsequent to December 31, 1994 are as follows (millions of dollars): 1995 - $630; 1996 - $1,234; 1997 - $1,275; 1998 - $177; 1999 - $139. No material amounts of long- term debt are collateralized by Company assets. In 1993, Vastar borrowed $1.25 billion principal amount under a $1.25 billion unsecured, variable rate (6.15% at December 31, 1994), revolving-term credit agreement available until 1996. During 1994, the maximum principal amount under the credit agreement was reduced to $1.05 billion. The agreement contains restrictions which, among other things, require Vastar to maintain certain financial ratios and restrict encumbrance of assets. In August 1994, ARCO issued 39.9 million 9% Exchangeable Notes (Notes) due September 15, 1997 at a price of $24.75 per note. At maturity, holders will receive, in exchange for the principal amount of the Notes, shares of Lyondell stock, or at ARCO's option, cash with an equal value. The number of shares or the amount of such cash will be determined using a formula based on the price of Lyondell common stock at the maturity of the Notes. At December 31, 1994 and 1993, approximately $360 million and $355 million, respectively, of 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 interest rate of 8.14%. ARCO periodically enters into interest rate swap agreements with the objective of managing interest rate risk by converting the interest rate on variable rate debt to a fixed rate. The fixed rate is accrued and charged to interest expense through the term of the interest rate swap agreement. At December 31, 1994, ARCO had outstanding interest rate swaps on two loans totalling 300 million Dutch guilders (approximately $172 million) due in 1997. Both swaps mature in 1997 when the related debt becomes due. The swaps effectively changed both loans' floating interest rates to fixed rates of 5.7% and 6.71%. ARCO intends to hold the swaps until maturity. NOTE 8 SHORT-TERM BORROWINGS AND BANK CREDIT FACILITIES Notes payable consist primarily of commercial paper issued to a variety of financial investors and institutions and any amounts outstanding under ARCO or ACC credit facilities. The weighted average interest rate on notes payable outstanding at December 31, 1994 and 1993 was 6.1% and 4.3%, respectively. 43 ARCO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In 1994, ARCO and certain wholly owned subsidiaries had committed bank credit facilities of approximately $3.3 billion. At December 31, 1994, $115 million was borrowed under these committed facilities. ACC maintains its own credit facility, not guaranteed by ARCO, under which it may borrow up to $300 million. At December 31, 1994, there were no borrowings against the ACC credit facility. At December 31, 1994, ARCO had letters of credit outstanding totalling approximately $330 million. NOTE 9 INTEREST EXPENSE Interest expense for the years ended December 31, 1994, 1993 and 1992 comprised the following:
Millions 1994 1993 1992 - -------- ----- ----- ---- Long-term debt $634 $573 $ 624 Short-term debt 82 92 105 Other 80 106 148 ---- ---- ----- 796 771 877 Capitalized interest (37) (56) (115) ---- ---- ----- Total interest expense $759 $715 $ 762 ==== ==== ===== Total interest paid in cash $766 $749 $ 752 ==== ==== =====
NOTE 10 FOREIGN CURRENCY TRANSACTIONS Foreign exchange transactions resulted in a net loss of $12 million in 1994 and net gains of $22 million and $1 million in 1993 and 1992, respectively. NOTE 11 FIXED ASSETS Property, plant and equipment, and related accumulated depreciation, depletion and amortization at December 31, 1994 and 1993 were as follows:
Millions 1994 1993 - -------- ------- ------- Resources: Oil and gas $19,355 $19,100 Coal 1,418 1,296 Products: Refining and marketing 4,000 3,647 Transportation 3,568 3,588 Intermediate chemicals and specialty products 3,524 3,257 Other 383 606 ------- ------- 32,248 31,494 Accumulated depreciation, depletion and amortization 16,526 15,628 ------- ------- Total $15,722 $15,866 ======= =======
Expenses for maintenance and repairs for 1994, 1993 and 1992 were $525 million, $509 million and $513 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, 1994 and 1993, there were contingent liabilities primarily with respect to guarantees of securities of other issuers of approximately $75 million and $111 million, respectively, of which approximately $41 million was indemnified at December 31, 1993. 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% of Alyeska. Alyeska and its owner companies have settled the federal and state claims and all but a handful of the lawsuits by private plaintiffs. Certain issues relating to the liability for the spill remain unresolved between the Exxon companies and Alyeska and its owner companies. ARCO and former producers of lead pigments have been named as defendants in cases filed by a municipal housing authority, 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 is also the subject or party to a number of other pending or threatened legal actions. In January 1995, the State of Montana presented to ARCO a revised demand for damages of $635 million based on alleged injuries to natural resources resulting from ARCO's mining and mineral processing businesses formerly operated by Anaconda, ARCO's predecessor, in Montana. ARCO is contesting the amount of this demand. ARCO is subject to other loss contingencies pursuant to federal, state and local environmental laws and regulations. These include possible obligations to remove or mitigate the effects on the environment of the disposal or release of certain chemical, mineral and petroleum substances at various sites, including the restoration of natural resources located at these sites and damages for loss of use and non-use values. ARCO is currently participating in environmental assessments and cleanups under these laws at federal Superfund and state-managed sites, as well as other clean-up sites, including service stations, refineries, terminals, chemical facilities, third-party landfills, former nuclear processing facilities, sites associated with discontinued operations and sites formerly owned by ARCO. ARCO may in the future be involved in additional environmental 44 ARCO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS assessments and cleanups, including the restoration of natural resources and damages for loss of use and non-use values. The amount of such future costs will depend on such factors as the unknown nature and extent of contamination 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. In addition, environmental loss contingencies include claims for personal injuries allegedly caused by exposure to toxic materials manufactured or used by ARCO. ARCO continues to estimate the amount of these costs in periodically establishing reserves based on progress made in determining the magnitude of remediation costs, experience gained from sites on which remediation has been completed, the timing and extent of remedial actions required by the applicable governmental authorities and an evaluation of the amount of ARCO's liability considered in light of the liability and financial wherewithal of the other responsible parties. At December 31, 1994, the environmental remediation accrual was $670 million. As the scope of ARCO's obligations becomes more clearly defined, there may be changes in these estimated costs, which might result in future charges against ARCO's earnings. ARCO's environmental remediation accrual covers federal Superfund and state- managed sites as well as other clean-up sites, including service stations, refineries, terminals, chemical facilities, third-party landfills, former nuclear processing facilities, sites associated with discontinued operations and sites formerly owned by ARCO. ARCO has been named a potentially responsible party (PRP) for 126 sites. The number of PRP sites in and of itself does not represent a relevant measure of liability, because the nature and extent of environmental concerns varies from site to site and ARCO's share of responsibility varies from sole responsibility to very little responsibility. ARCO reviews all of the PRP sites, along with other sites as to which no claims have been asserted, in estimating the amount of the accrual. ARCO's future costs at these sites could exceed the amount accrued by as much as $1 billion. Approximately half of the accrual related to sites associated with ARCO's discontinued operations, primarily mining activities in the states of Montana, Utah and New Mexico. Another significant component related to currently and formerly owned chemical, nuclear processing, and refining and marketing facilities, and other sites which received wastes from these facilities. The remainder related to other sites with reserves ranging from $1 million to $10 million per site. No one site represents more than 15 percent of the total accrual. Substantially all amounts accrued are expected to be paid out over the next five to six years. Claims for recovery of remediation costs already incurred and to be incurred in the future have been filed against various insurance companies and other third parties. These claims have not 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. Although any ultimate liability arising from any of the matters described herein could result in significant expenses or judgments that, if aggregated and assumed to occur within a single fiscal year, would be material to ARCO's results of operations, the likelihood of such occurrence is considered remote. On the basis of management's best assessment of the ultimate amount and timing of these events, such expenses or judgments are not expected to have a material adverse effect on ARCO's consolidated financial statements. The operations and consolidated financial position of ARCO continue to be affected from time to time in varying degrees by domestic and foreign political developments as well as legislation, regulations and litigation pertaining to restrictions on production, imports and exports, tax increases, environmental regulations, cancellation of contract rights and expropriation of property. Both the likelihood of such occurrences and their overall effect on ARCO vary greatly and are not predictable. These uncertainties are part of a number of items that ARCO has taken and will continue to take into account in periodically establishing reserves. 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 accrues pension costs based on an actuarial valuation for each plan and funds the plans through contributions to trust funds that are kept apart from Company funds. 45 ARCO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth the plans' funded status and amounts recognized in the balance sheet at December 31, 1994 and 1993:
Assets Exceed Accumulated Accumulated Benefits Millions Benefits Exceed Assets - -------- ------------- ------------- 1994 Actuarial present value of benefit obligations: Vested benefit obligation $1,692 $ 152 ------ ----- Accumulated benefit obligation $1,799 $ 171 ------ ----- Projected benefit obligation $2,105 $ 230 Plan assets at fair value, primarily stocks and bonds 2,377 - ------ ----- Projected benefit obligation (in excess of) or less than plan assets 272 (230) Unrecognized net loss 121 82 Prior service cost not yet recognized in net periodic pension cost 149 25 Remaining unrecognized (asset) obligation from January 1, 1986 (319) 13 Adjustment required to recognize minimum liability - (63) ------ ----- Prepaid pension cost (liability) recognized in the balance sheet $ 223 $(173) ====== ===== 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 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 (liability) recognized in the balance sheet $ 234 $(161) ====== =====
Pension costs related to ARCO-sponsored plans, on a pre-tax basis, including amortization of unfunded projected benefit obligations for the years ended December 31, 1994, 1993 and 1992 were as follows:
Millions 1994 1993 1992 - -------- ----- ----- ----- Service cost-benefits earned during the period $ 81 $ 59 $ 51 Interest cost on projected benefit obligation 183 173 133 Actual loss (return) on plan assets 65 (483) (91) Net amortization and deferral (344) 220 (127) ----- ----- ----- Net periodic pension benefit $ (15) $ (31) $ (34) ===== ===== =====
In addition to this pension benefit, in 1994 and 1993 ARCO recorded $143 million and $61 million, respectively, before tax as additional pension cost in connection with the work force reductions in those years. ARCO's assumptions used as of December 31, 1994, 1993 and 1992 in determining the pension cost and pension liability were as follows:
Percent 1994 1993 1992 - ------- ---- ---- ---- Discount rate 8.25 7.25 8.5 Rate of salary progression 5.0 5.0 5.0 Long-term rate of return on assets 10.5 10.5 10.5
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% 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. The following table sets forth the plans' combined postretirement benefit liability as of December 31, 1994 and 1993:
Health Life Millions Care Insurance Total - -------- ------ --------- ----- 1994 Accumulated postretirement benefit obligation: Retirees $ 512 $153 $ 665 Employees fully eligible 25 7 32 Other active participants 156 34 190 ----- ---- ----- Total 693 194 887 Unrecognized gain (loss) (53) 9 (44) ----- ---- ----- Accrued postretirement benefit cost recognized in the balance sheet $ 640 $203 $ 843 ===== ==== ===== 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 ===== ==== =====
46 ARCO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARCO charges postretirement benefit costs as accrued, based on actuarial calculations for each plan. Net annual postretirement benefit costs for the years ended December 31, 1994, 1993 and 1992 included the following components:
Health Life Millions Care Insurance Total - --------- ------ --------- ----- 1994 Service cost-benefits earned during the period $17 $ 4 $21 Interest cost on accumulated postretirement benefit obligation 54 15 69 Net amortization 3 - 3 --- --- --- Net postretirement benefit cost $74 $19 $93 === === === 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, in 1994 and 1993, ARCO recorded $24 million and $9 million, respectively, before tax as additional postretirement benefit expense in connection with workforce reductions. The significant assumptions used in determining postretirement benefit cost and the accumulated postretirement benefit obligation were as follows:
Percent 1994 1993 1992 - -------- ---- ---- ---- Discount rate 8.25 7.25 8.5 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% for 1992 to 1996, 8% for 1997 to 2001, and 6% 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, 1994, by approximately 12%, and the aggregate of the service and interest cost components of net annual postretirement benefit cost by approximately 14%. NOTE 15 STOCKHOLDER'S EQUITY Detail of ARCO's capital stock as of December 31, 1994 and 1993 was as follows:
1994 1993 -------- --------- $3.00 Cumulative convertible preference stock, par $1: Shares authorized 78,089 94,316 Shares issued and outstanding 73,721 81,309 Aggregate value in liquidation - (thousands) $ 5,898 $ 6,505 $2.80 Cumulative convertible preference stock, par $1: Shares authorized 833,776 942,016 Shares issued and outstanding 794,796 854,053 Aggregate value in liquidation - (thousands) $ 55,636 $ 59,784 Common stock, par $2.50: Shares authorized 600,000,000 600,000,000 Shares issued 160,800,137 160,746,125 Shares outstanding 160,753,966 159,953,980 Shares held in treasury 46,171 792,145
Changes in preference stocks outstanding in 1994, 1993 and 1992 were due 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. 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, 1994. The balance in ARCO's common stock at December 31, 1994, 1993 and 1992 was $402 million. Detail of changes in treasury stock in 1994, 1993 and 1992 was as follows:
Millions - -------- Balance, January 1, 1992 $ 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 Treasury stock contributed to benefit plans (56) Conversions (22) ----- Balance, December 31, 1994 $ 5 =====
The net decrease in capital in excess of par value of stock in 1994, 1993 and 1992 of $14 million, $15 million and $12 million, respectively, was due primarily to the conversion of preference stock to common stock. 47 ARCO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 1994, shares of ARCO's authorized and unissued common stock were reserved as follows: Conversions: $3.00 Preference stock 501,303 $2.80 Preference stock 1,907,510 Stock option plans 6,353,465 Employee benefit plans 9,974,482 ---------- Total 18,736,760 ==========
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, 1994, 1993 and 1992 were 163.2 million, 162.4 million and 161.5 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 1994, 1993 and 1992 were as follows: Balance, January 1, 1992 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 Granted 573,865 Exercised (average option price per share: $75.17) (75,019) Cancelled (87,286) --------- Balance, December 31, 1994 3,573,742 ========= At December 31, 1994: Shares exercisable 2,737,756 Shares available for option 2,779,723 (1,986,670 at December 31, 1993) Average option price per share: Shares under option $104.26 Shares exercisable $103.57
NOTE 18 SUPPLEMENTAL CASH FLOW INFORMATION The following is supplemental cash flow information for the years ended December 31, 1994, 1993 and 1992:
Millions 1994 1993 1992 - -------- ------- ------ ------- Short-term investments: Gross maturities $ 5,952 $ 5,428 $ 4,796 Gross purchases (6,720) (6,217) (4,976) ------- ------- ------- Net cash used $ (768) $ (789) $ (180) ======= ======= ======= Notes payable: Gross proceeds $ 9,516 $ 8,568 $ 7,380 Gross repayments (9,585) (8,538) (7,579) ------- ------- ------- Net cash provided (used) $ (69) $ 30 $ (199) ======= ======= ======= Gross noncash provisions charged to income $ 888 $ 1,148 $ 553 Cash payments of previously accrued items (800) (635) (760) ------- ------- ------- Noncash provisions greater (less) than cash payments $ 88 $ 513 $ (207) ======= ======= =======
NOTE 19 LEASE COMMITMENTS Capital lease obligations are recorded at the present value of future rental payments. The related assets are amortized on a straight-line basis. At December 31, 1994, future minimum rental payments due under leases were as follows:
Capital Operating Millions Leases Leases - -------- ------- --------- 1995 $ 3 $162 1996 3 129 1997 3 106 1998 3 87 1999 3 59 Later years 73 307 --- ---- Total minimum lease payments 88 $850 ==== Imputed interest (rates ranging from 9.75% to 12.00%) 62 --- Present value of minimum lease payments included in long-term debt $26 ===
Minimum future rental income under noncancellable subleases at December 31, 1994 amounted to $108 million. Operating lease net rental expense for the years ended December 31, 1994, 1993 and 1992 was as follows:
Millions 1994 1993 1992 - -------- ---- ---- ---- Minimum rentals $218 $220 $206 Contingent rentals 2 1 1 Sublease rental income (12) (15) (18) ---- ---- ---- Net rental expense $208 $206 $189 ==== ==== ====
48 ARCO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. NOTE 20 LYONDELL PETROCHEMICAL COMPANY Lyondell is engaged in the manufacture and marketing of basic commodity chemicals, including ethylene, propylene, methanol and aromatics, and, through its approximately 90% interest in LYONDELL-CITGO Refining Company, the refining and marketing of petroleum products. At December 31, 1994, ARCO owned 49.9% 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, 1994, was $1,033 million. Summarized financial information for Lyondell was as follows:
Millions 1994 1993 1992 - --------- ------ ------ ------ Year ended December 31: Revenues(a) $3,857 $3,850 $4,809 Operating income $ 424 $ 93 $ 104 Income before income taxes and cumulative effect of accounting changes $ 349 $ 16 $ 35 Cumulative effect of changes in accounting principles $ - $ 22 $ (10) Net income $ 223 $ 26 $ 16 ------ ------ ------ ARCO's equity in net income of Lyondell $ 111 $ 13 $ 8 ------ ------ ------ Cash dividends received from Lyondell $ 36 $ 54 $ 72 ------ ------ ------ At December 31: Current assets $ 697 $ 523 $ 568 Noncurrent assets $ 966 $ 708 $ 647 Current liabilities $ 433 $ 299 $ 345 Long-term debt $ 707 $ 717 $ 725 Other liabilities $ 192 $ 179 $ 151 Minority interest $ 268 $ 124 $ - Stockholders' equity (deficit)(b) $ 63 $ (88) $ (6)
(a) Includes $314, $278 and $329 of sales to ARCO in 1994, 1993 and 1992, respectively, which approximated 5%, 4% and 5% of ARCO' purchases in those years. (b) ARCO's investment in Lyondell comprises 49.9% of Lyondell's stockholders' equity (deficit) plus $72 of dividends received in excess of basis of investment. NOTE 21 PUBLIC OFFERING OF VASTAR COMMON STOCK In September 1993, ARCO established Vastar, a wholly owned subsidiary of ARCO. Effective October 1, 1993, ARCO conveyed to Vastar beneficial title to certain producing properties together with certain developed and undeveloped acreage. Vastar is primarily engaged in the exploration for and the development and production of natural gas. In July 1994, Vastar completed an initial public offering of 17,250,000 shares of its common stock at $28 per share. ARCO recognized an after-tax gain of $273 million from this transaction. At December 31, 1994 ARCO's 80,000,001 shares represent 82.3% of the outstanding common stock. NOTE 22 INVESTMENTS At December 31, 1994, investments were composed principally of U.S. Treasury securities, corporate debt instruments, and municipal securities and were included in cash equivalents or short-term investments depending on their maturities, which generally ranged from one day to one year. At December 31, 1994, investments in debt securities classified as held-to-maturity were recorded at amortized cost while investments in debt securities classified as available-for-sale are reported at fair value, with unrealized holding gains and losses, net of tax, reported in a separate component of stockholders' equity. At December 31, 1993, all investments in debt securities were stated at cost, which approximated fair value. The following summarizes investments in debt securities at December 31, 1994:
Millions Available-for-Sale Held-to-Maturity - --------- ------------------ ---------------- Aggregate fair value $1,879 $ 1,239 Gross unrealized holding losses $ 62 $ - Amortized cost $1,941 $ 1,239 Gross realized losses on sales $ 23 $ - Gross purchases $5,300 $40,500 Gross sales $4,700 $ - Gross maturities $ 50 $40,800
For purposes of determining gross realized losses, the cost of available-for- sale securities sold is based upon the specific identification method. NOTE 23 FINANCIAL INSTRUMENTS AND FAIR VALUE ARCO does not hold or issue financial instruments for trading purposes. ARCO enters into various types of foreign currency forward and swap contracts to hedge foreign currency transactions. Foreign currency forward contracts are used predominantly to hedge U.S. dollar denominated debt issued by a foreign subsidiary. A foreign currency swap contract is used to hedge debt denominated in Japanese yen. In addition, ARCO uses a combination of foreign currency forwards and swaps to hedge anticipated future cash flows from overseas operations. These foreign currency contracts generally do not have maturities exceeding one year. Gains and losses on foreign exchange contracts 49 ARCO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS generally offset gains and losses on assets, liabilities, and transactions being hedged. At December 31, 1994 and 1993, the total notional amounts of foreign currency contracts (principally European currencies, Australian dollars and Japanese yen) were approximately $760 million and $700 million, respectively. ARCO also uses various hedging arrangements to reduce exposure to price risk for future crude oil and natural gas transactions. Gains and losses are netted and deferred until realized in sales and other operating revenues as the physical production required by the contracts is delivered. At December 31, 1994 and 1993, the notional amounts of open contracts were not significant. Explicitly deferred gains and losses arising from hedging activities of anticipated transactions are generally included in the balance sheet as either other current assets or other current liabilities. At December 31, 1994 and 1993, the carrying and fair values of interest rate swaps were not significant. At December 31, 1994 and 1993, the carrying value and estimated fair value of ARCO's other financial instruments were as follows:
1994 1993 Carrying Fair Carrying Fair Millions Value Value Value Value - -------- -------- ------ -------- ------ Non-Derivatives: Short-term investments $2,991 $2,991 $2,289 $2,289 Long-term investments $ 348 $1,279 $ 266 $1,087 Other investments and long-term receivables $ 297 $ 297 $ 221 $ 221 Notes payable $1,478 $1,478 $1,510 $1,510 Long-term debt, including current maturities $7,828 $7,991 $7,254 $8,307 Derivatives: Foreign currency forward contracts $ (16) $ (16) $ (12) $ (12) Foreign currency swaps $ 83 $ 83 $ 80 $ 80 Oil & gas price swaps $ 5 $ 5 $ (1) $ (1)
Short-term investments and notes payable were valued at their carrying amounts, which were reasonable estimates of fair value due to the relatively short period to maturity. Investments and long-term receivables were valued at quoted market prices if available. For unquoted investment securities, which were predominantly equity interests in associated entities, the reported fair value was estimated on the basis of financial and other information. 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. The fair value of foreign currency contracts and interest rate swaps represented the amount to be exchanged if the existing contracts had been settled at year end and were estimated by obtaining quotes from brokers. ARCO is exposed to credit risk related to its financial instruments in the event of non-performance by the counterparties. ARCO does not generally require collateral or other security to support these financial instruments. The counterparties to these instruments are major institutions deemed creditworthy by the Company; ARCO does not anticipate nonperformance by the counterparties. NOTE 24 UNAUDITED QUARTERLY RESULTS
Millions, except per share amounts 1994 1993 - ---------------------------------- ------- ------- Sales and other operating revenues (including excise taxes) Quarter ended: March 31 $ 3,800 $ 4,507 June 30 4,174 4,670 September 30 4,271 4,553 December 31 4,307 4,757 ------- ------- Total $16,552 $18,487 ======= ======= Income (loss) before gain on issuance of stock by subsidiary, income taxes and minority interest Quarter ended: March 31 $ 255 $ 442 June 30 20(a) 461 September 30 277 233 December 31 357 (502)(a) ------- ------- Total $ 909 $ 634 ======= ======= Net income (loss) Quarter ended: March 31 $ 149 $ 260 June 30 24(a) 271 September 30 435 68 December 31 311 (330)(a) ------ ------- Total $ 919 $ 269 ====== ======= Earned (loss) per share Quarter ended: March 31 $ 0.92 $ 1.60 June 30 $ 0.14(a) $ 1.67 September 30 $ 2.67 $ 0.42 December 31 $ 1.90 $ (2.06)(a)
(a) See Note 2. 50 ARCO 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) U.S. International U.S. International ----- ------------- ------ ------------- January 1, 1992: 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 December 31, 1994: Proved reserves 2,246 222 4,615 3,493 Proved developed reserves 1,915 87 4,301 1,142
Included in ARCO's reserves are 100% of the reserves of Vastar, a consolidated subsidiary of which ARCO owned 82.3% at December 31, 1994. Vastar's reserves comprised 4% and 43% of U.S. petroleum liquids and natural gas, respectively, at December 31, 1994. 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. The changes in proved reserves for the years ended December 31, 1992, 1993 and 1994 were as follows:
Petroleum Liquids Natural Gas (million barrels) (billion cubic feet) U.S. International U.S. International ----- ------------- ------ ------------- Reserves at January 1, 1992 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 Revisions of estimates 85 (19) 94 31 Improved recovery 90 - 13 - Purchases of minerals-in-place 11 - 13 82 Extensions and discoveries 21 75 232 291 Production (216) (26) (350) (187) Consumed in production - - (78) (4) Sales of minerals-in-place (4) (14) (34) - ----- --- ----- ----- Reserves at December 31, 1994 2,246 222 4,615 3,493 ===== === ===== =====
Significant changes to proved oil and gas reserves during 1994 were due to the addition of reserves from an enhanced oil recovery project at Kuparuk, from the Villano field in Ecuador, and the Trent and Tyne gas fields in the North Sea. 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% 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 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, 51 ARCO SUPPLEMENTAL INFORMATION (UNAUDITED) there are a number of regulatory, financial, legal and marketing questions regarding the projects that remain unresolved. ARCO continues to study various options for marketing North Slope gas. However, ARCO Alaska believes that market conditions are not likely to permit implementation of any large gas sales projects 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, 1994, 1993 and 1992 were as follows:
Proved Properties Unproved Properties Millions U.S. International U.S. International - -------- ------- ------------- ---- ------------- 1994 Gross $14,353 $3,998 $510 $231 Accumulated depreciation, depletion and amortization 8,963 2,100 328 8 ------- ------ ---- ---- Net $ 5,390 $1,898 $182 $223 ======= ====== ==== ==== 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 ======= ====== ==== ====
Costs, both capitalized and expensed, incurred in oil and gas producing activities during the three years ended December 31, 1994, 1993 and 1992 were as follows:
Millions U.S. International Total - -------- ---- ------------- ----- 1994 Property acquisition costs: Proved properties $ - $ 1 $ 1 Unproved properties $ 38 $ 23 $ 61 Exploration costs $180 $237 $417 Development costs $363 $290 $653 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
Results of operations from oil and gas producing activities (including operating overhead) for the three years ended December 31, 1994, 1993 and 1992 were as follows:
Millions U.S. International Total - -------- ------ ------------- ------ 1994 Revenues: Sales $1,421 $859 $2,280 Transfers 1,456 - 1,456 Other 74 41 115 ------ ---- ------ 2,951 900 3,851 Production costs 1,166 199 1,365 Exploration expenses 277 178 455 Depreciation, depletion and amortization 731 275 1,006 Other operating expenses 251 171 422 ------ ---- ------ 526 77 603 Income tax expense (143) (43) (186) ------ ---- ------ Results of operations from production activities $ 383 $ 34 $ 417 ====== ==== ====== 1993 Revenues: Sales $1,639 $807 $2,446 Transfers 1,616 - 1,616 Other 48 31 79 ------ ---- ------ 3,303 838 4,141 Production costs 1,313 194 1,507 Exploration expenses 457 210 667 Depreciation, depletion and amortization 719 260 979 Other operating expenses 209 148 357 ------ ---- ------ 605 26 631 Income tax expense (206) (49) (255) ------ ---- ------ Results of operations from production activities $ 399 $(23) $ 376 ====== ==== ====== 1992 Revenues: Sales $2,157 $800 $2,957 Transfers 1,842 - 1,842 Other 77 41 118 ------ ---- ------ 4,076 841 4,917 Production costs 1,481 227 1,708 Exploration expenses 382 185 567 Depreciation, depletion and amortization 914 235 1,149 Other operating expenses 239 139 378 ------ ---- ------ 1,060 55 1,115 Income tax expense (346) (21) (367) ------ ---- ------ Results of operations from production activities $ 714 $ 34 $ 748 ====== ==== ======
The difference between the above results of operations 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, the exclusions of gains on property sales and unusual items related to the oil and gas operations. 52 ARCO SUPPLEMENTAL INFORMATION (UNAUDITED) The standardized measure of discounted estimated future net cash flows related to proved oil and gas reserves at December 31, 1994, 1993 and 1992 was as follows:
Billions U.S. International Total - --------- ------ ------------- ----- 1994 Future cash inflows $30.6 $11.3 $41.9 Future development and production costs 13.9 3.9 17.8 Future income tax expense 5.4 2.7 8.1 ----- ----- ----- Future net cash flows 11.3 4.7 16.0 10% annual discount 4.9 2.2 7.1 ----- ----- ----- Standardized measure of discounted future net cash flows $ 6.4 $ 2.5 $ 8.9 ===== ===== ===== 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 ===== ===== =====
Primary changes in the standardized measure of discounted estimated future net cash flows for the years ended December 31, 1994, 1993 and 1992 were as follows:
Billions 1994 1993 1992 - --------- ----- ----- ----- Sales and transfers of oil and gas, net of production costs $(2.3) $(2.5) $(2.9) Extensions, discoveries and improved recovery, less related costs 1.0 .4 1.0 Revisions of estimates of reserves proved in prior years: Quantity estimates .2 - .3 Net changes in price and production costs 4.9 (4.2) 2.1 Purchases/Sales .1 (.3) (.4) Other (.2) .1 .5 Accretion of discount .8 1.2 1.0 Development costs incurred during the period .7 .9 .8 Net change in income taxes (1.9) 1.6 (1.0) ----- ----- ----- Net change $ 3.3 $(2.8) $ 1.4 ===== ===== =====
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. Estimates of future net cash flows presented do not represent management's assessment of future profitability or future cash flows 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. It should be recognized that applying current costs and prices and a 10% standard discount rate does not convey absolute value. The discounted amounts arrived at are only one measure of the value of proved reserves. Coal Operations Supplemental operating statistics for the coal operations of ARCO for the three years ended December 31, 1994, 1993 and 1992 were as follows:
1994 1993 1992 ------ ------ ------ Coal shipments - thousand tons: U.S. 38,322 37,499 30,634 International 11,235 10,246 9,158 ------ ------ ------ Total 49,557 47,745 39,792 ====== ====== ====== Coal reserves - million tons recoverable: U.S. 1,279 1,296 1,236 International 227 214 232 ------ ------ ------ Total 1,506 1,510 1,468 ====== ====== ====== Average market price per ton of coal: U.S. $ 8.52 $ 9.12 $ 9.79 International $29.90 $29.69 $30.84 Composite price $13.37 $13.53 $14.64
53 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 1, 1995, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1994, 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 Restated Certificate of Incorporation of Atlantic Richfield Company as of June 27, 1994, filed as Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarterly pe- riod ended June 30, 1994, filed with the Securities and Ex- change Commission (the "Commission") under File No. 1-1196 and incorporated herein by reference. 3.2 By-Laws of Atlantic Richfield Company as amended through Janu- ary 23, 1989, filed as an exhibit, bearing the same number, to the Company's Form 10-K Report for the year 1993, File No. 1-1196, and incorporated herein by reference. 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 quarterly pe- riod ended June 30, 1985, File No. 1-1196, and incorporated herein by reference. 54 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 au- thorized 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 refer- ence. 10.3* Atlantic Richfield Executive Medical Insurance Plan-Summary Plan Description, as in effect January 1, 1994, filed as an exhibit, bearing the same number, to the Company's Form 10-K Report for the year 1993, File No. 1-1196, and incorporated herein by reference. 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. 10.4(c)* Amendment No. 2 to Atlantic Richfield Company Executive SupplementarySavings Plan II as amended and effective on July 1, 1994, filed herewith. 10.5* Atlantic Richfield Company Policy on Financial Counseling and Individual Income Tax Service, as revised effective January 1, 1994, filed herewith. 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 February 28, 1994, filed herewith. 55 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 28, 1994, filed herewith. 10.8* Atlantic Richfield Company Executive Life Insurance Plan-Sum- mary Plan Description, as in effect January 1, 1994, filed as an exhibit bearing the same number, to the Company's Form 10-K Report for the year 1993, File No. 1-1196, and incorporated herein by reference. 10.9* Atlantic Richfield Company Executive Long-Term Disability Plan--Summary Plan Description, as in effect January 1, 1994, filed as an exhibit bearing the same number, to the Company's Form 10-K Report for the year 1993, File No. 1-1196, and in- corporated herein by reference. 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 L.L.P. 27 Financial Data Schedule. Copies of exhibits will be furnished upon prepayment of 25 cents per page. Requests should be addressed to the Corporate Secretary. - -------- * Management compensatory plans filed as exhibits hereto pursuant to Item 14(c) of Form 10-K. (b) REPORTS ON FORM 8-K: No Current Reports on Form 8-K were filed during the quarter ended December 31, 1994, and thereafter through February 28, 1995. 56 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 10, 1995, on our audits of the consolidated financial statements and financial statement schedule of Atlantic Richfield Company as of December 31, 1994 and 1993 and for each of the three years in the period ended December 31, 1994, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Los Angeles, California February 28, 1995 57 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 By /s/ Mike R. Bowlin ------------------------------------- Mike R. Bowlin President, Chief Executive Officer and Chief Operating Officer FEBRUARY 27, 1995 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 27, 1995 - ------------------------------------- Board and Director Lodwrick M. Cook /s/ Mike R. Bowlin President, Chief February 27, 1995 - ------------------------------------- Executive Officer, Mike R. Bowlin Chief Operating Principal executive officer Officer and Director /s/ Ronald J. Arnault Executive Vice February 27, 1995 - ------------------------------------- President, Chief Ronald J. Arnault Financial Officer Principal financial officer and Director /s/ Anthony G. Fernandes Executive Vice February 27, 1995 - ------------------------------------- President and Anthony G. Fernandes Director /s/ William E. Wade, Jr. Executive Vice February 27, 1995 - ------------------------------------- President and William E. Wade, Jr. Director
58
SIGNATURE TITLE DATE --------- ----- ---- /s/ Frank D. Boren Director February 27, 1995 - ------------------------------------- Frank D. Boren /s/ Richard H. Deihl Director February 27, 1995 - ------------------------------------- Richard H. Deihl /s/ John Gavin Director February 27, 1955 - ------------------------------------- John Gavin /s/ Hanna H. Gray Director February 27, 1995 - ------------------------------------- Hanna H. Gray /s/ Philip M. Hawley Director February 27, 1995 - ------------------------------------- Philip M. Hawley /s/ Kent Kresa Director February 27, 1995 - ------------------------------------- Kent Kresa /s/ David T. McLaughlin Director February 27, 1995 - ------------------------------------- David T. McLaughlin /s/ John B. Slaughter Director February 27, 1995 - ------------------------------------- John B. Slaughter /s/ Hicks B. Waldron Director February 27, 1995 - ------------------------------------- Hicks B. Waldron /s/ Henry Wendt Director February 27, 1995 - ------------------------------------- Henry Wendt /s/ Allan L. Comstock Vice President and February 27, 1995 - ------------------------------------- Controller Allan L. Comstock Principal accounting officer
59 SCHEDULE II ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE II--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 1994 Amounts deducted from applicable assets: Accounts receivable....... $ 14 $ 2 $-- $ 1(a) $ 15 ---- ---- --- ---- ---- Affiliated companies accounted for on the equity method............ $ 8 $ -- $-- $ -- $ 8 ---- ---- --- ---- ---- Other investments and long-term receivables.... $ 50 $ -- $-- $ -- $ 50 ---- ---- --- ---- ---- Reserves included in other deferred liabilities and credits and other current liabilities: Dismantlement, restoration and reclamation.......... $788 $ 87 $-- $ 27 $848 ---- ---- --- ---- ---- Reduction in force........ $ 91 $179 $-- $ 93 $177 ---- ---- --- ---- ---- Insurance ................ $185 $ 56 $-- $ 39 $202 ---- ---- --- ---- ---- Environmental remediation. $648 $138 $-- $116 $670 ---- ---- --- ---- ---- Other..................... $326 $132 $-- $209 $249 ---- ---- --- ---- ---- 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 ---- ---- --- ---- ----
(See footnotes on following page.) 60 SCHEDULE II (CONTINUED) ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE II--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 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 ---- ---- --- ---- ----
- -------- (a) Write-off for uncollectible accounts, net of recoveries. 61 EXHIBIT INDEX EXHIBIT: DESCRIPTION 3.1 Restated Certificate of Incorporation of Atlantic Rich- field Company as of June 27, 1994, filed as Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quar- terly period ended June 30, 1994, filed with the Securi- ties and Exchange Commission (the "Commission") under File No. 1-1196 and incorporated herein by reference. 3.2 By-Laws of Atlantic Richfield Company as amended through January 23, 1989, filed as an exhibit, bearing the same number, to the Company's Form 10-K Report for the year 1993, File No. 1-1196, and incorporated herein by refer- ence. 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 quarterly period ended June 30, 1985, File No. 1-1196, and incorporated herein by reference. 4.3 Indenture, dated as of January 1, 1992, between the Com- pany and The Bank of New York, filed as an exhibit, bear- ing the same number, to the Company's Registration State- ment on Form S-3 (No. 33-44925), filed with the Commis- sion on January 6, 1992, and incorporated herein by ref- erence. 4.4 Instruments defining the rights of holders of long-term debt which is not registered under the Securities Ex- change 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 Commission upon request. 10.1(a) Atlantic Richfield Company Supplementary Executive Re- tirement Plan, as adopted by the Board of Directors of the Company on March 26, 1990, and effective on October 1, 1990, filed as Exhibit 10.2 to the Company's Form 10-K Report for the year 1990, File No. 1-1196, and incorpo- rated herein by reference. 10.1(b) Amendment No. 1 to Atlantic Richfield Company Supplemen- tary 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 Ex- hibit 10.3 to the Company's Form 10-K Report for the year 1990, File No. 1-1196, and incorporated herein by refer- ence. 10.2(b) Amendment No. 1 to Atlantic Richfield Company Executive Deferral Plan effective July 27, 1992, filed as an exhib- it, bearing the same number, to the Company's Form 10-K Report for the year 1992, File No. 1-1196, and incorpo- rated herein by reference. EXHIBIT: DESCRIPTION 10.3 Atlantic Richfield Executive Medical Insurance Plan-Sum- mary Plan Description, as in effect January 1, 1994, filed as an exhibit, bearing the same number, to the Company's Form 10-K Report for the year 1993, File No. 1-1196, and incorporated herein by reference. 10.4(a) Atlantic Richfield Company Executive Supplementary Sav- ings 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 incorpo- rated herein by reference. 10.4(b) Amendment No. 1 to Atlantic Richfield Company Executive Supplementary 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. 10.4(c) Amendment No. 2 to Atlantic Richfield Company Executive Supplementary Savings Plan II as amended and effective on July 1, 1994, filed herewith. 10.5 Atlantic Richfield Company Policy on Financial Counseling and Individual Income Tax Service, as revised effective January 1, 1994, filed herewith. 10.6 Annual Incentive Plan, as adopted by the Board of Direc- tors of the Company on November 26, 1984, and effective on that date, as amended through February 28, 1994, filed herewith. 10.7 Atlantic Richfield Company's 1985 Executive Long-Term In- centive Plan, as adopted by the Board of Directors of the Company on May 28, 1985, and effective on that date, as amended through February 28, 1994, filed herewith. 10.8 Atlantic Richfield Company Executive Life Insurance Plan-Summary Plan Description, as in effect January 1, 1994, filed as an exhibit bearing the same number, to the Company's Form 10-K Report for the year 1993, File No. 1-1196, and incorporated herein by reference. 10.9 Atlantic Richfield Company Executive Long-Term Disability Plan-Summary Plan Description, as in effect January 1, 1994, filed as an exhibit bearing the same number, to the Company's Form 10-K Report for the year 1993, File No. 1-1196, and incorporated herein by reference. 10.10 Form of Indemnity Agreement adopted by the Board of Di- rectors on January 26, 1987 and executed in February 1987 by the Company and each of its directors and officers, included in Exhibit A to the 1987 Proxy Statement (filed with the Commission under File No. 1-1196) and incorpo- rated 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. EXHIBIT: DESCRIPTION 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 pe- riod ended March 31, 1993, File No. 1-1196, and incorpo- rated herein by reference. 10.13(a) Stock Option Plan for Outside Directors effective Decem- ber 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 Statement filed with the Commission under File No. 1-1196 and incorporated herein by reference. 22 Subsidiaries of the Registrant. 23 Consent of Coopers & Lybrand L.L.P. 27 Financial Data Schedule. EX-10.4(C) 2 AMEND. NO. 2 TO ARCO ESSP II EXHIBIT 10.4(c) AMENDMENT NO. 2 TO ATLANTIC RICHFIELD COMPANY EXECUTIVE SUPPLEMENTARY SAVINGS PLAN II Pursuant to the power of amendment reserved therein, the following amendment is hereby made to the Atlantic Richfield Company Executive Supplementary Savings Plan II (the "Plan") effective as of the dates indicated. 1. Effective July 1, 1994, Subparagraph 3.5(b)(ii) of the Plan is amended to read as follows: "(ii) Has an annual Base Pay which is not less than $150,000; or" 2. Effective October 1, 1990, Section 8 of the Plan is amended to read as follows: "Section 8. Time of Payment of Benefit 8.1 Each benefit to which an Employee is entitled for a Plan Year shall be paid in a single cash payment to the Employee, except as provided in the following paragraph. 8.2 Prior to the commencement of each Plan Year, prospective participants shall be offered the right to elect irrevocably to defer all or a portion or portions of the payment of their awards for the Plan Year pursuant to the terms and conditions of the Atlantic Richfield Executive Deferral Plan." 3. Effective October 1, 1990, Section 9 of the Plan is deleted and Sections 10, 11, 12, 13 and 14 are designated as Sections 9, 10, 11, 12 and 13, respectively. 4. Effective October 1, 1990, Subsections 12.2, 12.3, and 12.4 are renumbered as Subsections 12.3, 12.4 and 12.5 and a new Subsection 12.2 is added to the Plan to read as follows: 1 "12.2 Grantor Trust. The Company has established a grantor trust to aid in accumulating the amounts necessary to pay any amount awarded to any participant for any Plan Year, or any award deferred pursuant to Section 8 or any interest credited thereon. All awards, and any interest credited thereon, shall be paid from the general funds of the Company to the extent not paid from the grantor trust. Under no circumstances shall a participant or other person have any interest whatsoever in any particular property or assets of the Company as a result of this Plan or any award made thereunder." Executed this 27th day of January, 1995. ATTEST ATLANTIC RICHFIELD COMPANY /s/ ARMINEH SIMONIAN /s/ JOHN H. KELLY BY:_________________________ BY:_________________________ JOHN H. KELLY Vice President Human Resources 2 EX-10.5 3 ARCO POLICY ON FINANCIAL COUNSELING AND INCOME TAX SERVICE EXHIBIT 10.5 CONFIDENTIAL ------------ COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX SERVICE FOR EXECUTIVES IN SALARY GRADES 64E0 AND 64E1 A. ELIGIBILITY ----------- This policy shall be applicable to the executives in salary grades 64E0 and 64E1. B. EFFECTIVE DATE -------------- This policy first became effective January 1, 1987. The provisions herein reflect all modifications made through January 1, 1994, the effective date of this current statement. C. DEFINITIONS ----------- Financial counseling service as used in this statement means professional (financial, legal and tax) counseling in the broad area of estate building and estate conservation including, but not necessarily limited to: . Effective utilization of Company benefit programs; . Individual capital building methods and tools; . Income tax planning guideposts and tax shelters; . Estate conservation and insurance planning; . Preparation of personal wills and trust agreements; . Cash flow, commercial banking, leverage and liquidity analysis, and . Problem analysis and financial trade-offs. Individual income tax service as used in this statement is specifically limited to professional assistance in the preparation of the executive's individual federal, state and/or local income tax returns and support of such return upon audit. D. COVERED SERVICES AND ALLOWANCES ------------------------------- 1. The Company will provide the following to eligible executives upon request to the Manager, Executive Relations: a. Information regarding the kinds of financial counseling services provided by nationally known organizations. b. Information regarding nationally known organizations which provide professional assistance in the preparation of individual income tax returns. c. Information regarding the executive's Company benefits for use by the selected counseling organization, including a statement of the extent to which the Company will reimburse the executive for services of financial and tax counseling organizations. Page 1 COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX SERVICE FOR EXECUTIVES IN SALARY GRADES 64E0 AND 64E1 2. The Company will reimburse eligible executives in accordance with the following provisions for the services of the organizations they select: a. Reimbursement for all financial counseling and individual income tax service rendered during the initial calendar year of the executive's participation under this policy will generally not exceed $11,000. b. Reimbursement for all financial counseling service and individual income tax service during the calendar year of a participating executive's retirement will generally not exceed $11,000. c. Reimbursement for follow-up financial counseling and individual income tax services in any calendar year other than the initial calendar year of participation or the calendar year immediately preceding the executive's retirement will generally not exceed $7,300. d. Any allowance unused in a calendar year may be carried forward to the next calendar year for use during that period as necessary. However, no more than the maximum allowance for a given year is subject to carry forward, i.e., $11,000 for the initial year and $7,300 for succeeding years. e. If necessary, the allowance for the year following the current year may be carried back to cover expenses in the current year assuming the executive's expected continued eligibility. No more than one year forward is available for carry back. If an executive has received reimbursement under the carry back provisions of the plan at the time of termination of employment, the Company may, at its discretion, request reimbursement from the executive for any such amount. f. A one-time allowance of up to $4,000 for reimbursement of legal services provided in preparation/updating of personal wills and trusts is available. However, if an eligible executive relocates to a different state, an additional allowance of up to $2,000 for reimbursement of legal services provided in updating personal wills and trusts to reflect the laws of the new state is available. g. The first year allowance of $11,000 will also be available to change counseling organizations one time during the entire eligibility period at the executive's discretion, not including the provisions of f. above. This allowance would include individual income tax service for that year. h. If an executive retires or dies while a participant under this policy, an allowance of $1,500 will apply with respect to individual income tax returns for the last calendar year in which the executive was in the active service of the Company. Page 2 COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX SERVICE FOR EXECUTIVES IN SALARY GRADES 64E0 AND 64E1 i. If an executive's employment with the Company ceases other than by retirement with an immediate retirement allowance, death, or by agreement with the Company, reimbursement will not be made for any financial counseling or income tax services performed for the executive after the date employment terminates. 3. Brokers' fees or promoters' fees are not reimbursable. 4. To obtain reimbursement under this policy, a participating executive will forward the service organization's invoices with covering memorandum to the Manager, Executive Relations. The Company's check will be payable to the executive. The executive is responsible for payment of the service organization's invoices. 5. Reimbursements will be grossed up in consideration of federal and state income taxes. 6. The total reimbursement made by the Company will be reported to the Internal Revenue Service and to other applicable tax jurisdictions as supplemental payment of compensation. Each reimbursement will be subject to FICA and withholding at the standard federal and state tax rates at the time payment is made. E. NON-ENDORSEMENT --------------- It is the Company's policy that the decision whether or not to use financial counseling service and/or income tax service as well as the selection of organizations to render such services is an individual one. Therefore, representatives of the Company will not suggest whether or not an eligible executive should use such services, and will not encourage or discourage use of any particular organization by an eligible executive. By application for information outlined in "D" above, and by acceptance and receipt thereof, any eligible executive shall release and discharge the Company and any employee or other person who furnishes such information from any and all liability and responsibility for loss or damage which said applying executive may suffer as a consequence of receipt or use of such information. F. ADMINISTRATION -------------- All decisions regarding this policy rest entirely with the Company and such decisions shall be final. The Company reserves the right to modify or terminate this policy at any time. Effective: January 1, 1994 Page 3 CONFIDENTIAL ------------ COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX SERVICE FOR EXECUTIVES IN SALARY GRADES 64E2 AND 64E3 A. ELIGIBILITY ----------- This policy shall be applicable to the executives in salary grades 64E2 and 64E3. B. EFFECTIVE DATE -------------- This policy first became effective January 1, 1987. The provisions herein reflect all modifications made through January 1, 1994, the effective date of this current statement. C. DEFINITIONS ----------- Financial counseling service as used in this statement means professional (financial, legal and tax) counseling in the broad area of estate building and estate conservation including, but not necessarily limited to: . Effective utilization of Company benefit programs; . Individual capital building methods and tools; . Income tax planning guideposts and tax shelters; . Estate conservation and insurance planning; . Preparation of personal wills and trust agreements; . Cash flow, commercial banking, leverage and liquidity analysis, and . Problem analysis and financial trade-offs. Individual income tax service as used in this statement is specifically limited to professional assistance in the preparation of the executive's individual federal, state and/or local income tax returns and support of such return upon audit. D. COVERED SERVICES AND ALLOWANCES ------------------------------- 1. The Company will provide the following to eligible executives upon request to the Manager, Executive Relations: a. Information regarding the kinds of financial counseling services provided by nationally known organizations. b. Information regarding nationally known organizations which provide professional assistance in the preparation of individual income tax returns. c. Information regarding the executive's Company benefits for use by the selected counseling organization, including a statement of the extent to which the Company will reimburse the executive for services of financial and tax counseling organizations. Page 1 COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX SERVICE FOR EXECUTIVES IN SALARY GRADES 64E2 AND 64E3 2. The Company will reimburse eligible executives in accordance with the following provisions for the services of the organizations they select: a. Reimbursement for all financial counseling and individual income tax service rendered during the initial calendar year of the executive's participation under this policy will generally not exceed $9,700. b. Reimbursement for all financial counseling service and individual income tax service during the calendar year of a participating executive's retirement will generally not exceed $9,700. c. Reimbursement for follow-up financial counseling and individual income tax services in any calendar year other than the initial calendar year of participation or the calendar year immediately preceding the executive's retirement will generally not exceed $5,700. d. Any allowance unused in a calendar year may be carried forward to the next calendar year for use during that period as necessary. However, no more than the maximum allowance for a given year is subject to carry forward, i.e., $9,700 for the initial year and $5,700 for succeeding years. e. If necessary, the allowance for the year following the current year may be carried back to cover expenses in the current year assuming the executive's expected continued eligibility. No more than one year forward is available for carry back. If an executive has received reimbursement under the carry back provisions of the plan at the time of termination of employment, the Company may, at its discretion, request reimbursement from the executive for any such amount. f. A one-time allowance of up to $3,000 for reimbursement of legal services provided in preparation/updating of personal wills and trusts is available. However, if an eligible executive relocates to a different state, an additional allowance of up to $1,500 for reimbursement of legal services provided in updating personal wills and trusts to reflect the laws of the new state is available. g. The first year allowance of $9,700 will also be available to change counseling organizations one time during the entire eligibility period at the executive's discretion, not including the provisions of f. above. This allowance would include individual income tax service for that year. h. If an executive retires or dies while a participant under this policy, an allowance of $1,200 will apply with respect to individual income tax returns for the last calendar year in which the executive was in the active service of the Company. Page 2 COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX SERVICE FOR EXECUTIVES IN SALARY GRADES 64E2 AND 64E3 i. If an executive's employment with the Company ceases other than by retirement with an immediate retirement allowance, death, or by agreement with the Company, reimbursement will not be made for any financial counseling or income tax services performed for the executive after the date employment terminates. 3. Brokers' fees or promoters' fees are not reimbursable. 4. To obtain reimbursement under this policy, a participating executive will forward the service organization's invoices with covering memorandum to the Manager, Executive Relations. The Company's check will be payable to the executive. The executive is responsible for payment of the service organization's invoices. 5. Reimbursements will be grossed up in consideration of federal and state income taxes. 6. The total reimbursement made by the Company will be reported to the Internal Revenue Service and to other applicable tax jurisdictions as supplemental payment of compensation. Each reimbursement will be subject to FICA and withholding at the standard federal and state tax rates at the time payment is made. E. NON-ENDORSEMENT --------------- It is the Company's policy that the decision whether or not to use financial counseling service and/or income tax service as well as the selection of organizations to render such services is an individual one. Therefore, representatives of the Company will not suggest whether or not an eligible executive should use such services, and will not encourage or discourage use of any particular organization by an eligible executive. By application for information outlined in "D" above, and by acceptance and receipt thereof, any eligible executive shall release and discharge the Company and any employee or other person who furnishes such information from any and all liability and responsibility for loss or damage which said applying executive may suffer as a consequence of receipt or use of such information. F. ADMINISTRATION -------------- All decisions regarding this policy rest entirely with the Company and such decisions shall be final. The Company reserves the right to modify or terminate this policy at any time. Effective: January 1, 1994 Page 3 CONFIDENTIAL ------------ COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX SERVICE FOR EXECUTIVES IN SALARY GRADE 64E4 A. ELIGIBILITY ----------- This policy shall be applicable to the executives in salary grade 64E4. B. EFFECTIVE DATE -------------- This policy first became effective January 1, 1987. The provisions herein reflect all modifications made through January 1, 1994, the effective date of this current statement. C. DEFINITIONS ----------- Financial counseling service as used in this statement means professional (financial, legal and tax) counseling in the broad area of estate building and estate conservation including, but not necessarily limited to: . Effective utilization of Company benefit programs; . Individual capital building methods and tools; . Income tax planning guideposts and tax shelters; . Estate conservation and insurance planning; . Preparation of personal wills and trust agreements; . Cash flow, commercial banking, leverage and liquidity analysis, and . Problem analysis and financial trade-offs. Individual income tax service as used in this statement is specifically limited to professional assistance in the preparation of the executive's individual federal, state and/or local income tax returns and support of such return upon audit. D. COVERED SERVICES AND ALLOWANCES ------------------------------- 1. The Company will provide the following to eligible executives upon request to the Manager, Executive Relations: a. Information regarding the kinds of financial counseling services provided by nationally known organizations. b. Information regarding nationally known organizations which provide professional assistance in the preparation of individual income tax returns. c. Information regarding the executive's Company benefits for use by the selected counseling organization, including a statement of the extent to which the Company will reimburse the executive for services of financial and tax counseling organizations. Page 1 COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX SERVICE FOR EXECUTIVES IN SALARY GRADE 64E4 2. The Company will reimburse eligible executives in accordance with the following provisions for the services of the organizations they select: a. Reimbursement for all financial counseling and individual income tax service rendered during the initial calendar year of the executive's participation under this policy will generally not exceed $5,400. b. Reimbursement for all financial counseling service and individual income tax service during the calendar year of a participating executive's retirement will generally not exceed $5,400. c. Reimbursement for follow-up financial counseling and individual income tax services in any calendar year other than the initial calendar year of participation or the calendar year immediately preceding the executive's retirement will generally not exceed $3,900. d. Any allowance unused in a calendar year may be carried forward to the next calendar year for use during the period as necessary. However, no more than the maximum allowance for a given year is subject to carry forward, i.e., $5,400 for the initial year and $3,900 for succeeding years. e. If necessary, the allowance for the year following the current year may be carried back to cover expenses in the current year assuming the executive's expected continued eligibility. No more than one year forward is available for carry back. If an executive has received reimbursement under the carry back provisions of the plan at the time of termination of employment, the Company may, at its discretion, request reimbursement from the executive for any such amount. f. A one-time allowance of up to $3,000 for reimbursement of legal services provided in preparation/updating of personal wills and trusts is available. However, if an eligible executive relocates to a different state, an additional allowance of up to $1,500 for reimbursement of legal services provided in updating personal wills and trusts to reflect the laws of the new state is available. g. The first year allowance of $5,400 will also be available to change counseling organizations one time during the entire eligibility period at the executive's discretion, not including the provisions of f. above. This allowance would include individual income tax service for that year. h. If an executive retires or dies while a participant under this policy, an allowance of $900 will apply with respect to individual income tax returns for the last calendar year in which the executive was in the active service of the Company. Page 2 COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX SERVICE FOR EXECUTIVES IN SALARY GRADE 64E4 i. If an executive's employment with the Company ceases other than by retirement with an immediate retirement allowance, death, or by agreement with the Company, reimbursement will not be made for any financial counseling or income tax services performed for the executive after the date employment terminates. 3. Brokers' fees or promoters' fees are not reimbursable. 4. To obtain reimbursement under this policy, a participating executive will forward the service organization's invoices with covering memorandum to the Manager, Executive Relations. The Company's check will be payable to the executive. The executive is responsible for payment of the service organization's invoices. 5. Reimbursements will be grossed up in consideration of federal and state income taxes. 6. The total reimbursement made by the Company will be reported to the Internal Revenue Service and to other applicable tax jurisdictions as supplemental payment of compensation. Each reimbursement will be subject to FICA and withholding at the standard federal and state tax rates at the time payment is made. E. NON-ENDORSEMENT --------------- It is the Company's policy that the decision whether or not to use financial counseling service and/or income tax service as well as the selection of organizations to render such services is an individual one. Therefore, representatives of the Company will not suggest whether or not an eligible executive should use such services, and will not encourage or discourage use of any particular organization by an eligible executive. By application for information outlined in "D" above, and by acceptance and receipt thereof, any eligible executive shall release and discharge the Company and any employee or other person who furnishes such information from any and all liability and responsibility for loss or damage which said applying executive may suffer as a consequence of receipt or use of such information. F. ADMINISTRATION -------------- All decisions regarding this policy rest entirely with the Company and such decisions shall be final. The Company reserves the right to modify or terminate this policy at any time. Effective: January 1, 1994 Page 3 EX-10.6 4 ANNUAL INCENTIVE PLAN (AS AMENDED THROUGH 2-28-94) EXHIBIT 10.6 ARCO _______________________________________________________________________________ ANNUAL INCENTIVE PLAN AS AMENDED THROUGH FEBRUARY 28, 1994 ATLANTIC RICHFIELD COMPANY ANNUAL INCENTIVE PLAN TABLE OF CONTENTS -----------------
Page Section 1. Purpose............................................... 1 Section 2. Definitions........................................... 1 Section 3. Administration........................................ 3 Section 4. Eligibility and Participation......................... 4 Section 5. Determination of Awards Fund.......................... 4 Section 6. Allocation and Granting of Awards..................... 6 Section 7. Non-Assignability and Forfeiture...................... 7 Section 8. General Provisions.................................... 7 Section 9. Amendment, Suspension or Termination.................. 7 Section 10. Effective Date........................................ 7
ANNUAL INCENTIVE PLAN (AS AMENDED THROUGH FEBRUARY 28, 1994) SECTION 1. PURPOSE The purpose of this Plan is to provide annual cash Awards to those executives who make substantial contributions to the success of the Company by their ability, industry and exceptional service. It is intended that the Plan will thereby facilitate the Company in attracting and motivating management employees of high caliber and potential. SECTION 2. DEFINITIONS When used in the Plan, the following terms shall have the following meanings: (a) Adjusted Net Income means after-tax income as adjusted to exclude the following non-routine or "special" items: . Accounting changes, extraordinary items, gain or loss on disposal of a discontinued operation and/or unusual items as reported under Accounting Principles Board Opinion No. 30. . LIFO profits and/or the elimination of inter-division profits. . Gains or losses from the issuance or retirement of financial instruments. . Gain or loss from the sale and/or write-down or write-off of assets. . Legal settlements, judgments, and/or tax audit claims. . Deferred tax effect of statutory tax rate changes. . Environmental remediation costs associated with nonoperating sites. . Reorganization or restructuring charges. . Out-of-period adjustments in excess of $5 million (after-tax). . Other non-routine items having a cumulative income impact of $1 million or more for the year (after-tax). (b) Average Return on Shareholders' Equity or Average ROSE means the simple average of a corporation's Return on Shareholders' Equity during the immediately three preceding fiscal years. 1 (c) Average Shareholders' Equity means, for a corporation, the average of shareholders equity at the end of the year in question and at the end of the immediately preceding year. (d) Award means an annual award to a participant pursuant to Section 6 of the Plan. (e) Awards Fund means the aggregate amount of money determined by the Committee to be available for Awards under the Plan for a Plan Year pursuant to Section 5 of the Plan. (f) Base Salary means the annualized amount of a Participant's regular biweekly wages, effective as of December 31 of the year immediately preceding the calendar year immediately prior to the calendar year in which the Award Date occurs, paid by the Company for the Participant's personal service, excluding all extra pay such as overtime, premiums, bonuses and other allowances. (g) Board means the Board of Directors of Atlantic Richfield Company. (h) Committee means the Compensation Committee of the Board of Directors of the Company. (i) Company means Atlantic Richfield Company, its successors and assigns, and its Subsidiaries. (j) Comparison Corporations or Comparison Group means AMOCO Corporation, Chevron Corporation, Exxon Corporation, Mobil Corporation, Occidental Corporation, Phillips Petroleum Company, Texaco Inc. and Unocal Corporation. (k) Comparison Group Average Return on Shareholders' Equity or Comparison Group Average ROSE means the simple average of the Average Return on Shareholders' Equity for each member of the group of Comparison Corporations during the immediately three preceding fiscal years. (l) Employee means an employee of the Company. (m) Participant means, with respect to a Plan Year, an Employee who has been granted an Award under the Plan for such Plan Year. 2 (n) Plan means the Annual Incentive Plan as set forth herein and as may be amended from time to time. (o) Plan Year means the calendar year ending December 31, 1984, and each subsequent calendar year during the continuance of the Plan. (p) Return on Shareholders' Equity or ROSE means, with respect to a corporation, the percentage computed by dividing Adjusted Net Income by Average Shareholders' Equity. (q) Subsidiary means any corporation, the majority of the voting stock of which, or any partnership or joint venture, the majority of the profits interest or capital interest of which, is owned directly or indirectly by the Company. SECTION 3. ADMINISTRATION (a) The Committee shall have full power and authority to construe, interpret and administer the Plan and to make rules and regulations subject to the provisions of the Plan. All decisions, actions, determinations, or interpretations of the Committee shall be made in its sole discretion and shall be final, conclusive and binding on all parties. No officer, employee or beneficiary shall have any right to participate in the Plan or to receive payment of any Award, or portion of an Award, except, and subject to such terms and conditions, as the Committee may have determined in accordance with the provisions of the Plan. (b) The Committee shall consist of at least three members, each of whom shall be appointed by, and remain in office for the term specified by, the Board. Any member of the Committee may resign at any time. (c) No member of the Committee shall be personally liable by reason of any contract or other instrument executed by him, or on his behalf, in his capacity as a member of the Committee nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee, and each other officer, employee or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Committee) arising out of any act or omission in connection with the Plan unless arising out of such person's own fraud or bad faith. 3 SECTION 4. ELIGIBILITY FOR PARTICIPATION (a) Any Employee who has served as a director, officer or in another key position at any time during a Plan Year is eligible for selection by the Committee to receive an Award with respect to that Plan Year. No member of the Committee may be selected to receive an Award under the Plan. (b) All questions regarding eligibility shall be resolved by the Committee in its sole discretion. (c) The Committee may make an Award to an Employee (or his or her beneficiary or estate) who has terminated service with the Company prior to the end of a Plan Year if the Committee determines that such Employee has made an outstanding contribution to the Company during the Plan Year. SECTION 5. DETERMINATION OF AWARDS FUND (a) CORPORATE PERFORMANCE CRITERIA. As soon as possible following the close of each Plan Year the Committee shall compare the Company's Average ROSE with the Comparison Group Average ROSE for the Plan Year. Subject to the additional performance criteria described under Subparagraphs (b) and (c), Awards described under the schedule in Subparagraph (b)(2) shall be paid as follows: (1) If the Company's Average ROSE equals the Comparison Group Average ROSE, an Award equal to the percentage of Base Salary described in Subparagraph (b)(2), under the column entitled "Applicable Percentage" shall be paid to each executive in the grade level described in Subparagraph (b)(2), under the column entitled "Salary Grade" opposite such percentage. (2) If the Company's Average ROSE exceeds the comparison Group Average ROSE, the Award determined under Subparagraph (1) of this paragraph shall be increased by an amount equal to the percent by which the ARCO Average ROSE exceeds the Comparison Group Average ROSE. (3) If the Company's Average ROSE is less than the Comparison Group Average ROSE but at least seventy-five percent (75%) of the Comparison Group Average ROSE, the Award determined under Subparagraph (1) of this paragraph shall be decreased by an amount equal to the percent by which the Comparison Group Average ROSE exceeds the Company's Average ROSE. 4 (4) If the Company's Average ROSE is less than seventy-five percent (75%) of the Comparison Group Average ROSE, no Awards will be payable under the Plan with respect to that Plan Year. (b) INDIVIDUAL AWARD LEVELS: (1) Subject to any modifications pursuant to Subparagraphs (a), (c) and/or (d), each Participant shall be granted an Award equal to the percent of Base Salary listed opposite the Salary Grade Level which he or she holds, as described under the Schedule of Award Levels under Subparagraph (2) of this paragraph. (2) Schedule of Award Levels:
SALARY APPLICABLE GRADE LEVEL PERCENTAGE ----------- ---------- Chief Executive Officer (E0) 65 Chief Operating Officer (E0) 60 Executive Vice President (E1) 55 E2 35 E3 25 E4 20 10 15 9 15
(3) Award Levels as determined in Subparagraph (2) of this paragraph are based upon the 50th percentile of bonuses paid by the Comparison Corporations. The Applicable Percentage will be modified, as necessary, to achieve this objective. (c) AWARDS FUND LIMITATION. In no event may the aggregate dollar amount of Awards granted during a Plan Year exceed two percent (2%) of the Company's Adjusted Net Income for the immediately preceding Plan Year. To the extent that the determination of Awards under Subparagraphs (a) and (b) would result in an amount exceeding two percent (2%) of the Company's Adjusted Net Income, each individual Award shall be reduced proportionately, with the result that the total Awards Fund shall be an amount equal to two percent (2%) of Adjusted Net Income. 5 (d) INDIVIDUAL AWARD MODIFICATIONS: (1) In addition to reductions resulting from the application of Subparagraphs (a) and/or (c), the Award of any Participant may be reduced from the amount determined under the Applicable Percentage described in Subparagraph (b)(2), as determined to be appropriate by the Committee based on the individual's performance or any other criteria deemed relevant by the Committee. The amount of any such reduction shall be forfeited to the Company. (2) The Award of each named executive officer in the Summary Compensation Table of the Company's Proxy Statement relating to the immediately preceding calendar year may not exceed the amount determined pursuant to Subparagraph (b), as limited by application of Subparagraphs (a) and/or (c). (3) The Award of any Participant other than a Participant described under Subparagraph (2) of this paragraph may be increased, in the sole discretion of the Committee, from the amount determined pursuant to Subparagraph (b), as limited by application of Subparagraphs (a) and/or (c). (4) In no event may the Award of any Participant exceed an amount equal to two hundred percent (200%) of the amount determined by application of the Schedule of Award levels under Subparagraph (b)(2). (e) BASIS FOR CALCULATIONS. All calculations described in this Section 5 shall be based on the audited financial statements of each of the Comparison Corporations, to the extent these are publically available, or on the income statement and balance sheet and dividend payments as reported to stockholders, or otherwise publicly available. SECTION 6. ALLOCATION AND GRANTING OF AWARDS (a) All Awards shall be paid in cash in a single payment in the year in which granted, except as provided in the following subparagraph. (b) Prior to the commencement of each Plan Year, prospective Participants shall be afforded the right to elect irrevocably to defer all or a portion or portions of the payment of their Awards for the Plan Year pursuant to the terms and conditions of the Atlantic Richfield Executive Deferral Plan. 6 SECTION 7. NON-ASSIGNABILITY AND FORFEITURE All Awards are contingent in nature until paid and shall not be assignable or transferable voluntarily or by operation of law. SECTION 8. GENERAL PROVISIONS (a) The Company intends to establish a grantor trust to aid in accumulating the amounts necessary to pay any amount awarded to any Participant for any Plan Year, or any Award deferred pursuant to Section 6 or any interest credited thereon. All Awards, and any interest credited thereon, shall be paid from the general funds of the Company to the extent not paid from the grantor trust. Under no circumstances shall a Participant or other person have any interest whatsoever in any particular property or assets of the Company as a result of this Plan or any Award made thereunder. (b) Nothing in this Plan shall confer upon an Employee any right to continue in the employ of the Company or shall interfere with or restrict in any way the right of the Company to discharge an Employee at any time for any reason whatsoever, with or without good cause. (c) Awards will not be considered as compensation for the purpose of any other benefit plans maintained by the Company, except as provided in the Atlantic Richfield Supplementary Executive Retirement Plan and the Atlantic Richfield Executive Long-Term Disability Plan. (d) The Company shall have the right to withhold from salary or otherwise, any federal, state, local or foreign taxes required to be withheld with respect to payment of any Award or interest credited thereon. SECTION 9. AMENDMENT, SUSPENSION OR TERMINATION The Board may suspend, terminate or amend the Plan. Amendment, suspension or termination of the Plan shall not alter the amount or payment of any Award made prior to such amendment, suspension or termination. SECTION 10. EFFECTIVE DATE The effective date of the Plan is November 26, 1984, and the first Plan Year under the Plan shall be calendar year 1984. 7 EX-10.7 5 1985 EXECUTIVE LONG TERM INCENTIVE PLAN EXHIBIT 10.7 ARCO _______________________________________________________________________________ 1985 EXECUTIVE LONG-TERM INCENTIVE PLAN AS AMENDED THROUGH FEBRUARY 28, 1994 ARCO 1985 EXECUTIVE LONG-TERM INCENTIVE PLAN TABLE OF CONTENTS ------------------
PAGE NO ARTICLE I. GENERAL PROVISIONS Section 1. Purposes of the Plan................................. 1 Section 2. Definitions.......................................... 1 Section 3. Administration of the Plan........................... 2 ARTICLE II. STOCK OPTIONS Section 1. Grant of Stock Options............................... 4 Section 2. Terms and Conditions of Stock Options................ 4 ARTICLE III. RESTRICTED STOCK Section 1. Grant of Restricted Stock............................ 6 Section 2. Waiver of Restrictions............................... 6 ARTICLE IV. PERFORMANCE-BASED DIVIDEND SHARE CREDITS Section 1. Cancellation of Credits Upon Exercise, Expiration or Surrender of Stock Option........................ 7 Section 2. Performance-Based Criterion for Dividend Share Credits....................................... 7 Section 3. Calculation For Cash Payment......................... 7 ARTICLE V. MISCELLANEOUS PROVISIONS Section 1. Option and Restricted Stock Limits................... 9 Section 2. Adjustment in Terms of Award......................... 9 Section 3. Governmental Regulations............................. 10 Section 4. No Guaranty of Employment............................ 10 Section 5. Assignment or Transfer............................... 10 Section 6. Rights as Shareholder................................ 10 Section 7. Withholding Taxes.................................... 11 Section 8. Amendment and Discontinuance of the Plan............. 11 Section 9. Effective Date....................................... 12 Section 10. Term of Plan......................................... 12
ARTICLE I GENERAL PROVISIONS SECTION 1. PURPOSES OF THE PLAN The purposes of this plan are to provide a select group of management and other key employees with a specific incentive to work for the long-range growth and success of the Company and to facilitate the attraction and retention of employees of superior capability. SECTION 2. DEFINITIONS As used herein, the following terms shall have the following meanings: (a) COMMITTEE shall mean the Compensation Committee of the Board of Directors of the Company. (b) COMMON STOCK shall mean the common stock of the Company having a par value of $2.50 per share. (c) COMPANY shall mean Atlantic Richfield Company. (d) DIVIDEND RIGHTS means, as of any date (i) the total number of shares of Common Stock subject to all outstanding and unexercised Stock Options held by an optionee pursuant to the Plan, and (ii) the total number of Dividend Share Credits credited to an optionee on such date. (e) DIVIDEND SHARE CREDITS means the total number of credits allocated to an optionee on any date. The number of Dividend Share Credits credited as of any record date for cash dividends declared on Common Stock shall be the aggregate number derived by (i) multiplying the dividend rate declared per share of Common Stock by the number of Dividend Rights held by an optionee as of the dividend record date, and then (ii) dividing the resulting figure by the Fair Market Value of a share of Common Stock on such record date. Dividend Share Credits attributable to exercised, expired or surrendered Stock Options shall be canceled upon such exercise, expiration or surrender and their treatment shall be as provided in Article IV of the Plan. 1 (f) ELIGIBLE EMPLOYEES shall mean members of a select group of management and other key employees of the Company or a Subsidiary who, in the opinion of the Committee, are in a position to contribute significantly to long- term profit and growth objectives; provided, however, that no member of the Committee nor any person owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company shall be an Eligible Employee. (g) FAIR MARKET VALUE of a share of Common Stock shall be the mean between the highest and lowest sales prices, or the closing sales price of a share of Common Stock, whichever is higher, on the date in question as reported on the composite tape for issues listed on the New York Stock Exchange. If no transaction was reported on the composite tape in the Common Stock on such date, the prices used shall be the prices reported on the nearest day preceding the date in question. If the Common Stock should not then be listed or admitted to trading on such Exchange, "Fair Market Value" shall be the mean between the closing bid and asked prices on the date in question as furnished by any member firm of the New York Stock Exchange selected from time to time by the Committee for that purpose. (h) PLAN shall mean this 1985 Executive Long-Term Incentive Plan including any amendments hereof and rules and regulations hereunder. (i) RESTRICTED STOCK shall mean Common Stock awarded under this Plan which is subject to certain forfeiture and transferability restrictions as provided in the Plan, in regulations of the Committee promulgated thereunder, and in the agreement evidencing the grant of such Restricted Stock. (j) STOCK OPTIONS shall consist of options to purchase the Common Stock of the Company under the terms and conditions set forth in Article II. Such options shall not be Incentive Stock Options as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended. (k) SUBSIDIARY shall mean any corporation in which the Company and/or one or more Subsidiaries own or control directly or indirectly stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock of such corporation, and any partnership or joint venture in which the Company and/or one or more Subsidiaries own or control directly or indirectly fifty percent (50%) or more of the profits interest or capital interest in such a partnership or joint venture. As used herein, masculine pronouns shall refer to men or women or both. 2 SECTION 3. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Committee, which is authorized to interpret the Plan, to adopt such rules and regulations as it may from time to time deem necessary for the effective operation of the Plan, and to act upon all matters relating to the granting of awards under the Plan. Any determination, interpretation, construction or other action made or taken pursuant to the provisions of the Plan by or on behalf of the Committee shall be final, binding and conclusive for all purposes and upon all persons including, without limitation, the Company, its Subsidiaries, their respective shareholders, Eligible Employees and their respective successors in interest. 3 ARTICLE II STOCK OPTIONS SECTION 1. GRANT OF STOCK OPTIONS The Committee may grant Stock Options to Eligible Employees on the terms and conditions set forth in the Plan and on such other terms and conditions as are not inconsistent with the purposes and provisions of the Plan. SECTION 2. TERMS AND CONDITIONS OF STOCK OPTIONS All Stock Options granted under the Plan shall be subject to the following terms and conditions: (a) OPTION PRICE. The Option Price per share with respect to each Stock Option shall be fixed by the Committee, but shall not be less than the Fair Market Value of the Common Stock on the date the Stock Option is granted. (b) PERIOD OF OPTION. A Stock Option shall expire and all rights thereunder shall end at the expiration of such period (not exceeding ten years) after the date the Stock Option is granted as shall be fixed by the Committee at the time it grants the Stock Option. (c) EXERCISE OF OPTION. Stock Options may be exercised at such time or times, in whole or in part, as the Committee shall prescribe when it grants such Stock Options, or by amending an outstanding Stock Option. In no event, however, may a Stock Option be exercised until at least one year has expired following the date the Stock Option is granted. (d) TERMINATION OF EMPLOYMENT. If an optionee's employment is terminated prior to the expiration of one year from the date of grant of Stock Options, such Stock Options, and accumulated Dividend Share Credits pertaining thereto, shall be canceled unless the optionee's termination is due to (i) death, (ii) total and permanent disability, (iii) termination of employment with a right to an immediate allowance under a retirement plan of the Company or a Subsidiary or (iv) any other termination of employment in connection with which the Committee, in its sole discretion, has determined that the optionee's Stock Options shall not be canceled. If an optionee's employment is terminated following the expiration of one year from the date of grant of Stock Options, such Stock Options, and accumulated Dividend Share Credits pertaining thereto, shall be canceled if the termination is due to (i) discharge for 4 cause, (ii) resignation without approval of the Company (except in conjunction with a right to an immediate allowance under a retirement plan of the Company or a Subsidiary) or (iii) resignation at the initiation of the Company (except in conjunction with a right to an immediate allowance under a retirement plan of the Company or a Subsidiary). (e) DEATH. If an optionee dies, his Stock Options may be exercised during the period specified in the grant by the executor or administrator of his estate, or by a person who acquired the right to exercise such Stock Options by bequest or inheritance or by reason of his death. (f) PAYMENT FOR SHARES. Every share purchased through the exercise of a Stock Option shall be paid for in full, in cash, within ten business days following the time of exercise or, unless the Stock Option expressly provides otherwise, at the time of exercise in shares of Common Stock valued at their Fair Market Value on the date on which such Stock Option is exercised, or in a combination of cash and such shares. 5 ARTICLE III RESTRICTED STOCK SECTION 1. GRANT OF RESTRICTED STOCK The Committee may grant Restricted Stock under this Plan to Eligible Employees, and the Committee shall in each case determine the number of shares of Restricted Stock to be awarded and the terms or duration of the restrictions to be imposed upon those shares. SECTION 2. WAIVER OF RESTRICTIONS Restrictions upon vesting and transferability of Restricted Stock may be permitted to lapse as originally provided by the Committee at the time of grant or otherwise as the Committee may determine in its sole discretion. 6 ARTICLE IV PERFORMANCE-BASED DIVIDEND SHARE CREDITS SECTION 1. CANCELLATION OF CREDITS UPON EXERCISE, EXPIRATION OR SURRENDER OF STOCK OPTION Dividend Share Credits shall be credited as provided in Article 1, Section 2(e) of the Plan. Upon exercise of any Stock Option, in whole or in part, the credited Dividend Share Credits attributable to the exercised Stock Options shall be canceled. Upon expiration of any Stock Option at the end of its original maximum term, the credited Dividend Share Credits attributable to the expired Stock Options shall be canceled. An optionee may elect to surrender for cancellation exercisable Stock Options in whole or in part. Upon surrender and cancellation of any such Stock Options, the Dividend Share Credits attributable to the surrendered Stock Options shall also be canceled. The shares of Common Stock underlying Stock Options exercised, surrendered or expired pursuant to this Section shall be referred to as the "affected shares" for purposes of the application of the performance criterion set forth in Section 2 below. For purposes of the application of such criterion, the date of exercise, surrender or expiration shall be referred to as the "determination date." SECTION 2. PERFORMANCE-BASED CRITERION FOR DIVIDEND SHARE CREDITS Upon the exercise, expiration or surrender of any Stock Option, the Committee shall apply the following performance-based criterion to the Dividend Share Credits allocable to the affected shares: In order for the performance criterion to be attained, the aggregate Fair Market Value of the canceled Dividend Share Credits must exceed the aggregate option price of the affected shares less their aggregate Fair Market Value on the determination date. The criterion shall be applied independently to each grant in the event of the exercise, cancellation or surrender of Stock Options attributable to multiple grants on the same date. 7 SECTION 3. CALCULATION FOR CASH PAYMENT If the performance criterion set forth in Section 2 above is attained, a cash payment shall be made to the optionee in an amount equal to the Fair Market Value of a Share of Common Stock multiplied by the total number of any canceled Dividend Share Credits, less the amount by which the aggregate option price of the affected shares exceeds the aggregate Fair Market Value of underlying such shares related to such Stock Options on the determination date. No payment may be made to any covered employee [as defined in proposed Treasury Regulations Section 1.162(m)] unless the Compensation Committee of the Board of Directors has certified in writing that the performance criterion set forth in Section 2 above has been attained. 8 ARTICLE V MISCELLANEOUS PROVISIONS SECTION 1. OPTION AND RESTRICTED STOCK LIMITS Under the Plan as in effect at the date hereof the number of shares of Common Stock which may be issued upon award of Restricted Stock or exercise of Stock Options shall not exceed 3,250,000 in the aggregate. Effective upon stockholder approval of the amendments to the Plan, to be solicited at the annual meeting of the Company's stockholders, to be held on May 4, 1992 (the "Approval Date"), for each calendar year, or any portion thereof, during which this Plan is in effect, beginning on the Approval Date, the number of shares of Common Stock upon which Stock Options may be granted or which may be the subject of a grant of Restricted Stock shall be eight-tenths of one percent (0.8%) of the total issued and outstanding shares of Common Stock as of December 31 of the next preceding year, cumulative from the Approval Date until May 27, 2000. Any shares of Common Stock available for grant that are not made the subject of a grant during a calendar year, or portion thereof, will be available for grant in any subsequent year, or portion thereof, until May 27, 2000. The number of available shares described in the preceding sentences is subject to adjustment as provided in Section 2 of this Article V. The shares shall be made available from authorized but unissued Common Stock or from Common Stock issued and held in the treasury of the Company as shall be determined by the Committee. Effective on the Approval Date, any shares of Common Stock remaining available under the Plan as in effect on the date hereof for grants immediately prior to the Approval Date shall be canceled. Shares of Common Stock subject to Stock Options that are canceled pursuant to Article II, Section 2(d) may be reallocated under the Plan. SECTION 2. ADJUSTMENT IN TERMS OF AWARD In the event of a reorganization, recapitalization, stock split, stock dividend, distribution of assets other than pursuant to a normal cash dividend, combination of shares, merger, consolidation, rights offering, split-up, split- off, spin-off or any other change in the corporate structure or shares of the Company, the Committee may, in its discretion, after consultation with the Chairman of the Board and the President, make appropriate adjustments to reflect such event in (a) the limitation in Section 1 of this Article V on the maximum number of shares of Common Stock upon which Stock Options may be granted or which may be the subject of a grant of Restricted Stock, (b) the formula for allocating future Dividend Share Credits, (c) the number of shares of Common Stock covered by, and the exercise price per 9 share applicable to, outstanding Stock Options, (d) the number of shares of Common Stock covered by outstanding awards of Restricted Stock, and (e) the number of outstanding Dividend Share Credits allocated to optionees' accounts. In the event that the Committee, after consultation with the Chairman of the Board and the President, determines that, because of a change in the Company's business, operations, corporate structure, capital structure, assets or manner in which it conducts business, which it deems to be extraordinary and material, the terms of awards theretofore made are no longer suitable to the objectives which the Committee sought to achieve when it made such awards, it may modify the terms of any or all of such awards in such manner as it may decide is advisable; provided, however, that no award may be modified in a manner which would be inconsistent with the intent of Section 8 of this Article V. SECTION 3. GOVERNMENTAL REGULATIONS The Plan and the grant and exercise of Stock Options, the crediting and payment of Dividend Share Credits and the award of Restricted Stock hereunder, shall be subject to all applicable rules and regulations of governmental or other authorities. SECTION 4. NO GUARANTY OF EMPLOYMENT The grant of a Stock Option, credit of a Dividend Share Credit, or award of Restricted Stock under the Plan shall not constitute an assurance of continued employment for any period. SECTION 5. ASSIGNMENT OR TRANSFER No Stock Option, Dividend Share Credit or share of Restricted Stock shall be assignable or transferable by an Eligible Employee otherwise than by will or the laws of descent and distribution. SECTION 6. RIGHTS AS SHAREHOLDER (a) An Eligible Employee under the Plan shall have no rights of a holder of Common Stock by virtue of any award of Stock Options hereunder, unless and until certificates for shares of Common Stock are issued to him pursuant to the Plan. 10 (b) Dividend Share Credits shall not be considered as dividends on Common Stock for any purpose, nor as any kind of right to Common Stock. (c) An Eligible Employee who has received an award of Restricted Stock shall have all the rights of a shareholder with respect to the shares of Restricted Stock, including, without limitation, the right to vote such Restricted Stock and the right to receive all dividends paid with respect to such Restricted Stock (net of withholding, if applicable), but shall hold such Restricted Stock subject to such restrictions upon its transfer for such period or periods as the Committee may determine and subject to such other terms and conditions deemed appropriate by the Committee. Stock received with respect to an award of Restricted Stock pursuant to a stock split, stock dividend or other change in the capitalization of the Company will be held subject to the same restrictions on transferability that are applicable to such shares of Restricted Stock. SECTION 7. WITHHOLDING TAXES (a) The Company shall have the right to withhold from salary or otherwise or to cause the employee (or the executor or administrator of his estate or his distributee) to make payment of any Federal, State, local or foreign taxes required to be withheld with respect to any exercise of any Stock Option, cash settlement of any Dividend Share Credit, or award or vesting or deemed vesting of Restricted Stock. (b) In the case of an exercise of Stock Options or the vesting or deemed vesting of Restricted Stock, an employee may elect to have the withholding obligation satisfied by having the Company withhold shares of Common Stock received upon the exercise of Stock Option or the vesting or deemed vesting of Restricted Stock, as the case may be. SECTION 8. AMENDMENT AND DISCONTINUANCE OF THE PLAN The Board of Directors of the Company may amend or discontinue the Plan as it shall from time to time consider desirable, provided that: (a) No amendment shall, without further approval by the holders of a majority of the shares which are represented in person or by proxy and entitled to vote on the subject at a meeting of shareholders of the Company, change the terms of the Plan so as to increase the maximum number of shares upon which Stock Options may be granted or which may be issued upon award of Restricted Stock from the number described in Section 1 of this Article V, reduce the minimum option price, or extend the maximum option period; and 11 (b) No amendment, discontinuance or termination shall deprive persons who hold shares of Restricted Stock, or who are entitled to exercise Stock Options, or to receive a cash settlement of any Dividend Share Credits pursuant to the terms and provisions of the Plan, of their rights with respect thereto. SECTION 9. EFFECTIVE DATE The effective date of the Plan is May 28, 1985. SECTION 10. TERM OF PLAN No Stock Options or awards of Restricted Stock may be granted after May 27, 1995; provided, however, effective on the Approval Date, described in Article V, Section 1 of the Plan, no Stock Options or awards of Restricted Stock may be granted after May 27, 2000. 12 EX-22 6 SUBSIDIARIES OF THE REGISTRANT 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, 1994: ARCO Alaska, Inc................................ Delaware 100.0 ARCO Chemical Company........................... Delaware 83.3 ARCO Transportation Alaska, Inc................. Delaware 100.0 Vastar Resources, Inc........................... Delaware 82.3
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 INDEPENDENT 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 10, 1995, on our audits of the consolidated financial statements and financial statement schedule of Atlantic Richfield Company as of December 31, 1994 and 1993 and for each of the three years in the period ended December 31, 1994, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Los Angeles, California February 28, 1995 EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000,000 12-MOS DEC-31-1994 DEC-31-1994 1,394 2,991 1,446 0 797 6,813 32,248 16,526 24,563 4,488 7,198 402 0 1 5,875 24,563 16,552 17,199 13,024 13,479 347 0 759 1,368 387 919 0 0 0 919 5.63 5.63
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