-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FyHOuHSLuJHyRlYDoXXL6ptDZNqWqGMhRiaQbC9gDK4cZRUyiDxH4Pp46GcQdxN3 JlES+bqK8aRPHjiy3spKVQ== 0000898430-96-000677.txt : 19960229 0000898430-96-000677.hdr.sgml : 19960229 ACCESSION NUMBER: 0000898430-96-000677 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960228 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-01196 FILM NUMBER: 96526604 BUSINESS ADDRESS: STREET 1: 515 S FLOWER ST CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134863511 10-K405 1 FORM 10-K 1995 --------------- 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, 1995 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 Identification No.) incorporation or organization) 515 South Flower Street, Los Angeles, California 90071 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (213) 486-3511 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered ------------------- ----------------------- Common Stock ($2.50 par value) New York Stock Exchange Pacific Stock Exchange Basel Stock Exchange Geneva Stock Exchange Zurich Stock Exchange London Stock Exchange $3.00 Cumulative Convertible Preference Stock New York Stock Exchange ($1 par value) Pacific Stock Exchange $2.80 Cumulative Convertible Preference Stock New York Stock Exchange ($1 par value) Pacific Stock Exchange Thirty year 5 5/8% Debentures Due May 15, 1997 New York Stock Exchange Three year 9% Exchangeable Notes due September 15, 1997 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, 1995, based on the closing price on the New York Stock Exchange composite tape on that date, was $18,048,493,017. Number of shares of Common Stock, $2.50 par value, outstanding as of December 31, 1995: 160,831,190. 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, 1995 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.................................................... 6 Refining and Marketing........................................ 6 Transportation................................................ 8 Intermediate Chemicals and Specialty Products................. 8 Equity Interest in Lyondell................................... 10 Capital Program............................................... 11 Patents....................................................... 11 Competition................................................... 11 Human Resources............................................... 12 Research and Development...................................... 12 Environmental Matters......................................... 12 3. Legal Proceedings............................................. 15 4. Submission of Matters to a Vote of Security Holders........... 17 ---------------- Executive Officers of the Registrant.......................... 18 Description of Capital Stock.................................. 21 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters...................................................... 24 6. Selected Financial Data....................................... 24 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 25 8. Financial Statements and Supplementary Data................... 33 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................... 53 PART III 10. Directors and Executive Officers of the Registrant............ 53 11. Executive Compensation........................................ 53 12. Security Ownership of Certain Beneficial Owners and Management................................................... 53 13. Certain Relationships and Related Transactions................ 53 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................................................... 53
(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% of its common stock to the public in October 1987; ARCO currently owns 82.9% of ARCO Chemical. Vastar was formed in September 1993, and in July 1994 sold under 20% of its common stock to the public; ARCO currently owns 82.3% of Vastar. Vastar is the primary vehicle through which ARCO conducts natural gas and, to a lesser extent oil, exploration, production and marketing 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% equity interest in Lyondell Petrochemical Company ("Lyondell"), which operates petrochemical processing and petroleum refining businesses. ARCO originally sold just over 50% 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 5 of Notes to Consolidated Financial Statements on page 39 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, Indonesia and China. Reserves Estimated net quantities of ARCO's proved oil and gas reserves at December 31, 1995 were as follows:
NATURAL GAS PETROLEUM LIQUIDS (BILLION CUBIC (MILLION BARRELS) FEET) ---------------------- ---------------------- U.S. INTERNATIONAL U.S. INTERNATIONAL ----- ------------- ----- ------------- Proved reserves................... 2,163(a) 206 4,666(c) 3,683 Proved developed reserves......... 1,896(b) 92 4,294(d) 1,806
- -------- (a) Includes 107 million barrels ("MMB") attributable to Vastar. (b) Includes 82 MMB attributable to Vastar. (c) Includes 2,081 billion cubic feet ("BCF") attributable to Vastar. (d) Includes 1,738 BCF attributable to Vastar. Reference is made to Supplemental Information, Oil and Gas Producing Activities, beginning on page 50, for additional information concerning oil and gas producing activities and estimates of proved oil and gas reserves. 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 - ------------ ------- ------------- ------- ------------- 1995............................... 583,100 66,800 999 557 1994............................... 591,300 72,800 960 511 1993............................... 604,700 79,700 911 321
- -------- (a) Includes 45,300, 43,500, and 44,700 barrels per day produced by Vastar in 1995, 1994, and 1993, respectively. (b) Includes 810, 782, and 695 million cubic feet per day ("MMCFD") produced by Vastar in 1995, 1994, and 1993, respectively. 2 Average sales prices and average production costs per unit of petroleum liquids and natural gas were as follows:
YEARS ENDED DECEMBER 31, -------------------------------------------------------------- 1995 1994 1993 -------------------- -------------------- -------------------- U.S. INTERNATIONAL U.S. INTERNATIONAL U.S. INTERNATIONAL ------ ------------- ------ ------------- ------ ------------- Average sales price (including transfers) per barrel of petroleum liquids produced....... $12.17 $15.96 $10.43 $14.56 $11.67 $16.05 Average lifting cost per equivalent barrel of production............. 3.73 3.98 4.05 3.52 4.78 3.99 Average sales price per thousand cubic feet ("MCF") of natural gas produced... 1.35 2.56 1.76 2.51 1.93 2.69
Delivery Commitments ARCO has various long-term natural gas sales contracts covering the majority of its production in Indonesia, the United Kingdom North Sea, and China, 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 716 MMCFD in 1996. Such obligation is presently the maximum requirement and declines to less than 112 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 natural gas production was 810 MMCFD in 1995. 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, ----------------------------------------------------------------- 1995 1994 1993 --------------------- --------------------- --------------------- U.S.(A) INTERNATIONAL U.S.(B) INTERNATIONAL U.S.(C) INTERNATIONAL ------- ------------- ------- ------------- ------- ------------- Net productive exploratory wells drilled................ 17 8 12 3 13 8 Net dry exploratory wells drilled.......... 37 13 29 5 65 13 Net productive development wells drilled................ 315 12 245 11 228 31 Net dry development wells drilled.......... 30 -- 27 1 21 2
- -------- (a) Includes 15, 26, 133, and 23 wells, respectively, drilled by Vastar. (b) Includes 11, 25, 89, and 11 wells, respectively, drilled by Vastar. (c) Includes 11, 46, 90, and 11 wells, respectively, drilled by Vastar. The Company's current activities, as of December 31, 1995, were as follows:
U.S. INTERNATIONAL ---- ------------- Gross wells in process of drilling (including wells temporarily suspended)..................................... 43 7 Net wells in process of drilling (including wells temporarily suspended)..................................... 27 4 Waterflood projects in process.............................. 2 -- Pressure maintenance and waterflood operations.............. 15 1
3 The following table shows the approximate number of productive wells at December 31, 1995:
OIL GAS --------------------------- --------------------- U.S.(A)(B) INTERNATIONAL(C) U.S.(D) INTERNATIONAL ---------- ---------------- ------- ------------- Total gross productive wells.................. 11,459 481 3,009 206 Total net productive wells.................. 5,665 201 1,410 52
- -------- (a) Includes approximately 1,511 gross and 277 net multiple completions for ARCO, of which there are 240 gross and 104 net multiple completions for Vastar. (b) Includes approximately 1,339 gross and 656 net wells, respectively, attributable to Vastar. (c) Includes approximately 85 gross and 39 net multiple completions. (d) Includes approximately 2,336 gross and 1,141 net wells, respectively, attributable to Vastar. As of December 31, 1995, 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.............................................. 206 368 747 985 Lower 48(a)......................................... 1,281 2,243 2,773 4,066 ----- ----- ------ ------ Total U.S......................................... 1,487 2,611 3,520 5,051 International......................................... 121 350 31,842 47,305 ----- ----- ------ ------ Total............................................. 1,608 2,961 35,362 52,356 ===== ===== ====== ======
- -------- (a) Includes 953,000 net developed acreage, 1,569,000 gross developed acreage, 2,578,000 net undeveloped acreage and 3,618,000 gross undeveloped acreage, respectively, held by Vastar. Alaska Approximately 64% 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 1995 decreased to 413,600 barrels per day. ARCO's interests in Alaska included net proved reserves of 1,910 million barrels of oil equivalent at December 31, 1995. ARCO operates the eastern half of the Prudhoe Bay field and has a 21.78% working interest in the oil produced from the field, a 42.56% working interest in the condensate produced and, in 1995, a 40.6% working interest in the NGLs produced. ARCO's net petroleum liquids production from the Prudhoe Bay field averaged 226,600 barrels per day in 1995, compared to 236,600 barrels per day in 1994. ARCO is the sole operator of the Kuparuk River field and holds a 55.2% working interest in the field. Its share of production from the field was 140,700 net barrels per day of petroleum liquids during 1995, compared to 147,200 net barrels per day during 1994. During 1995, ARCO and its partners began a large scale enhanced oil recovery project. NGLs, obtained from the Prudhoe Bay field, are injected into existing wells in the Kuparuk field in order to recover additional barrels of oil and offset natural field decline. ARCO estimates that this project will result in an additional 190 million gross barrels (92 million net barrels to ARCO) of incremental oil from the Kuparuk River field. ARCO operates four of the five Greater Point McIntyre Area fields and holds working interests as follows: 30.1% in Point McIntyre, 40.0% in Lisburne, 50.0% in both West Beach and North Prudhoe Bay State. All five of the fields are produced through the Lisburne Production Facility, which ARCO operates. During 1995, liquids produced through the Lisburne Production Facility averaged 178,600 gross barrels per day, and 46,300 net barrels per day. All of ARCO's 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 ARCO's ocean-going tankers. 4 Lower 48 During 1995, ARCO's consolidated Lower 48 operations had net production of 359 BCF of natural gas and 62 MMB of petroleum liquids as compared to 347 BCF and 62 MMB in 1994, respectively. Reserves were reduced by 3 MMB of oil equivalent, primarily due to production. Development and exploration activities replaced 98% of 1995 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%. Vastar, headquartered in Houston, Texas, is engaged in the exploration for and the development, production and marketing of natural gas and, to a lesser extent, crude oil in selected major producing basins in the Gulf of Mexico, the Gulf Coast, the San Juan Basin/Rockies and the Midcontinent areas. For additional information about Vastar, a copy of Vastar's 1995 Annual Report to Stockholders and 1995 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, 1995 of 577 MMB of oil equivalent, of which 86% were petroleum liquids. In 1995 net production from ARCO's other Lower 48 interests was 55 MMB of oil equivalent, down from 56 MMB in 1994, the result of natural field decline. International ARCO's international operations include both exploration and production. ARCO's 1995 international production of petroleum liquids averaged 66,800 barrels per day, and came primarily from Indonesia and the United Kingdom. Natural gas production averaged 557 MMCFD. The Pagerungan and the Offshore Northwest Java natural gas fields in Indonesia accounted for 48% of ARCO's 1995 international natural gas production. Natural gas production from the United Kingdom sector of the North Sea accounted for 48%. ARCO's net proved reserves from international interests at December 31, 1995 were 820 MMB of oil equivalent. ARCO's principal development activities in 1995 were conducted offshore China and the United Kingdom. Natural gas production from ARCO's Yacheng 13-1 field, situated in the South China Sea, began on January 1, 1996. This gross $1.1 billion project, developed with two partners, consists of two offshore production platforms, onshore receiving facilities, the world's second longest subsea pipeline, the 480-mile pipeline to Black Point, near Hong Kong, and a 60-mile pipeline to Sanya on Hainan Island. Of the ultimate production of more than 300 gross MMCFD, most will be sold to Castle Peak Power Company in Hong Kong, a joint venture between China Light and Power and Exxon. ARCO is the operator of, and has a 34.3% interest in, the Yacheng 13-1 field production. In 1995 ARCO began production from the Blenheim oil field, its first operated oil field in the United Kingdom, and from the Gawain gas field. ARCO began development of the Trent and Tyne gas fields and expects production to come onstream in late 1996. On February 15, 1996, ARCO announced the signing of an agreement with Sonatrach, the Algerian state oil company, to undertake a major enhanced oil recovery ("EOR") project in the Rhourde El Baguel Oil Field. The agreement provides for a $225 million bonus payment to Sonatrach, followed by an investment of over $1.3 billion in the project. Under the production sharing contract, ARCO will receive up to 49% of the project's annual production. ARCO believes its EOR efforts should yield over 500 million incremental barrels of crude oil equivalent over the 25-year life of the project and increase production rates from the current 25,000 barrels per day to a peak of 125,000 barrels per day sometime early in the next century. 5 WORLDWIDE COAL OPERATIONS ARCO has interests in six 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 1995 were 45.8 million tons of coal. During 1995, ARCO acquired 40 million tons of low sulfur coal reserves adjacent to the West Elk Mine. In Queensland, Australia, ARCO has interests in three mines in the Bowen Basin: Curragh, Gordonstone and Blair Athol. ARCO operates and holds an effective 87% interest in Curragh, a surface mine that produces high-grade coking and steam coal. ARCO operates and has an 80% interest in Gordonstone, an underground mine that uses longwall technology to produce its high-grade coking and steam coal. ARCO holds a non-operating 31.4% interest in Blair Athol, a surface mine that produces steam coal. ARCO's net share of total shipments in 1995 from Australian operations was 11.8 million tons. As of December 31, 1995, 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 contract extending to December 31, 2017. It is anticipated that these contracts will require approximately 85% of planned production from Black Thunder, Coal Creek and West Elk in 1996. Approximately 85% of planned 1996 production in Australia is committed under long-term arrangements. Future revenues from these contracts in the U.S. and Australia can be affected by periodic reopeners that adjust sales prices based on prevailing market conditions. In total, ARCO shipped 57.6 million tons of coal during 1995 and had 1,481 million tons of recoverable coal reserves as of December 31, 1995. Reference is made to Supplemental Information, Coal Operations on page 52 for further information concerning reserves and shipments of coal. 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. 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) ----------------------- 1995 1994 1993 ------- ------- ------- Los Angeles Refinery.................................... 237,000 237,000 237,000 Cherry Point Refinery................................... 185,000 185,000 181,000 ------- ------- ------- Total................................................. 422,000 422,000 418,000 ======= ======= =======
6 ARCO's crude oil refinery runs and petroleum products manufactured at its refining facilities were as follows:
YEARS ENDED DECEMBER 31, ----------------------- 1995 1994 1993 ------- ------- ------- (EQUIVALENT BARRELS PER DAY) Crude oil refinery runs................................. 438,800 408,300 425,800 ======= ======= ======= Petroleum products manufactured: Gasoline.............................................. 217,400 206,700 221,600 Jet fuels............................................. 101,300 88,800 84,600 Distillate fuels...................................... 70,700 71,900 79,500 Other (a)............................................. 82,700 66,600 69,400 ------- ------- ------- Total (b)........................................... 472,100 434,000 455,100 ======= ======= =======
- -------- (a) Includes chemical products, petroleum coke (green and calcined) 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. During 1996, ARCO notified Tosco Corporation that ARCO was not renewing the long-term crude oil supply agreement that expires in 1996. In addition, ARCO negotiated a decrease in the amount of gasoline it was required to take from Tosco's refinery for the last nine months of 1996. In connection with its refining operations, ARCO 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 Washington. ARCO also sells gasoline to unbranded resellers. NGLs are sold directly to end-use customers and the Watson Cogeneration Facility, which is 51% 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, 1995, there were 1,516 branded retail outlets, which included franchisee and Company-operated am/pm(R) convenience stores and SMOGPROS(R) Service Centers, and traditional service stations. Effective January 1, 1995, ARCO began selling reformulated gasolines that meet Environmental Protection Agency ("EPA") specifications. By June 1996, ARCO and the other California gasoline marketers will also be required to meet California Air Resources Board ("CARB") specifications standards for automobile gasolines available for retail sale in California. In order to meet the more stringent CARB standards with 100% of the gasoline produced at the Los Angeles Refinery, ARCO completed in 1995 the necessary modifications at the refinery. The cost to meet both EPA and CARB standards was approximately $500 million. As a result of these modifications, ARCO's gasoline production at the Los Angeles Refinery is expected to increase from an average of 140,000 barrels a day in 1995 to at least 150,000 barrels a day in 1996. 7 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, ----------------------- 1995 1994 1993 ------- ------- ------- (EQUIVALENT BARRELS PER DAY) Petroleum product sales: U.S.: Gasoline............................................ 256,800 253,800 252,500 Jet fuels........................................... 106,200 97,600 97,100 Distillate fuels.................................... 69,100 73,500 78,700 Other(a)............................................ 61,800 53,000 53,200 ------- ------- ------- Total............................................. 493,900 477,900 481,500 Brazil................................................ -- -- 94,400 ------- ------- ------- Total............................................. 493,900 477,900 575,900 ======= ======= =======
- -------- (a) Includes heavy fuel oils, NGLs, calcined and green coke. 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. 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. In Alaska, ARCO has a 21.3% 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% 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 1995 total throughput averaged approximately 1,523,000 barrels per day. In the Lower 48, ARCO manages facilities for transportation and terminalling of petroleum liquids, refined petroleum products, petrochemicals and natural gas. In 1995 ARCO and Phillips Petroleum Company formed the Seaway Pipeline Company ("Seaway"), a joint venture. Seaway combines a crude oil pipeline that ARCO has operated between its Gulf of Mexico port at Texas City, Texas, and Cushing, Oklahoma, and Phillips' pipeline stretching from Freeport, Texas to Cushing. This combined pipeline system will have an ultimate capacity to move 800,000 barrels per day. ARCO has ownership interests in petroleum liquids pipeline systems that 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. These pipelines moved petrochemicals and refined petroleum products for all shippers (including ARCO) that properly tendered these materials for transportation. 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 82.9% of the outstanding shares. 8 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 methyl tertiary butyl ether ("MTBE") and ethyl tertiary butyl ether ("ETBE")), and SM derivatives (including polystyrenics). Beginning in 1995, ARCO Chemical has marketed toulene di-isocyanate ("TDI"), obtained under long- term supply agreements with Rhone-Poulenc. TDI and polyols are combined to manufacture polyurethanes. 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, Netherlands (PO, TBA and various derivatives including PG, propylene glycol ethers and MTBE); Fos-sur-Mer, France (PO, TBA and various derivatives including PG, polyols and MTBE); and a joint venture in Chiba, Japan (PO and SM). Other production facilities include 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. In July 1995, ARCO Chemical announced the commencement of engineering studies for the construction of a new PO/SM plant at Rotterdam, scheduled for start-up in the year 2000, and to expand its Channelview, Texas plant capacity to produce more PO by early 1998. Final approval of these projects by ARCO Chemical's Board of Directors will be based on the results of the engineering studies, permitting approvals, and successful conclusion of certain commercial arrangements. The following table shows ARCO Chemical's worldwide production capacity (in millions of pounds per year, except where otherwise noted) for PO, SM and certain key derivatives:
PRODUCT U.S. INTERNATIONAL ------- ------ ------------- PO 2,335 1,335 Polyols 720 580 PG 565 345 SM 2,570 790 MTBE--Bbls/day 30,000 28,500
Capacities shown are the production capacities that, as of December 31, 1995, 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 a third party facility pursuant to which it has the capacity to produce an additional 12,000 barrels per day of MTBE or ETBE. 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, ----------------- 1995 1994 1993 ----- ----- ----- (MILLIONS) PO and derivatives (pounds)................................... 3,476 3,699 3,356 SM and derivatives (pounds)................................... 2,579 2,496 2,084 TBA and derivatives (gallons)................................. 1,140 1,004 1,164
Total sales and other operating revenues for ARCO's intermediate chemicals and specialty products segment for the years ended December 31, 1995, 1994 and 1993 were $4,282 million, $3,423 million, and $3,192 million, respectively, including immaterial amounts for sales and services to Lyondell. 9 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 supplies and services 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 1995 Annual Report to Stockholders and 1995 Annual Report on Form 10-K can be obtained by writing to Manager, Investor Relations, ARCO Chemical Company, 3801 West Chester Pike, Newtown Square, Pennsylvania 19073-2387. ARCO Chemical's telephone number is (610) 359-2000. EQUITY INTEREST IN LYONDELL ARCO owns a 49.9% 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 Note 21 of Notes to Consolidated Financial Statements on page 48. Lyondell is a manufacturer and marketer of petrochemicals and, through its participation 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 (polypropylene and high and low density polyethylene), methanol and MTBE. Lyondell's refining business is conducted through its approximately 90% 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% interest in LCR. LCR also produces fuel oil, aromatics and lubricants. For the year ended December 31, 1995, Lyondell recorded total revenues of approximately $321 million from sales to ARCO Chemical. Lyondell also provides certain plant services at ARCO Chemical's Texas facilities. ARCO Chemical in turn provides certain supplies and services 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. During 1995, Lyondell paid ARCO and its consolidated subsidiaries an aggregate of $28 million under these agreements, arrangements and transactions and received an aggregate of $325 million, principally from sales of product to ARCO Chemical. 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. The upgrade project is anticipated to be operational in 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%. 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%. 10 For additional information about Lyondell, a copy of Lyondell's 1995 Annual Report to Stockholders and 1995 Annual Report on Form 10-K can be obtained by writing to Investor Relations, Lyondell Petrochemical Company, One Houston Center, 1221 McKinney Street, Houston, Texas 77010. Lyondell's telephone number is (713) 652-7200. CAPITAL PROGRAM The Company's capital expenditures for additions to fixed assets (including dry hole costs) totaled approximately $1.7 billion in 1995 and are budgeted at $2 billion for 1996. In addition, 1995 capital expenditures included $0.7 billion for various investments, including LUKoil and Seaway. 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 as the sixth largest U.S. based oil company based on revenues in the most recent Fortune 500 list of U.S. industrial companies. 11 HUMAN RESOURCES As of December 31, 1995, ARCO had approximately 22,000 full-time equivalent employees, of whom approximately 15% 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 two facilities located at Newtown Square, Pennsylvania and Plano, Texas. Total research and development expenses were $104 million, $109 million and $109 million in 1995, 1994 and 1993, 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 $658 million at December 31, 1995 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 113 sites. The number of PRP sites in and of itself does not represent a relevant measure of liability, because the nature and extent of environmental concerns 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 $700 million. Approximately 40% 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 12 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 10% 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. The EPA wintertime oxygenate gasoline program became effective in the fall of 1993. The EPA reformulated gasoline requirements became effective January 1, 1995 for the nine U.S. cities, including Los Angeles and San Diego, and other areas with the worst ozone pollution. The CARB's specifications for reformulated gasoline, which are stricter than the EPA requirements, become effective for retail sales on and after June 1, 1996. To comply with the EPA air quality requirements and CARB standards, in 1995 ARCO completed major modifications at its Los Angeles Refinery. The Company does not anticipate any material adverse effect upon its consolidated financial position as a result of compliance with such environmental laws and regulations. In 1993 the South Coast Air Quality Management District ("AQMD"), which sets air quality standards for a five county area of southern California, including Los Angeles County, adopted regulations requiring phased reductions of certain pollutants. By 2003 the Los Angeles Refinery will be required to achieve cumulative reductions from 1992 levels of oxides of nitrogen (NOx) of 63% and oxides of sulfur (SOx) of 83%. As part of the regulations, AQMD created a Regional Clean Air Incentives Market ("RECLAIM") program under which regulated firms can earn "credits" for achieving emission reductions below targeted levels. Those credits may then be bought and sold. The Los Angeles Refinery plans to achieve the requisite levels of emission reductions by a combination of reductions and acquisitions of credits, substantial amounts of which have already been purchased. The AQMD is currently considering modifications to the RECLAIM program, but nothing has yet been finalized. 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 $315 million per year. The Company anticipates environment-related capital expenditures of approximately $125 million and $140 million for 1996 and 1997, 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 $140 million per year. Cash payments for site remediation have averaged $145 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 $250 million per year. In addition to the reserve for environmental remediation costs, the Company has also accrued, as of December 31, 1995, $882 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. 13 Material Environmental Litigation Pursuant to the authority provided under Superfund, the State of Montana has asserted claims against ARCO for compensation for damage to natural resources up to the maximum amount allowed by 42 United States Code Section 9607. These alleged damages, arising out of ARCO's or its predecessors' alleged activities, include restoration and compensable damages, assessment costs, and prejudgment interest. A lawsuit, styled Montana v. ARCO, ex rel., (Case No. CV-83-317-HLN-PGH) was filed on December 12, 1983, in the United States District Court for the District of Montana. In October 1995, ARCO received from the State a second revised demand for damages of $713.3 million for alleged injuries to natural resources resulting from mining and mineral processing operations. ARCO is contesting this demand. 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 alleged trustees, have asserted claims against ARCO for alleged injury 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.) 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 are named as defendants in a consolidated complaint in the United States District Court for the Eastern District of Washington, titled In re Hanford Nuclear Reservation Litigation (CY-91-3015-AAM). 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. Following the March 1989 EXXON VALDEZ oil spill, numerous lawsuits seeking compensatory and punitive damages and injunctions were filed by the State of Alaska, the United States and private plaintiffs against Exxon, Alyeska Pipeline Service Company ("Alyeska"), and Alyeska's owner companies (including ARCO, which owns approximately 21%). Alyeska and its owner companies have settled the civil damage claims by federal and state governments and the lawsuits by private plaintiffs. Certain issues relating to 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), 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. ARCO has settled with most of the insurance company defendants. ARCO expects that a trial against the remaining defendants will begin in 1996. 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 14 of Notes to Consolidated Financial Statements on page 43, and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 14 ITEM 3. LEGAL PROCEEDINGS THE COMPANY 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 trial court has dismissed all of plaintiffs' claims other than their fraud claim. Plaintiffs have appealed the dismissal of their claims for restitution and indemnification. On January 24, 1996, ARCO (as successor to IS&R) was added as a defendant to a class action suit pending in the United States District Court for the Southern District of New York, German, et al. v. Federal Home Loan Mortgage Corp., et al. (Case No. 93 Civ 6941) by plaintiff intervenors Naquan and Naiya Thomas, minors, and their mother and guardian Kaii Henry. The complaint in intervention names as defendants, in addition to ARCO, eight alleged former processors of lead pigment and lead paint, the LIA, the City of New York and its Housing Authority, and the owner of the building where plaintiffs reside. Plaintiffs seek on behalf of themselves, and a purported class of children under seven and pregnant women residing in dwellings in the City of New York containing or presumed to contain lead paint, injunctive relief from all defendants including orders to abate lead paint and to contribute to court- administered funds to pay for abatement and medical monitoring and treatment. The complaint alleges causes of action against the lead pigment defendants and the LIA for negligence, strict products liability, fraud and misrepresentation, breach of express and implied warranty, nuisance, conspiracy, concert of action, and enterprise and market share liability. 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. The trial court dismissed the complaint. The Court of Appeals reversed and remanded the case to the Court of Common Pleas. On August 29, 1995, a purported class action was filed in the United States District Court for the Eastern District of Louisiana, Jefferson v. Lead Industries Association, Inc. (Case No. 95-2885), which seeks compensatory and punitive damages on behalf of the named plaintiff and all Louisiana parents of children who attained a blood lead level equal to or greater than 25 micrograms per deciliter before the age of six. The named defendants are ARCO (as successor to IS&R), the LIA, NL Industries, Inc., Sherwin-Williams Co., SCM Corporation, Glidden Co., and Fuller-O'Brien Corporation. The complaint states as theories of recovery strict liability, negligence, failure to warn, fraud, and breach of express and implied warranty. The complaint also asserts that the manufacturer of the lead pigment in any particular paint cannot be determined by chemical analysis or any other means, and that plaintiff, therefore, may rely upon market share and civil conspiracy to establish defendants' liability. In addition, the Company is a defendant in several lawsuits brought by individuals that allege injury from exposure to lead paint. Such cases, in the aggregate, are not material to the financial condition of the Company. On June 27, 1995, three former ARCO Alaska, Inc. employees filed an action in the Alaska Superior Court in Anchorage, titled Tesch, et al. v. ARCO Alaska, Inc. (Case No. 3AN-95-3320-CI), purporting to represent a class 15 of all ARCO Alaska, Inc. employees classified as exempt from overtime pay requirements within the preceding three years. The plaintiffs claim that they and other exempt employees were not actually exempt under Alaska law from overtime pay and are entitled to pay for unpaid overtime and penalties in an unstated amount. Employees of Alyeska Pipeline Service Company ("Alyeska"), in which ARCO Transportation Alaska, Inc. owns approximately 21%, have filed two other purported class actions making similar claims against Alyeska. 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. The Company commenced a feasibility study to determine the technology required to remedy the conditions at the 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 and $63,000 in 1995. 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% of the cost of the remediation. In January 1994, the 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. In May 1995, the Company negotiated a settlement with CARB for a total of $461,000. 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. On October 11, 1995, Vastar, on behalf of, and with ARCO's knowledge and full cooperation, met with the United States Environmental Protection Agency ("EPA") to apprise the EPA of certain results obtained from Vastar's internal self-evaluation and audit program. The results conveyed to EPA concern the Prevention of Significant Deterioration ("PSD") permit program under the federal Clean Air Act at Vastar's Ignacio Blanco Fruitland ("IBF") coal degasification facilities. Through its self-evaluation and audit program, Vastar recently determined that a PSD permit may have been required for construction and operation of certain equipment at the IBF operations due to unanticipated levels of carbon monoxide emissions. Under federal law, EPA has the power to seek injunctive relief and civil penalties for violations of the federal Clean Air Act. Liability for failure to obtain a PSD permit under the Clean Air Act can be imposed without 16 regard to willfulness or negligence. Vastar has sought the benefits of EPA's "Voluntary Environmental Self-Policing and Self-Disclosure Interim Policy Statement," which may allow Vastar to avoid any punitive penalties, although EPA may seek to recover what it considers to be the economic benefit of noncompliance. Vastar has advised ARCO that it believes that any ultimate liability resulting from the above-described issue will not have a material adverse effect on Vastar's financial position or results of operations or cash flows. 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 In 1994, the Internal Revenue Service issued a Notice of Deficiency for income tax relating to tax years 1983 through 1988. The aggregate amount of income tax asserted on the face of the Notice was $537 million plus interest. ARCO has paid to the Internal Revenue Service the amount of tax (and interest) that it believes is due under the Notice and timely filed a petition in the U.S. Tax Court challenging the balance. 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 1995. ---------------- 17 EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the executive officers of Registrant as of February 26, 1996.
NAME, AGE AND PRESENT POSITION WITH ATLANTIC BUSINESS EXPERIENCE DURING PAST RICHFIELD FIVE YEARS AND PERIOD SERVED AS OFFICER(a)(b) ---------------------- --------------------------------------------- Mike R. Bowlin, 53 Mr. Bowlin has been Chairman of the Board since July 1, 1995, Chairman of the Board, Chief Executive Officer since July 1994, President of ARCO Chief Executive Officer since June 1993 and a director since June 1992. He served as and President Executive Vice President (June 1992-May 1993) and Senior Vice 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), Senior 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 Company (April 1981-December 1984). He has been an officer of the Company since 1984. Ronald J. Arnault, 52 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, 50 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 officer of the Company since 1987. William E. Wade, Jr., 53 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 Alaska, 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. H. L. Bilhartz, 49 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.
18
NAME, AGE AND PRESENT POSITION WITH ATLANTIC BUSINESS EXPERIENCE DURING PAST RICHFIELD FIVE YEARS AND PERIOD SERVED AS OFFICER(a)(b) ---------------------- --------------------------------------------- John B. Cheatham IV, 47 Mr. Cheatham has been a Senior Vice President of ARCO and Senior Vice President President of ARCO International Oil and Gas Company since De- cember 1, 1995. He was Senior Vice President, Operations and New Business Development (November 1993-November 1995) and Senior Vice President, New Business Ventures (November 1992-November 1993) of ARCO International Oil and Gas Company and Senior Vice President, Eastern District (August 1991-November 1992) and Vice President, Southeastern District (November 1989-August 1991) of ARCO Oil and Gas Com- pany. He has been an officer of the Company since 1995. E. Kent Damon, Jr., 53 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, 60 Mr. Dickerson has been Senior Vice President, External Senior Vice President Affairs of 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 of ARCO Oil and Gas Com- pany (September 1982-September 1983). He has been an officer of the Company since 1985. Marlan W. Downey, 64 Mr. Downey has been a Senior Vice President of ARCO since Senior Vice President June 1992. He served as President (June 1992-November 1995) and a Senior Vice President (1990-1992) of ARCO International Oil and Gas Company. He has been an officer of the Company since 1992. Marie L. Knowles, 49 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, 45 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 of ARCO International Oil and Gas Company (1991-1994). He has been an officer of the Com- pany since 1994. William C. Rusnack, 51 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.
19
NAME, AGE AND PRESENT POSITION WITH ATLANTIC BUSINESS EXPERIENCE DURING PAST RICHFIELD FIVE YEARS AND PERIOD SERVED AS OFFICER(a)(b) ---------------------- --------------------------------------------- J. Kenneth Thompson, 44 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, 62 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 1994. Bruce G. Whitmore, 51 Mr. Whitmore has been the Senior Vice President, General Senior Vice President, Counsel and Corporate Secretary of ARCO since December 31, General Counsel and 1994. He served as Vice President and General Counsel of ARCO Corporate Secretary Chemical Company (October 1990-December 1994) and as Associ- ate General Counsel, Finance and Corporate Affairs of ARCO (June 1986-September 1990). He has been an officer of the Company since 1995. Allan L. Comstock, 52 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, 45 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 Treasurer, Corporate Finance of ARCO (1990-1993) and Manager, Finance, Control and Planning, ARCO British, Ltd. (1988-1990). He has been an officer of the Company since 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. 20 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 Restated Certificate of Incorporation of ARCO, dated June 27, 1994, and do not purport to be complete. 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, 1995.
SHARES SHARES AUTHORIZED OUTSTANDING ----------- ----------- $3.00 Preference Stock.......................... 78,089 66,376 $2.80 Preference Stock.......................... 833,776 731,055 Preferred Stock................................. 75,000,000 -- Common Stock.................................... 600,000,000 160,831,190*
- -------- * 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. 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. 21 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 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% 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% 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 22 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 July 24, 1995, the Board of Directors of the Company declared a dividend of one common share purchase right (a "Right") for each outstanding share of Common Stock, par value $2.50 per share (the "Common Shares"), of the Company. The dividend was paid on August 18, 1995 to the stockholders of record on that date. Each Right entitled the registered holder to purchase from the Company one Common Share at a price of $400.00 per share (the "Purchase Price"), subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement between the Company and First Chicago Trust Company of New York, as Rights Agent. The Rights will be evidenced by and will be transferred with the Common Share certificates until the Distribution Date. The Distribution Date is defined as the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons has acquired beneficial ownership of 15% or more of the outstanding Common Shares (an "Acquiring Person") or (ii) 10 business days following the commencement of, or announcement of an intention to make, a tender or exchange offer, the consummation of which would result in a person or group becoming an Acquiring Person. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights will be issued. The Rights are not exercisable until the Distribution Date. The Rights will expire on August 18, 2005 unless redeemed prior to that date by the Company. The Purchase Price payable, and the number of Common Shares or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution. In the event that any person becomes an Acquiring Person, each holder of a Right, other than Rights beneficially owned by the Acquiring Person and its affiliates and associates (which will thereafter be void), will have the right to receive, upon exercise of each Right, that number of Common Shares having a market value of two times the Purchase Price. If, after the Distribution Date, the Company is acquired in a merger or other business combination with, or 50% or more of its consolidated assets or earning power are sold to, the Acquiring Person, each holder of a Right will have the right to receive, upon exercise of each Right, that number of shares of common stock of the acquiring company with a market value of two times the Purchase Price. At any time after an Acquiring Person crosses the 15% threshold and prior to the acquisition by such person of 50% or more of the outstanding Common Shares, the Board of Directors of the Company may exchange the Rights (other than Rights owned by the Acquiring Person), in whole or in part, at an exchange ratio of one Common Share per Right. The Board of Directors of the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right prior to the acquisition by an Acquiring Person of 15% or more of the outstanding Common Shares. The terms of the Rights may be amended by the Board of Directors of the Company without the consent of the holders of the Rights, except that after any person becomes an Acquiring Person no such amendment may adversely affect the interests of the other holders of the Rights. Effective August 18, 1995, the Board of Directors ordered the redemption of outstanding Common Stock Purchase Rights issued to stockholders of record on June 9, 1986 (the "1986 Rights"). The redemption payment of $0.10 per 1986 Right was paid to stockholders of record on August 18, 1995. 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. 23 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
1995 1994 -------------------------------------- ----------------------------------- 4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST -------- -------- -------- ---------- -------- -------- -------- -------- Common Stock: Market price per share High................. $115 3/8 $116 5/8 $117 7/8 $115 19/64 $108 3/4 $109 1/2 $104 1/2 $112 3/8 Low.................. $104 1/4 $106 3/8 $109 $100 1/2 $ 97 5/8 $ 99 5/8 $ 92 1/2 $ 93 1/2 Cash dividends per share................. $1.375 $1.475(1) $1.375 $1.375 $1.375 $1.375 $1.375 $1.375 $3.00 Cumulative Con- vertible Preference Stock: Market price per share High................. $745 $771 $778 1/2 $761 5/8 $717 1/2 $736 $697 $731 Low.................. $744 1/2 $738 $765 $708 $675 3/4 $711 $648 1/2 $648 1/2 Cash dividends per share................. $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $2.80 Cumulative Con- vertible Preference Stock: Market price per share High................. $274 1/2 $276 $280 $274 $259 3/4 $259 3/4 $247 1/4 $263 1/2 Low.................. $249 1/8 $256 $266 3/4 $242 $234 1/2 $241 $226 1/2 $228 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 26, 1996 the high price per share was $114 1/8 and the low price per share was $111 3/4. As of December 31, 1995, the approximate number of holders of record of Common Stock of ARCO was 94,000. 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 22, 1996, a dividend of $1.375 per share was declared on Common Stock, payable on March 15, 1996 to stockholders of record on February 16, 1996. 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, ------------------------------------------ 1995(1) 1994(2)(3) 1993(2) 1992(4) 1991(5) ------- ---------- ------- ------- ------- (MILLIONS EXCEPT PER SHARE AMOUNTS) Sales and other operating revenues (including excise taxes)........... $17,337 $16,552 $18,487 $18,668 $18,191 Income before changes in accounting principles......................... 1,376 919 269 1,193 709 Net income.......................... 1,376 919 269 801 709 Earned per share before changes in accounting principles.............. 8.42 5.63 1.66 7.39 4.39 Earned per share.................... 8.42 5.63 1.66 4.96 4.39 Cash dividends per common share..... 5.60 5.50 5.50 5.50 5.50 Total assets........................ 23,999 24,563 23,894 24,256 24,492 Long-term debt and capital lease obligations........................ 6,708 7,198 7,089 6,227 5,989
- -------- (1) Dividends include a $0.10 per share redemption payment for Common Stock purchase rights. (2) See Note 2 of Notes to Consolidated Financial Statements regarding unusual items on page 38. (3) Includes after-tax gain of $273 million from issuance of stock by Vastar Resources, Inc. (4) Includes a net after-tax benefit of $211 million related to a settlement with Iran, the recognition of a portion of the gain from the sale of Lyondell Petrochemical Company common stock, partially offset by a charge resulting from ARCO Chemical Company's withdrawal from a joint venture. (5) 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. 24 ARCO Management's discussion and analysis of financial condition and results of operations ARCO's operating results in 1995 were the highest since its record earnings in 1990. Operations benefited from higher ARCO Chemical Company earnings, higher crude oil prices, continued cost savings resulting from the restructurings ARCO undertook in 1993 and 1994, and higher earnings from ARCO's equity interest in Lyondell Petrochemical Company. These benefits were partially offset by lower refining and marketing margins and lower domestic natural gas prices. Cost savings totaled $330 million after tax, compared to the benchmark year of 1993. Earnings from Operations
Millions 1995 1994 1993 ------ ----- ----- Net income $1,376 $ 919 $ 269 Special items (benefit) charge (45) (40) 545 ------ ----- ----- Operating results $1,331 $ 879 $ 814 ====== ===== ===== Special items after tax Millions 1995 1994 1993 ------ ----- ----- Insurance settlements $ 82 $ -- $ -- Restructuring charges -- (210) (404) Gain on issuance of subsidiary stock -- 273 -- Future environmental remediation (30) (48) (52) Deferred tax impact of rate change -- -- (65) Other, net (7) 25 (24) ------ ----- ----- Total benefit (charge) $ 45 $ 40 $(545) ====== ===== =====
25 ARCO The 1994 improvements resulted from approximately $250 million after tax in savings from ARCO's restructuring and related cost reduction program, higher earnings from its chemicals business and increased natural gas sales volumes. These improvements were partially offset by lower crude oil and natural gas prices and lower refining and marketing margins. Results of Consolidated Operations Revenues
Millions 1995 1994 1993 ------- ------- ------- Sales and other operating revenues Upstream $ 8,898 $ 8,632 $ 9,005 Downstream 12,029 10,879 12,701 Intersegment eliminations (3,590) (2,959) (3,219) ------- ------- ------- Total $17,337 $16,552 $18,487 ======= ======= =======
In 1995, increased operating revenues reflected higher prices and sales volumes for chemical and refined products, higher crude oil prices and increased sales volumes for coal. Decreased crude oil trading activity and lower domestic natural gas prices partially offset these increases. The sale of ARCO's Brazilian marketing operations in December 1993 reduced operating revenues in 1994. At the same time, lower crude oil prices and volumes and lower prices for refined products and natural gas were offset by increased crude oil trading and natural gas marketing activity, higher chemical prices and volumes, natural gas volumes, and excise taxes. Income from equity investments in both 1995 and 1994 increased primarily because of Lyondell Petrochemical Company's (Lyondell) higher earnings. ARCO has a 49.9% equity interest in Lyondell. The increase in other revenues in 1995 primarily reflected insurance settlements. Other revenues were lower in 1994 primarily because of asset sales in 1993. Expenses
Millions 1995 1994 1993 ------ ------ ------ Trade purchases $6,116 $5,961 $7,360 Operating expenses 3,025 3,095 3,157 SG&A expenses 1,794 1,705 1,828 Exploration expenses 523 455 667
In 1995, trade purchases increased as a result of higher chemical feedstock costs and crude oil prices, partially offset by decreased crude oil trading activity. The sale of ARCO's Brazilian marketing operations reduced trade purchases in 1994, while increased crude oil trading and natural gas marketing activity was offset by lower crude oil and natural gas prices. The 1995 operating expenses were lower in the following areas: domestic oil and gas -- lease operating and other support; refining and marketing -- maintenance, outside services and personnel; transportation -- maintenance; and insurance costs. The lower maintenance expense was related to the level of scheduled refinery turnarounds and required work on the Trans Alaska Pipeline in 1995. ARCO Chemical Company (ACC) tolling costs associated with toluene di- isocyanate sales, which began in 1995, partially offset the reductions. ARCO's 1994 operating expenses reflected reduced oil and gas lease operating and other support costs and refining and marketing maintenance and fuel costs. These reductions were partially offset by higher operating costs related to increased production volumes for coal operations and ARCO Chemical and by higher operating costs associated with the response to findings of regulatory and owner company reviews of the Trans Alaska Pipeline System. Increased sales volumes for ARCO Chemical and coal operations resulted in higher delivery costs that increased selling, general and administrative (SG&A) expenses in 1995. 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. 26 ARCO Higher exploration expenses in 1995 primarily reflected dry hole costs associated with South China Sea exploration, partially offset by decreased activity in Alaska. The decline in 1994 reflected reduced activity as part of ARCO's cost reduction program, particularly in Alaska and the Lower 48. 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 reduction in taxes other than excise and income taxes in 1995 primarily reflected the absence of an accrual for certain tax issues recorded in 1994. The reduction in 1994 primarily reflected the sale of ARCO's Brazilian marketing operations. Personnel reductions associated with ARCO's cost reduction program were reported as unusual items in 1994. The 1993 reorganization of ARCO's Lower 48 oil and gas operations was reflected in unusual items 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. Gain on Issuance of Stock by Vastar Resources, Inc. In July 1994, Vastar Resources, Inc. (Vastar) consummated the sale of 17,250,000 shares of its common stock to the public at an initial offering price of $28 per share. Vastar was a wholly owned subsidiary of ARCO prior to the offering. ARCO realized an after-tax gain of $273 million as a result of the initial public offering by Vastar. At December 31, 1995, ARCO owned 80,000,001 shares of Vastar's common stock, which represented 82.3% of Vastar's outstanding common stock. Vastar's results are included in ARCO's Lower 48 results in the oil and gas segment. 3 PIE CHARTS SHOWING SEGMENT OPERATING RESULTS FOR 1993, 1994 AND 1995 Operating results (millions)
Segment 1993 1994 1995 - ------- ---- ---- ---- Oil and Gas..................... 435 480 660 ARCO Chemical................... 239 265 460 Refining & Marketing............ 387 275 200 Transportation.................. 189 192 190 Lyondell........................ 13 111 194 Coal............................ 97 70 85
Income Taxes The Company's effective tax rate was 31.6% in 1995, compared to 28.3% in 1994 and 51.6% in 1993. The higher effective tax rate in 1995 primarily reflected the effect of higher pretax income, without an increase in tax credits in 1995. 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, compared to 1993. The higher effective tax rate in 1993 reflected increased taxes on foreign income and the effect of the 1993 federal tax rate increase on deferred taxes. Results of Segment Operations Oil and Gas
Millions 1995 1994 1993 ------ ------ ------ Net income $ 683 $ 405 $ 45 Special items (benefit) charge (23) 75 390 ------ ------ ------ Operating results $ 660 $ 480 $ 435 ====== ====== ====== Special items after tax Millions 1995 1994 1993 ------ ------ ------ Restructuring charges $ -- $ (66) $ (404) Asset sales 9 6 82 Deferred tax impact of rate change -- -- (40) Asset impairment (12) -- -- Tax-related and other, net 26 (15) (28) ------ ------ ------ Total benefit (charge) $ 23 $ (75) $ (390) ====== ====== ======
27 ARCO Average Crude Oil Sales Prices
Dollars/barrel 1995 1994 1993 ------ ------ ------ U.S., including Vastar $12.31 $10.44 $11.67 International $16.26 $15.16 $16.41
In 1995, earnings reflected the effect of higher crude oil prices, particularly on the West Coast, higher natural gas volumes and reduced operating expenses, partially offset by lower domestic natural gas prices and higher exploration expenses. Average Natural Gas Sales Prices
Dollars/thousand cubic feet 1995 1994 1993 ----- ----- ----- U.S., including Vastar $1.35 $1.76 $1.93 International $2.56 $2.51 $2.69
In 1994, 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. Petroleum Liquids Production
Barrels/day -- net 1995 1994 1993 ------- ------- ------- Prudhoe Bay 226,600 236,600 250,800 Kuparuk River 140,700 147,200 151,500 Point McIntyre Area 46,300 37,400 16,400 Lower 48, including Vastar 169,500 170,100 186,000 International 66,800 72,800 79,700 ------- ------- ------- Total 649,900 664,100 684,400 ======= ======= =======
Worldwide petroleum liquids production decreased slightly in 1995 as a result of natural field declines. In Alaska, increased production from the Point McIntyre Area fields was more than offset by production declines in the Prudhoe Bay and Kuparuk River fields. Internationally, new production volumes from the Blenheim field in the United Kingdom were more than offset by production declines in Indonesia. In 1994, 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 more than offset by Lower 48 property divestitures and natural field declines in Alaska from the Prudhoe Bay and Kuparuk River fields. Natural Gas Production
Million cubic feet/day -- net 1995 1994 1993 ---- ---- ---- U.S., including Vastar 999 960 911 ==== ==== ==== International United Kingdom 265 286 278 Indonesia 270 206 25 Other 22 19 18 ---- ---- ---- Total International 557 511 321 ==== ==== ====
U.S. natural gas production growth in 1995 and 1994 came primarily from Vastar's fields in the Gulf of Mexico and the San Juan Basin. Production from Indonesian natural gas fields in 1995 grew as a result of greater contract takes by purchasers. Unseasonably warm weather in late 1995 contributed to the decline in United Kingdom natural gas sales. Production grew in 1994 as a result of the new Pagerungan and Offshore Northwest Java fields in Indonesia and a full year of production from the Orwell and Murdoch fields in the United Kingdom North Sea. In 1996, international natural gas production will be enhanced by the January 1 startup of the Yacheng 13-1 field in the South China Sea. Coal
Millions 1995 1994 1993 ----- ----- ----- Net income $ 75 $ 70 $ 107 Special items (benefit) charge 10 -- (10) ----- ----- ----- Operating results $ 85 $ 70 $ 97 ===== ===== ===== Worldwide shipments (tons) 57.6 49.6 47.7
Worldwide production increases and higher coking and export steam coal prices for Australian production were partially offset by lower U.S. prices in 1995. Earnings included a net charge of $10 million, primarily related to the impact of an Australian tax rate increase on deferred taxes. Revenues from increased volumes in 1994 were more than offset by lower international coal prices, the reopening to current market prices of a major 28 ARCO Refining and Marketing
Millions 1995 1994 1993 ----- ----- ----- Net income $ 177 $ 195 $ 307 Special items charge 23 80 80 ----- ----- ----- Operating results $ 200 $ 275 $ 387 ===== ===== =====
sales contract in the U.S. and unfavorable foreign exchange rate movements. The 1993 results included a benefit of approximately $10 million after tax associated with a change in an accrued estimated loss on the sale of an Australian coal mine. Higher crude oil costs more than offset increased sales prices and volumes and lower operating expenses in 1995. The 1994 results were negatively impacted by lower U.S. West Coast margins and the absence of earnings from Brazil, partially offset by reduced operating costs. The 1995 special items included charges related to terminating certain contractual agreements and future environmental remediation. The 1994 special items included charges related to personnel reductions and future environmental remediation. The 1993 special items primarily comprised 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. West Coast Petroleum Products Sales
Volumes (thousand barrels/day) 1995 1994 1993 ----- ----- ----- Gasoline 256.8 253.8 252.5 Jet 106.2 97.6 97.1 Distillate 69.1 73.5 78.7 Other 61.8 53.0 53.2 ----- ----- ----- Total 493.9 477.9 481.5 ===== ===== =====
ARCO's U.S. West Coast sales volumes increased 16,000 barrels per day in 1995 after a small decline in 1994. Jet fuel and gasoline sales volumes increased in 1995 because of an increase in refining capacity resulting from modifications and debottlenecking projects necessary to make reformulated gasolines. Transportation
Millions 1995 1994 1993 ----- ----- ----- Net income $ 193 $ 172 $ 189 Special items (benefit) charge (3) 20 -- ----- ----- ----- Operating results $ 190 $ 192 $ 189 ===== ===== =====
The 1995 results reflected increased volumes and earnings from the commercial pipeline and terminal businesses in the Lower 48 nearly offsetting declines in earnings from the Trans Alaska Pipeline. The 1994 results included net 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. Intermediate Chemicals and Specialty Products
Millions 1995 1994 1993 ----- ----- ----- ARCO Chemical Net income (reported) $ 508 $ 269 $ 214 ARCO's share* 460 265 239
* Reflects ARCO's share of ACC net income after segment adjustments, primarily for net interest expense and minority interest. ARCO Chemical's earnings in 1995 reflected higher margins for propylene oxide (PO) and its derivatives and styrene monomer (SM). Both prices and margins for SM decreased in the second half of 1995. 1994 net income was higher, primarily as a result of higher sales volumes in PO and derivatives and SM, and higher SM margins, partially offset by the effects of a weaker methyl tertiary butyl ether market. 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. 29 ARCO Lyondell Petrochemical Company
Millions 1995 1994 1993 ----- ----- ----- Net income (reported) $ 389 $ 223 $ 26 ARCO's share 194 111 13
Lyondell's results in 1995 benefited from higher olefins margins and increases in its polymers business following the acquisition of additional capacity in 1995 and strong aromatics performance at LYONDELL-CITGO refinery. The strong performance in the petrochemical and polymers markets in the first nine months of 1995 was followed by a sharp market decline in the latter part of the year. 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 approximately 90% participation interest in LYONDELL-CITGO Refining Company Ltd., which was affected by poor industry conditions as well as downtime for major maintenance turnarounds in the fourth quarter. Unallocated Expenses and Other
Millions 1995 1994 1993 ---- ---- ----- Unallocated net benefit (expense) $94 $(57) $(140)
Insurance settlements, the absence of 1994 personnel reduction charges and the 1994 money market loss reimbursement, and lower insurance and corporate staff expense resulted in the net after-tax benefit in 1995. Reductions in corporate staff expense, increased foreign tax credits and a tax refund resulted in lower unallocated expenses in 1994, compared to 1993. 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. 2 PIE CHARTS SHOWING 1995 CASH INFLOWS AND 1995 CASH OUTFLOWS 1995 Cash Inflows (Millions) Operations $2,919 Short-term Investments 1,500 Other 244
1995 Cash Outflows (Millions) Additions to fixed assets $1,699 Long-term debt 1,138 Dividends 902 Short-term debt 293 Investment in LUKoil convertible bonds 252 Other 235
Financial Position and Liquidity Cash and cash equivalents and short-term investments totaled $3.1 billion at year-end 1995 and short-term borrowings were $1.2 billion. Working capital was $400 million lower at the end of 1995, primarily reflecting a decrease in short- term investments, partially offset by an increase in accounts receivable and a decrease in long-term debt due within one year and short-term borrowings. At December 31, 1995, ARCO had unused committed bank credit facilities totaling $3.2 billion and ARCO Chemical had an unused bank credit facility totaling $300 million, while Vastar had utilized $610 million under its $1.1 billion revolving credit facility with an effective interest rate of 6.9% during the year. ARCO's 1996 capital spending program includes $2.0 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. 30 ARCO Environmental Matters ARCO is subject to federal, state and local environmental laws and regulations that 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. ARCO is currently participating in environmental assessments and cleanups at numerous sites under these laws and may in the future be involved in additional environmental assessments and cleanups. Environmental Reserves
Millions 1995 1994 1993 ----- ----- ----- Beginning balance $ 670 $ 648 $ 682 Charges 101 138 172 Payments (113) (116) (206) ----- ----- ----- Ending balance $ 658 $ 670 $ 648 ===== ===== =====
The amount accrued represents the estimated undiscounted costs that 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 accrued by as much as $700 million. See Note 14 to Consolidated Financial Statements regarding environmental matters. In addition to the provision for environmental remediation costs, $882 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 To minimize the effects of interest rate and foreign currency fluctuations, ARCO enters into the following transactions using derivatives: 1) foreign currency forward, option 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. ARCO and its subsidiaries also engage in hedging strategies involving forward and futures contracts, swaps and options to hedge part of its natural gas and crude oil production and to minimize the effects of commodity price fluctuations. Vastar has entered into a series of commodity swaps covering approximately 35% of its natural gas production for January through December 1996 at an average price of $1.85 per Mcf (on a Henry Hub basis). The Company uses simple, non-leveraged derivative instruments that are placed with major institutions whose creditworthiness is continually monitored. Risk management strategies are reviewed and approved by senior management before being implemented. Policy controls limit the maximum amount of positions that can be taken in any given instrument. Effects of Inflation While the annual rate of inflation remained moderate during the three-year period ended December 31, 1995, ARCO continued to experience certain inflationary effects. ARCO will achieve some benefits by using 31 ARCO current, inflated dollars to satisfy its debt obligations and other monetary liabilities, because the Company's monetary assets are less than its monetary liabilities at December 31, 1995. In addition, ARCO estimates that the replacement cost of its property, plant, equipment and inventory is greater than the historical cost reflected in the financial statements. Statement of Financial Accounting Standards Not Yet Adopted In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires companies to adopt its provisions for fiscal years beginning after December 15, 1995. SFAS No. 123 encourages a fair value-based method of accounting for an employee stock option or similar equity instrument, but allows continued use of the intrinsic value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Companies electing to continue to use APB No. 25 must make pro forma disclosures of net income and earnings per share as if the fair value- based method of accounting had been applied. ARCO is evaluating the provisions of SFAS No. 123, but has not yet determined whether it will continue to follow the provisions of APB No. 25 or change to the fair value-based method of SFAS No. 123. 32 ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
SCHEDULE NO. PAGE --- ---- Report of Independent Accountants.............................. 34 Financial Statements: Consolidated Statement of Income and Retained Earnings........ 35 Consolidated Balance Sheet.................................... 36 Consolidated Statement of Cash Flows.......................... 37 Notes to Consolidated Financial Statements.................... 38 Supplemental Information...................................... 50 Supporting Financial Statement Schedule Covered by the Foregoing Report of Independent Accountants: II Valuation and Qualifying Accounts............................. 59
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% owned companies are omitted per Rule 3-09(a) of Regulation S-X. 33 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, 1995 and 1994, 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, 1995 and the related financial statement schedule listed in the index on page 33 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, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, 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. COOPERS & LYBRAND L.L.P. Los Angeles, California February 12, 1996 34 ARCO Consolidated Statement of Income and Retained Earnings
For the year ended December 31, Millions, except per share amounts 1995 1994 1993 ------- ------- ------- REVENUES Sales and other operating revenues (including excise taxes) $17,337 $16,552 $18,487 Income from equity investments 243 141 40 Interest 212 201 164 Other revenues 465 305 492 ------- ------- ------- Total revenues 18,257 17,199 19,183 ------- ------- ------- EXPENSES Trade purchases 6,116 5,961 7,360 Operating expenses 3,025 3,095 3,157 Selling, general and administrative expenses 1,794 1,705 1,828 Depreciation, depletion and amortization 1,641 1,671 1,718 Exploration expenses (including undeveloped lease amortization) 523 455 667 Excise taxes 1,518 1,517 1,298 Taxes other than excise and income taxes 717 780 1,147 Interest 750 759 715 Unusual items -- 347 659 ------- ------- ------- Total expenses 16,084 16,290 18,549 ------- ------- ------- Income before gain on issuance of stock by subsidiary 2,173 909 634 Gain on issuance of stock by subsidiary -- 459 -- ------- ------- ------- Income before income taxes and minority interest 2,173 1,368 634 Provision for taxes on income 687 387 327 Minority interest in earnings of subsidiaries 110 62 38 ------- ------- ------- Net income $ 1,376 $ 919 $ 269 ======= ======= ======= EARNED PER SHARE Net income per share $8.42 $5.63 $1.66 ======= ======= ======= RETAINED EARNINGS Balance, January 1 $ 5,342 $ 5,308 $ 5,918 Net income 1,376 919 269 Cash dividends: Preference stocks (2) (3) (3) Common stock (900) (882) (876) ------- ------- ------- Balance, December 31 $ 5,816 $ 5,342 $ 5,308 ======= ======= =======
See Notes on pages 38 through 49. 35 ARCO Consolidated Balance Sheet
December 31, Millions 1995 1994 ------- ------- ASSETS Current assets: Cash and cash equivalents $ 1,537 $ 1,394 Short-term investments 1,569 2,991 Accounts receivable 1,684 1,446 Inventories 877 797 Prepaid expenses and other current assets 221 185 ------- ------- Total current assets 5,888 6,813 ------- ------- Investments and long-term receivables: Investments accounted for on the equity method 711 348 Other investments and long-term receivables 550 297 ------- ------- 1,261 645 ------- ------- Fixed assets: Property, plant and equipment 32,544 32,248 Less accumulated depreciation, depletion and amortization 17,189 16,526 ------- ------- 15,355 15,722 Deferred charges and other assets 1,495 1,383 ------- ------- Total assets $23,999 $24,563 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 1,174 $ 1,478 Accounts payable 1,145 986 Long-term debt due within one year 184 630 Taxes payable, including excise taxes 303 253 Accrued interest 153 183 Other 1,004 958 ------- ------- Total current liabilities 3,963 4,488 ------- ------- Long-term debt 6,708 7,198 Deferred income taxes 2,637 2,721 Other deferred liabilities and credits 3,456 3,471 Minority interest 477 407 Stockholders' equity: Preference stocks 1 1 Common stock, $2.50 par value; shares issued 160,879,765 (1995), 160,800,137 (1994) shares outstanding 160,831,190 (1995), 160,753,966 (1994) 402 402 Capital in excess of par value of stock 632 647 Retained earnings 5,816 5,342 Pension liability adjustment (60) (20) Foreign currency translation (17) (51) Net unrealized loss on investments (11) (38) Treasury stock, at cost (5) (5) ------- ------- Total stockholders' equity 6,758 6,278 ------- ------- Total liabilities and stockholders' equity $23,999 $24,563 ======= =======
The Company follows the successful efforts method of accounting for oil and gas producing activities. See Notes on pages 38 through 49. 36 ARCO Consolidated Statement of Cash Flows
For the year ended December 31, Millions 1995 1994 1993 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,376 $ 919 $ 269 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 1,641 1,671 1,718 Dry hole expense and undeveloped leasehold amortization 317 251 419 Minority interest in earnings of subsidiaries 110 62 38 Net gain on asset sales (16) (3) (204) Gain on issuance of stock by subsidiary -- (459) -- Income from equity investments (243) (141) (40) Dividends from equity investments 89 71 97 Noncash provisions greater (less) than cash payments (183) 88(a) 513(a) Deferred income taxes 26 118 (157) Changes in accounts receivable, inventories and accounts payable (155) (169) 55 Changes in other working capital accounts (49) (287) 53 Other 6 (24) 1 ------- ------- ------- Net cash provided by operating activities 2,919 2,097 2,762 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to fixed assets, including dry hole costs (1,699) (1,658) (2,070) Net cash provided (used) by short-term investments 1,500 (768) (789) Investment in LUKoil convertible bonds (252) -- -- Proceeds from asset sales 66 167 582 Investments and long-term receivables (73) (79) (6) Other (92) 169 46 ------- ------- ------- Net cash used by investing activities (550) (2,169) (2,237) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (1,138) (796) (886) Proceeds from issuance of long-term debt 178 1,275 1,255 Proceeds from issuance of stock by subsidiary -- 453 -- Net cash provided (used) by notes payable (293) (69) 30 Dividends paid (902) (885) (879) Treasury stock purchases (39) -- -- Treasury stock contributed to benefit plans -- 56 81 Other (31) (36) (27) ------- ------- ------- Net cash used by financing activities (2,225) (2) (426) ------- ------- ------- Effect of exchange rate changes on cash (1) 10 (55) ------- ------- ------- Net increase (decrease) in cash and cash equivalents 143 (64) 44 Cash and cash equivalents at beginning of year 1,394 1,458 1,414 ------- ------- ------- Cash and cash equivalents at end of year $ 1,537 $ 1,394 $ 1,458 ======= ======= =======
(a) Includes noncash unusual items of $347 and $659 in 1994 and 1993, respectively. See Notes on pages 38 through 49. 37 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, 1995, ARCO Chemical Company (ACC), of which ARCO owned 82.9% 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 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 liability and financial wherewithal of other responsible parties. Estimated liabilities are not discounted to present value. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain previously reported amounts have been restated to conform to classifications adopted in 1995. 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. Of the $347 million, approximately $155 million related to severance and other ancillary costs that will be paid from Company funds through 1996. Approximately $110 million related to enhanced pension benefits that 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. 38 ARCO 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 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, 1995, approximately 3,700 employees have been terminated under the two programs. Approximately $170 million of severance and ancillary benefits have been paid and charged against the accruals. Payments do not necessarily correlate with the number of terminations due to the ability of employees to defer receipt of certain payments. Note 3 Accounting Changes In the fourth quarter of 1995, ARCO adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires the review of long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The effect of adopting SFAS No. 121 resulted in a charge of $12 million after tax to 1995 net income. Effective January 1, 1994, ARCO adopted 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. Note 4 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, production and marketing 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. Note 5 Segment Information ARCO operates primarily in the Resources (upstream) and Products (downstream) segments. The Resources segment includes worldwide 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 primarily from the North Slope of Alaska; the marketing of petroleum products in the West Coast region of the United States; and the worldwide manufacture and sale of intermediate chemicals and specialty products, including propylene oxide and derivatives, styrene monomer, and methyl tertiary butyl ether. Segment information for the years ended December 31 was as follows:
Millions 1995 1994 1993 ------ ------- ------- SALES AND OTHER OPERATING REVENUES Resources: Oil and gas $ 8,136 $ 7,969 $ 8,357 Coal 762 663 648 Products: Refining and marketing 6,898 6,529 8,603 Transportation 821 897 878 Intermediate chemicals and specialty products 4,282 3,423 3,192 Other 28 30 28 Elimination of intersegment amounts (3,590) (2,959) (3,219) ------- ------- ------- Total $17,337 $16,552 $18,487 ======= ======= =======
Intersegment sales were made at prices approximating current market values. Intersegment sales included in sales and other operating revenues were as follows:
Millions 1995 1994 1993 ------- ------- ------- Resources: Oil and gas $2,909 $2,338 $2,592 Products: Refining and marketing 21 21 19 Transportation 438 416 385 Intermediate chemicals and specialty products 195 154 195 Other 27 30 28 ------ ------ ------ Total $3,590 $2,959 $3,219 ====== ====== ======
39 ARCO
Millions 1995 1994 1993 ------- ------- ------- PRETAX SEGMENT EARNINGS Resources: Oil and gas $ 1,061 $ 608 $ 114 Coal 105 95 160 Products: Refining and marketing 285 303 569 Transportation 297 239 327 Intermediate chemicals and specialty products 838 502 412 Equity in earnings from Lyondell 194 111 13 Gain on issuance of stock by subsidiary -- 459 -- Unallocated expenses and other 143 (190) (246) Interest (750) (759) (715) Income taxes (687) (387) (327) Minority interest (110) (62) (38) ------- ------- ------- Net income $ 1,376 $ 919 $ 269 ======= ======= =======
Millions 1995 1994 1993 ------- ------- ------- AFTER-TAX SEGMENT EARNINGS Resources: Oil and gas(a) $ 683 $ 405 $ 45 Coal 75 70 107 Products: Refining and marketing 177 195 307 Transportation 193 172 189 Intermediate chemicals and specialty products(a) 460 265 239 Equity in earnings from Lyondell 194 111 13 Gain on issuance of stock by subsidiary -- 273 -- Unallocated expenses and other 94 (57) (140) Interest (500) (515) (491) ------- ------- ------- Net income $ 1,376 $ 919 $ 269 ======= ======= =======
(a) Net of minority interest.
Millions 1995 1994 1993 ------- ------- ------- TOTAL ASSETS Resources: Oil and gas $ 9,127 $ 9,192 $ 9,349 Coal 1,330 1,381 1,320 Products: Refining and marketing 2,901 2,841 2,789 Transportation 2,074 2,046 2,145 Intermediate chemicals and specialty products 4,135 3,737 3,502 Other 4,432 5,366 4,789 ------- ------- ------- Total $23,999 $24,563 $23,894 ======= ======= ======= ADDITIONS TO FIXED ASSETS Resources: Oil and gas $ 1,179 $ 989 $ 1,383 Coal 43 57 94 Products: Refining and marketing 207 376 345 Transportation 64 48 59 Intermediate chemicals and specialty products 195 186 181 Other 11 2 8 ------- ------- ------- Total $ 1,699 $ 1,658 $ 2,070 ======= ======= =======
Millions 1995 1994 1993 ------- ------- ------- DEPRECIATION, DEPLETION AND AMORTIZATION Resources: Oil and gas $ 996 $ 1,043 $ 1,092 Coal 85 76 59 Products: Refining and marketing 204 191 200 Transportation 103 104 104 Intermediate chemicals and specialty products 233 235 223 Other 20 22 40 ------- ------- ------- Total $ 1,641 $ 1,671 $ 1,718 ======= ======= =======
International operations are conducted principally in the following geographic regions: Oil and gas -- United Kingdom, Asia Pacific and Middle East; Coal -- Australia; Intermediate chemicals and specialty products -- Europe and Asia Pacific. Brazilian refined products marketing operations were sold in December 1993.
Millions 1995 1994 1993 ------- ------- ------- INTERNATIONAL OPERATIONS Sales and other operating revenues: Oil and gas $1,169 $1,027 $ 998 Coal 378 336 304 Refining and marketing -- 2 1,920 Intermediate chemicals and specialty products 1,777 1,210 1,122 Other 30 30 29 ------ ------ ------ Total $3,354 $2,605 $4,373 ====== ====== ====== Net income (loss): Oil and gas $ (43) $ 26 $ (17) Coal 34 29 59 Refining and marketing -- 2 2 Intermediate chemicals and specialty products(a) 147 70 58 Other (24) (23) (25) ------ ------ ------ Total $ 114 $ 104 $ 77 ====== ====== ====== Total assets: Oil and gas $2,931 $2,792 $2,691 Coal 846 892 821 Intermediate chemicals and specialty products 1,845 1,580 1,424 Other 564 299 230 ------ ------ ------ Total $6,186 $5,563 $5,166 ====== ====== ======
(a) Includes income (losses) of equity affiliates, principally Asian joint ventures, of $14, $2, and $(2), in 1995, 1994 and 1993, respectively. Note 6 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, 1995, 1994 and 1993 were 163.4 million, 163.2 million and 162.4 million, respectively. 40 ARCO Note 7 Taxes Taxes other than excise and income taxes for the years ended December 31 comprised the following:
Millions 1995 1994 1993 ----- ----- ------ Property $ 180 $ 189 $ 198 Production/severance 343 306 331 Value added -- -- 349 Other 194 285 269 ----- ----- ------ Total $ 717 $ 780 $1,147 ===== ===== ======
The income tax provision for the years ended December 31 comprised the following:
Millions 1995 1994 1993 ------ ------ ------- Federal: Current $ 497 $ 176 $ 382 Deferred 42 128 (159) ----- ----- ------ 539 304 223 ----- ----- ------ Foreign: Current 108 62 69 Deferred (40) (19) 13 ----- ----- ------ 68 43 82 ----- ----- ------ State: Current 56 31 33 Deferred 24 9 (11) ----- ----- ------ 80 40 22 ----- ----- ------ Total provision for taxes on income $ 687 $ 387 $ 327 ===== ===== ====== Total income taxes paid in cash $ 785 $ 447 $ 510 ===== ===== ======
The 1993 deferred tax benefit primarily resulted from book accruals associated with the Lower 48 reorganization. Major components of the net deferred tax liability at December 31 were as follows:
Millions 1995 1994 ------ ------ Depreciation, depletion and amortization $ (3,688) $(3,648) Other (341) (356) -------- ------- Total deferred tax liabilities (4,029) (4,004) -------- ------- Dismantlement and environmental 528 522 Postretirement benefits 331 325 Foreign excess tax basis/loss carryforwards 299 208 Other 347 332 -------- ------- Total deferred tax assets 1,505 1,387 -------- ------- Valuation allowance (113) (104) -------- ------- Net deferred income tax liability $ (2,637) $(2,721) ======== =======
ARCO has foreign loss carryforwards of $428 million which begin expiring in 1996. The valuation allowance was $127 million at December 31, 1993. The domestic and foreign components of income before income taxes and minority interest, and a reconciliation of income tax expense with tax at the effective federal statutory rate for the years ended December 31 were as follows:
Percent of Pretax Millions Amount Income ------ --------- 1995 Income before income taxes: Domestic $1,896 87.3 Foreign 277 12.7 ------ ----- Total $2,173 100.0 ====== ===== Tax at 35% $ 761 35.0 Increase (reduction) in taxes resulting from: Dividend exclusion (54) (2.5) Taxes on foreign income in excess of statutory rate 46 2.1 Foreign deferred tax asset recognition (30) (1.4) State income taxes (net of federal effect) 52 2.4 Tax credits (81) (3.7) Other (7) (0.3) ------ ----- Provision for taxes on income $ 687 31.6 ====== ===== 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 ====== =====
Note 8 Inventories Inventories are recorded when purchased, produced or manufactured and are stated at the lower of cost or market. In 1995, approximately 85% of inventories, excluding materials and supplies, were determined by the last-in, first-out (LIFO) method. Materials and supplies and other non-LIFO inventories are determined predominantly on an average cost basis. 41 ARCO Total inventories at December 31 comprised the following categories:
Millions 1995 1994 ----- ----- Crude oil and petroleum products $ 184 $ 172 Chemical products 423 351 Other products 32 46 Materials and supplies 238 228 ----- ----- Total $ 877 $ 797 ===== =====
The excess of the current cost of inventories over book value was approximately $297 million and $253 million at December 31, 1995 and 1994, respectively. Note 9 Long-term Debt Long-term debt at December 31 comprised the following:
Millions 1995 1994 ----- ----- 5-5/8%, due in 1997 $ 10 $ 14 6-1/8%, due in 1996 102 102 8-1/4%, due in 2022 250 250 8-1/2%, due in 2012 178 194 8-3/4%, due in 2032 198 203 9% exchangeable notes, due in 1997 988 988 9%, due in 2021 286 286 9%, due in 2031 136 136 9-1/8%, due in 2011 300 300 9-1/8%, due in 2031 345 350 9-7/8%, due in 2016 450 450 10-1/4%, due in 2000 250 250 10-3/8%, due in 1995 -- 500 10-7/8%, due in 2005 500 500 Third Series Medium-Term Notes -- 75 Medium-Term Notes -- A Series, 8.65%(a) 197 198 Medium-Term Notes -- B Series, 8.34%(a) 250 250 ARCO Tresop Notes, 5.82%(a) 278 311 Variable rate, due in 2031, 4.15%(a) 265 265 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, 7.4%(a) 76 84 Dutch bank loans 187 172 Vastar: Revolving credit agreements, 6.3%(a) 610 1,050 8-3/4%, due in 2005 149 -- Capitalized lease obligations 25 26 Other 244 261 ------ ------ Total, including debt due within one year 6,898 7,839 ------ ------ Less: Debt due within one year 184 630 Bonds held in sinking fund 6 11 ------ ------ Long-term debt $6,708 $7,198 ====== ======
(a) Weighted average of interest rates at December 31, 1995. Maturities and sinking fund obligations for the five years subsequent to December 31, 1995, are as follows (millions): 1996 -- $184; 1997 -- $1,294; 1998 - -- $176; 1999 -- $133; 2000 -- $1,068. No material amounts of long-term debt are collateralized by ARCO assets. In 1993, Vastar borrowed $1.25 billion under an unsecured revolving credit agreement. This agreement was renegotiated into two facilities in 1995. At December 31, 1995, commitments under these facilities totalled $1.1 billion, comprised of an $800 million, five-year credit agreement and a $300 million, 364-day credit agreement. At December 31, 1995, $610 million was borrowed under the $800 million facility; the $300 million facility was unused. The $300 million revolving credit facility has a "Term Loan Election," under which the maturity date may be extended to May 2000, at Vastar's election. The credit facilities are not guaranteed by ARCO. The agreement contains covenants, the most restrictive of which require Vastar to maintain minimum levels of tangible stockholders' equity and certain financial ratios and restrict the encumbrance of assets. In August 1994, ARCO sold 39.9 million 9% Exchangeable Notes (Notes), due September 15, 1997, at an issue price of $24.75 per note. At maturity of the Notes, holders will receive, in exchange for the principal amount, 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, 1995 and 1994, approximately $365 million and $360 million, respectively, of long-term debt was denominated in foreign currencies. To reduce exposure to 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. All interest rate swaps are intended to be held until maturity. At December 31, 1995, ACC had outstanding interest rate swaps on two loans totalling 300 million Dutch guilders (approximately $187 million) due in 1997. Both swaps mature when the related debt becomes due. The swaps effectively changed both loans' floating interest rates to fixed rates of 5.7% and 6.7%. At December 31, 1995, Vastar had outstanding interest rate swaps covering two $50 million tranches of the variable rate credit agreement. The swaps effectively changed both floating interest rate tranches to fixed rates of 5.45% and 5.33%, respectively. 42 ARCO Note 10 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, 1995 and 1994 was 6.3% and 6.1%, respectively. In 1995, ARCO and certain wholly owned subsidiaries had committed bank credit facilities of approximately $3.2 billion. At December 31, 1995, there were no borrowings 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, 1995, there were no borrowings against the ACC credit facility. At December 31, 1995, ARCO had unused letters of credit totalling approximately $300 million. Note 11 Interest Expense Interest expense for the years ended December 31 comprised the following:
Millions 1995 1994 1993 ----- ----- ----- Long-term debt $ 637 $ 634 $ 573 Short-term debt 90 82 92 Other 72 80 106 ----- ----- ----- 799 796 771 Capitalized interest (49) (37) (56) ----- ----- ----- Total interest expense $ 750 $ 759 $ 715 ===== ===== ===== Total interest paid in cash $ 780 $ 766 $ 749 ===== ===== =====
Note 12 Foreign Currency Transactions Foreign currency transactions resulted in net losses of $15 million and $12 million in 1995 and 1994, respectively, and a net gain of $22 million in 1993. Note 13 Fixed Assets Property, plant and equipment at December 31 was as follows:
1995 1994 Millions Gross Net Gross Net ----- ----- ----- ----- Resources: Oil and gas $19,306 $ 7,634 $19,355 $ 7,817 Coal 1,424 1,005 1,418 1,052 Products: Refining and marketing 4,179 2,517 4,000 2,519 Transportation 3,397 1,706 3,568 1,898 Intermediate chemicals and specialty products 3,812 2,293 3,524 2,221 Other 426 200 383 215 ------- ------- ------- ------- Total $32,544 $15,355 $32,248 $15,722 ======= ======= ======= =======
Expenses for maintenance and repairs for 1995, 1994 and 1993 were $475 million, $525 million and $509 million, respectively. Note 14 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, 1995 and 1994, there were contingent liabilities primarily with respect to guarantees of securities of other issuers of approximately $29 million and $75 million, respectively. 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. owns approximately 21% of Alyeska. Alyeska and its owner companies have settled the federal and state claims and 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, three purported classes and several individuals seeking damages and injunctive relief as a consequence of the presence of lead-based paint in certain housing units. ARCO is also the subject of or party to a number of other pending or threatened legal actions. In October 1995, the State of Montana presented to ARCO a second revised demand for damages of $713 million based on alleged injuries to natural resources resulting from ARCO's mining and mineral processing businesses formerly operated by Anaconda, ARCO's predecessor, in Montana. ARCO is contesting this demand. ARCO is subject to other loss contingencies pursuant to federal, state and local environmental laws and regulations. These include possible obligations to remove or mitigate the effects on the environment of the disposal or release of certain chemical, mineral and petroleum substances at various sites, including the restoration of natural resources located at these sites and damages for loss of use and non-use values. ARCO is currently participating in environmental assessments and cleanups under these laws at federal Superfund and state-managed sites, as well as other clean-up sites. ARCO may in the future 43 ARCO be involved in additional environmental assessments and cleanups, including the restoration of natural resources and damages for loss of use and non-use values. The amount of such future costs will depend on such factors as the unknown nature and extent of contamination, the unknown timing, extent and method of 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, 1995, the environmental remediation reserve was $658 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 reserve covers federal Superfund and state- managed sites as well as other clean-up sites, including service stations, refineries, terminals, chemical facilities, third-party landfills, former nuclear processing facilities, sites associated with discontinued operations and sites formerly owned by ARCO. ARCO has been named a potentially responsible party (PRP) for 113 sites. The number of PRP sites in and of itself is not a relevant measure of liability, because the nature and extent of environmental concerns varies by site and ARCO's share of responsibility varies from sole responsibility to very little responsibility. ARCO reviews all PRP sites, along with other sites as to which no claims have been asserted, in estimating the amount of the reserve. ARCO's future costs at these sites could exceed the amount accrued by as much as $700 million. Approximately 40% of the reserve related to sites associated with ARCO's discontinued operations, primarily mining activities in the states of Montana, Utah and New Mexico. Another significant component related to currently and formerly owned chemical, nuclear processing, and refining and marketing facilities, and other sites which received wastes from these facilities. The remainder related to other sites with reserves ranging from $1 million to $10 million per site. No one site represents more than 10% of the total reserve. Substantially all amounts accrued are expected to be paid out over the next five to six years. Claims for recovery of remediation costs already incurred and to be incurred in the future have been filed against various insurance companies and other third parties. Many of these claims have been resolved. ARCO has neither recorded any asset nor reduced any liability in connection with unresolved claims. Although any ultimate liability arising from any of the matters described herein could result in significant expenses or judgments that, if aggregated and assumed to occur within a single fiscal year, would be material to ARCO's results of operations, the likelihood of such occurrence is considered remote. On the basis of management's best assessment of the ultimate amount and timing of these events, such expenses or judgments are not expected to have a material adverse effect on ARCO's consolidated financial statements. The operations and consolidated financial position of ARCO continue to be affected from time to time in varying degrees by domestic and foreign political developments as well as legislation, regulations and litigation pertaining to restrictions on production, imports and exports, tax increases, environmental regulations, cancellation of contract rights and expropriation of property. Both the likelihood of such occurrences and their overall effect on ARCO vary greatly and are not predictable. These uncertainties are part of a number of items that ARCO has taken and will continue to take into account in periodically establishing reserves. Note 15 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. 44 ARCO The following table sets forth the plans' funded status and amounts recognized in the balance sheet at December 31:
Assets Exceed Accumulated Accumulated Benefits Millions Benefits Exceed Assets ------------- ------------- 1995 Actuarial present value of benefit obligations: Vested benefit obligation $1,965 $ 238 ------ ----- Accumulated benefit obligation $2,103 $ 245 ------ ----- Projected benefit obligation $2,480 $ 322 Plan assets at fair value, primarily stocks and bonds 2,637 -- ------ ----- Projected benefit obligation (in excess of) or less than plan assets 157 (322) Unrecognized net loss 291 169 Prior service cost not yet recognized in net periodic pension cost 143 23 Remaining unrecognized (asset) obligation from January 1, 1986 (290) 7 Adjustment for minimum liability -- (124) ------ ----- Prepaid pension cost (liability) recognized in the balance sheet $ 301 $(247) ====== ===== 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 for minimum liability -- (63) ------ ----- Prepaid pension cost (liability) recognized in the balance sheet $ 223 $(173) ====== =====
Pension costs related to ARCO-sponsored plans, on a pretax basis, including amortization of unfunded projected benefit obligations for the years ended December 31 were as follows:
Millions 1995 1994 1993 ----- ------ ----- Service cost-benefits earned during the period $ 62 $ 81 $ 59 Interest cost on projected benefit obligation 195 183 173 Actual (return) loss on plan assets (517) 65 (483) Net amortization and deferral 272 (344) 220 ----- ----- ----- Net periodic pension (income) cost $ 12 $ (15) $ (31) ===== ===== =====
In 1994 and 1993 ARCO also 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 in determining the pension cost and pension liability were as follows:
Percent 1995 1994 1993 ---- ---- ---- Discount rate 7.0 8.25 7.25 Rate of salary progression 5.0 5.0 5.0 Long-term rate of return on assets 10.5 10.5 10.5
Note 16 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 plans 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 plans' combined postretirement benefit liability at December 31 was as follows:
Health Life Millions Care Insurance Total ------ --------- ----- 1995 Accumulated postretirement benefit obligation (APBO): Retirees $579 $160 $739 Employees fully eligible 22 6 28 Other active participants 136 32 168 ---- ---- ---- Total 737 198 935 Unrecognized gain (loss) (75) 5 (70) ---- ---- ---- Accrued postretirement benefit cost recognized in the balance sheet $662 $203 $865 ==== ==== ==== 1994 APBO: 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 ==== ==== ====
45 ARCO ARCO accrues postretirement benefit costs based on actuarial calculations for each plan. Net annual postretirement benefit costs for the years ended December 31 included the following:
Health Life Millions Care Insurance Total ------ --------- ----- 1995 Service cost-benefits earned during the period $ 8 $ 2 $10 Interest cost on APBO 49 13 62 Net amortization -- (1) (1) --- --- --- Net postretirement benefit cost $57 $14 $71 === === === 1994 Service cost-benefits earned during the period $17 $ 4 $21 Interest cost on APBO 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 APBO 47 15 62 --- --- --- Net postretirement benefit cost $62 $18 $80 === === ===
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 work force reductions. The significant assumptions used in determining postretirement benefit cost and the accumulated postretirement benefit obligation were as follows:
Percent 1995 1994 1993 ---- ---- ---- Discount rate 7.0 8.25 7.25 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 9% for 1995 and 1996, 7% for 1997 to 2001, and 5% thereafter. The assumed trend rate for 1994 and 1993 was 10% to 1996; 8% for 1997 to 2001, and 6% thereafter. The effect of a one-percentage-point increase in the assumed trend rate would increase the accumulated postretirement benefit obligation as of December 31, 1995, by approximately 11%, and the aggregate of the service and interest cost components of net annual postretirement benefit cost by approximately 12%. Note 17 Stockholders' Equity Detail of ARCO's capital stock as of December 31 was as follows:
1995 1994 ---------- ---------- $3.00 Cumulative convertible preference stock, par $1: Shares authorized 78,089 78,089 Shares issued and outstanding 66,376 73,721 Aggregate value in liquidation -- (thousands) $ 5,310 $ 5,898 $2.80 Cumulative convertible preference stock, par $1: Shares authorized 833,776 833,776 Shares issued and outstanding 731,055 794,796 Aggregate value in liquidation -- (thousands) $ 51,174 $ 55,636 Common stock, par $2.50: Shares authorized 600,000,000 600,000,000 Shares issued 160,879,765 160,800,137 Shares outstanding 160,831,190 160,753,966 Shares held in treasury 48,575 46,171
Changes in preference stocks outstanding in 1995, 1994 and 1993 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, 1995. The balance in ARCO's common stock at December 31, 1995, 1994 and 1993 was $402 million. Detail of changes in treasury stock in 1995, 1994 and 1993 was as follows:
Millions Balance, January 1, 1993 $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 ---- Purchases 39 Conversions (39) ---- Balance, December 31, 1995 $ 5 ====
46 ARCO The net decrease in capital in excess of par value of stock in 1995, 1994 and 1993 of $15 million, $14 million and $15 million, respectively, was due primarily to the conversion of preference stock to common stock. At December 31, 1995, shares of ARCO's authorized and unissued common stock were reserved as follows:
Conversions: $3.00 Preference stock 451,357 $2.80 Preference stock 1,754,532 Stock option plans 7,421,582 Employee benefit plans 9,974,482 ---------- Total 19,601,953 ==========
Under ARCO's incentive compensation plans, awards of ARCO's common stock may be made to officers, outside directors and key employees. Note 18 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 10 years after the date of grant. Transactions during 1995, 1994 and 1993 were as follows:
Balance, January 1, 1993 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 --------- Granted 486,598 Exercised (average option price per share: $87.31) (221,086) Cancelled (1,118) --------- Balance, December 31, 1995 3,838,136 ========= At December 31, 1995: Shares exercisable 3,074,876 Shares available for option 3,583,446 (2,779,723 at December 31, 1994) Average option price per share: Shares under option $105.84 Shares exercisable $105.77
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, 1995, future minimum rental payments due under leases were as follows:
Capital Operating Millions Leases Leases ------- --------- 1996 $ 3 $ 142 1997 3 115 1998 3 99 1999 3 74 2000 3 63 Later years 70 340 ----- ----- Total minimum lease payments 85 $ 833 ===== Imputed interest (rates ranging from 9.75% to 12.00%) 60 ----- Present value of minimum lease payments included in long-term debt $ 25 =====
Minimum future rental income under noncancellable subleases at December 31, 1995, amounted to $95 million. Operating lease net rental expense for the years ended December 31 was as follows:
Millions 1995 1994 1993 ---- ----- ---- Minimum rentals $ 225 $ 218 $ 220 Contingent rentals 10 2 1 Sublease rental income (12) (12) (15) ----- ----- ----- Net rental expense $ 223 $ 208 $ 206 ===== ===== =====
No restrictions on dividends or on additional debt or lease financing exist under ARCO's lease commitments. Under certain conditions, options exist to purchase certain leased properties. Note 20 Supplemental Cash Flow Information The following is supplemental cash flow information for the years ended December 31:
Millions 1995 1994 1993 ------- ------- ------- Short-term investments: Gross sales and maturities $ 4,216 $ 5,952 $ 5,428 Gross purchases (2,716) (6,720) (6,217) ------- ------- ------- Net cash provided (used) $ 1,500 $ (768) $ (789) ======= ======= ======= Notes payable: Gross proceeds $ 8,058 $ 9,516 $ 8,568 Gross repayments (8,351) (9,585) (8,538) ------- ------- ------- Net cash provided (used) $ (293) $ (69) $ 30 ======= ======= ======= Gross noncash provisions charged to income $ 444 $ 888 $ 1,148 Cash payments of previously accrued items (627) (800) (635) ------- ------- ------- Noncash provisions greater (less) than cash payments $ (183) $ 88 $ 513 ======= ======= =======
47 ARCO Note 21 Lyondell Petrochemical Company Lyondell is engaged in the manufacture and marketing of basic commodity chemicals, including ethylene, propylene, methanol and polymers, and, through its approximately 90% interest in LYONDELL-CITGO Refining Company Ltd., the refining and marketing of petroleum products. At December 31, 1995, 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, 1995, was $913 million. Summarized financial information for Lyondell was as follows:
Millions 1995 1994 1993 ---- ---- ---- Year ended December 31: Revenues(a) $4,936 $3,857 $3,850 Operating income 706 424 93 Income before income taxes and cumulative effect of accounting change 618 349 16 Cumulative effect of changes in accounting principles -- -- 22 Net income 389 223 26 ARCO's equity in net income of Lyondell $ 194 $ 111 $ 13 ------ ------ ------ Cash dividends received from Lyondell $ 36 $ 36 $ 54 ------ ------ ------ At December 31: Current assets $ 678 $ 697 $ 523 Noncurrent assets 1,928 966 708 Current liabilities 750 433 299 Long-term debt 807 707 717 Other liabilities 210 192 179 Minority interest 459 268 124 Stockholders' equity (deficit)(b) 380 63 (88)
(a) Includes $325, $314 and $278 of sales to ARCO in 1995, 1994 and 1993, respectively, which approximated 5%, 5% and 4% of ARCO's 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 22 Investments At December 31, 1995 and 1994, investments were primarily composed of U.S. Treasury securities, corporate debt instruments, and municipal securities and were principally included in short-term investments. Maturities generally ranged from one day to 26 months. Investments in debt securities classified as held-to- maturity (HTM) are recorded at amortized cost while investments in debt securities classified as available-for-sale (AFS) are reported at fair value, with unrealized holding gains and losses, net of tax, reported in a separate component of stockholders' equity. The following summarizes investments in securities, principally debt securities, at December 31:
1995 1994 Millions AFS HTM AFS HTM ------ ------- ------ ------ Aggregate fair value $2,093 $ -- $1,939 $1,239 Gross unrealized holding losses 30 -- 62 -- Gross unrealized holding gains 23 -- -- -- ------ ------- ------ ------ Amortized cost $2,100 $ -- $2,001 $1,239 ====== ======= ====== ======
Investment activity for the years ended December 31 was as follows:
1995 1994 Millions AFS HTM AFS HTM ------ ------- ------ ------ Gross purchases $4,175 $1,293 $5,360 $8,341 Gross sales 2,368 -- 4,714 -- Gross maturities 1,830 2,407 46 8,603 Gross transfers 125 (125) -- --
Gross realized gains and losses were insignificant and were determined by the specific identification method. ARCO's investment in mandatorily convertible bonds issued by LUKoil, a Russian oil company, is expected to be exchanged for LUKoil common stock in April 1996. The bonds currently do not have readily determinable fair values. At December 31, 1995, the carrying value of these bonds totalled $252 million and is included in Other Investments and Long-term Receivables in the Balance Sheet. 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, option and swap contracts. Foreign currency forward and option contracts are used to minimize foreign exchange exposures associated with U.S. dollar-denominated debt issued by a foreign subsidiary, anticipated foreign currency commitments and anticipated future cash flows from overseas operations. Foreign currency swap contracts are used to minimize foreign exchange exposures related to yen- denominated debt and foreign-denominated intercompany debt with maturities exceeding one year. At December 31, 1995, the notional amounts of foreign currency contracts outstanding (principally involving European currencies, Australian dollars and yen) were approximately $960 million, with various maturities ranging from 1996 to 2000. At December 31, 1994, the notional amounts of foreign currency contracts outstanding were approximately $760 million. Gains and losses on foreign currency forward contracts covering anticipatory cash flows are recognized currently as other income or expense. Gains and losses on foreign currency 48 ARCO swaps associated with intercompany debt are recognized currently in income and offset foreign exchange gains and losses on the underlying intercompany loans. Gains and losses on other foreign currency contracts are generally deferred and offset the transactions being hedged. ARCO periodically enters into interest rate swaps to manage interest rate risk. Interest rate swaps are used both to convert certain variable rate debt to a fixed rate (see Note 9) and to convert certain fixed rate short-term investments to a variable rate. At December 31, 1995, the notional amount of short-term investments covered under interest rate swaps totaled approximately $300 million. Interest income is accrued at the variable rate through the term of the interest rate swap. The interest rate swaps mature at various dates through 1997 when the related investments mature. ARCO intends to hold the swaps until maturity. ARCO also uses various hedging arrangements to manage the exposure to price risk for future natural gas and crude oil transactions. Gains and losses resulting from these transactions are deferred and included in other assets or accrued liabilities until realized in sales and other operating revenues as the physical production required by the contracts is delivered. During 1995, Vastar entered into a series of natural gas swap agreements which at December 31, 1995, covered 290 million cubic feet per day of its 1996 natural gas production. These swap agreements serve as a hedge which secures prices on these volumes at an average price of $1.85 per thousand cubic feet (on a Henry Hub basis). At December 31, the carrying value and estimated fair value of ARCO's financial instruments are shown as assets (liabilities) in the table below:
1995 1994 Carrying Fair Carrying Fair Millions Value Value Value Value -------- ------ -------- ----- Non-Derivatives: Short-term investments $ 1,569 $ 1,569 $ 2,991 $ 2,991 Equity method investments 711 1,364 348 1,279 Other investments and long-term receivables 550 550 297 297 Notes payable (1,174) (1,174) (1,478) (1,478) Long-term debt, including current maturities (6,892) (7,929) (7,828) (7,991) Derivatives: Foreign currency forwards $ (6) $ (6) $ (16) $ (16) Foreign currency options 7 7 -- -- Foreign currency swaps 69 69 83 83 Interest rate swaps: Debt (1) (5) -- (5) Investments (11) (11) -- -- Oil & gas price swaps (21) (21) 5 5
All derivative instruments are off-balance-sheet instruments; however, net receivable or payable positions related to derivative instruments are carried on the balance sheet. Short-term investments are carried at fair value. The fair value of notes payable approximates carrying value due to its short-term maturities. Equity method investments and other investments and long-term receivables were valued at quoted market prices if available. For unquoted investment securities, 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 was estimated based on market quotes. ARCO is exposed to credit risk in the event of nonperformance 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 ARCO; ARCO does not anticipate nonperformance by the counterparties. Note 24 Unaudited Quarterly Results
Millions, except per share amounts 1995 1994 ------- ------- Sales and other operating revenues (including excise taxes) Quarter ended: March 31 $ 4,244 $ 3,800 June 30 4,423 4,174 September 30 4,277 4,271 December 31 4,393 4,307 ------- ------- Total $17,337 $16,552 ======= ======= Income before gain on issuance of stock by subsidiary, income taxes and minority interest Quarter ended: March 31 $ 534 $ 255 June 30 649 20(a) September 30 511 277 December 31 479 357 ------- ------- Total $ 2,173 $ 909 ======= ======= Net income Quarter ended: March 31 $ 322 $ 149 June 30 391 24(a) September 30 315 435 December 31 348 311 ------- ------- Total $ 1,376 $ 919 ======= ======= Earned per share Quarter ended: March 31 $ 1.97 $0.92 June 30 $ 2.39 $0.14(a) September 30 $ 1.93 $2.67 December 31 $ 2.13 $1.90
(a) See Note 2. 49 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, 1993: 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 December 31, 1995: Proved reserves 2,163 206 4,666 3,683 Proved developed reserves 1,896 92 4,294 1,806
Included in ARCO's reserves are 100% of the reserves of Vastar, a consolidated subsidiary of which ARCO owned 82.3% at December 31, 1995. Vastar's reserves comprised 5% and 45% of U.S. petroleum liquids and natural gas reserves, respectively, at December 31, 1995. 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 were as follows:
Petroleum Liquids Natural Gas (million barrels) (billion cubic feet) --------------------- ------------------------- U.S. International U.S. International ----- ------------- ------ ------------- Reserves at January 1, 1993 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 Revisions of estimates 76 2 184 7 Improved recovery 15 -- 8 -- Purchases of minerals-in-place 16 1 78 89 Extensions and discoveries 33 5 252 302 Production (213) (24) (365) (203) Consumed in production -- -- (93) (5) Sales of minerals-in-place (10) -- (13) -- ----- --- ----- ----- Reserves at December 31, 1995 2,163 206 4,666 3,683 ===== === ===== =====
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 13% of petroleum liquid proved reserves. The sale of natural gas from the North Slope of Alaska, other than that 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, there are a number of regulatory, financial, legal and marketing questions regarding the projects that remain unresolved. 50 ARCO ARCO continues to study various options for marketing North Slope gas. However, ARCO Alaska believes that market conditions continue to make implementation of any large gas sales projects unlikely in the near 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 were as follows:
Proved Properties Unproved Properties Millions U.S. International U.S. International ------- ------------- ------ ------------- 1995 Gross $14,355 $4,304 $182 $236 Accumulated depreciation, depletion and amortization 9,215 2,285 42 17 ------- ------ ---- ---- Net $ 5,140 $2,019 $140 $219 ======= ====== ==== ==== 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 ======= ====== ==== ====
Costs, both capitalized and expensed, incurred in oil and gas producing activities during the three years ended December 31 were as follows:
Millions U.S. International Total ---- ------------- ----- 1995 Property acquisition costs: Proved properties $ 56 $ 34 $ 90 Unproved properties 24 15 39 Exploration costs 212 309 521 Development costs 389 328 717 1994 Property acquisition costs: Proved properties $ -- $ 1 $ 1 Unproved properties 38 23 61 Exploration costs 180 237 417 Development costs 363 303 666 1993 Property acquisition costs: Proved properties $ -- $ 3 $ 3 Unproved properties 59 2 61 Exploration costs 351 274 625 Development costs 435 465 900
Results of operations from oil and gas producing activities (including operating overhead) for the three years ended December 31 were as follows:
Millions U.S. International Total ---- ------------- ----- 1995 Revenues: Sales $1,460 $960 $2,420 Transfers 1,679 -- 1,679 Other 83 24 107 ------ ---- ------ 3,222 984 4,206 Production costs 1,021 232 1,253 Exploration expenses 212 311 523 Depreciation, depletion and amortization 713 251 964 Other operating expenses 218 221 439 ------ ---- ------ 1,058 (31) 1,027 Income tax expense (332) (7) (339) ------ ---- ------ Results of operations from production activities $ 726 $(38) $ 688 ====== ==== ====== 1994 Revenues: Sales $1,421 $879 $2,300 Transfers 1,456 -- 1,456 Other 74 22 96 ------ ---- ------ 2,951 901 3,852 Production costs 1,166 198 1,364 Exploration expenses 277 178 455 Depreciation, depletion and amortization 731 275 1,006 Other operating expenses 251 180 431 ------ ---- ------ 526 70 596 Income tax expense (143) (43) (186) ------ ---- ------ Results of operations from production activities $ 383 $ 27 $ 410 ====== ==== ====== 1993 Revenues: Sales $1,639 $815 $2,454 Transfers 1,616 -- 1,616 Other 48 23 71 ------ ---- ------ 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 ====== ==== ======
The difference between the above results of operations and the amounts reported for after-tax oil and gas segment earnings in Note 5 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. 51 ARCO The standardized measure of discounted estimated future net cash flows related to proved oil and gas reserves at December 31 was as follows:
Billions U.S. International Total ----- ------------- ----- 1995 Future cash inflows $32.5 $12.1 $44.6 Future development and production costs 13.2 3.9 17.1 Future income tax expense 6.5 3.0 9.5 ----- ----- ----- Future net cash flows 12.8 5.2 18.0 10% annual discount 5.7 2.4 8.1 ----- ----- ----- Standardized measure of discounted future net cash flows $ 7.1 $ 2.8 $ 9.9 ===== ===== ===== 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 ===== ===== =====
Primary changes in the standardized measure of discounted estimated future net cash flows for the years ended December 31 were as follows:
Billions 1995 1994 1993 ----- ------ ---- Sales and transfers of oil and gas, net of production costs $(2.9) $(2.3) $(2.5) Extensions, discoveries and improved recovery, less related costs .7 1.0 .4 Revisions of estimates of reserves proved in prior years: Quantity estimates .4 .2 -- Net changes in price and production costs 1.8 4.9 (4.2) Purchases/sales .1 .1 (.3) Other (.4) (.2) .1 Accretion of discount 1.3 .8 1.2 Development costs incurred during the period .7 .7 .9 Net change in income taxes (.7) (1.9) 1.6 ----- ----- ----- Net change $ 1.0 $ 3.3 $(2.8) ===== ===== =====
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 were as follows:
1995 1994 1993 ---- ---- ---- Coal shipments -- thousand tons: U.S. 45,853 38,322 37,499 International 11,772 11,235 10,246 ------ ------ ------ Total 57,625 49,557 47,745 ====== ====== ====== Coal reserves -- million tons recoverable: U.S. 1,265 1,279 1,296 International 216 227 214 ------ ------ ------ Total 1,481 1,506 1,510 ====== ====== ====== Average market price per ton: U.S. $ 8.38 $ 8.52 $ 9.12 International $ 32.09 $ 29.90 $ 29.69 Composite price $ 13.22 $ 13.37 $ 13.53
52 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 6, 1996, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1995, and which is incorporated herein by reference, except for the material included under the captions "Committee Report on Executive Compensation" 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 ("ARCO") as of June 27, 1994, filed with the Securi- ties and Exchange Commission (the "Commission") as Exhibit 3 to ARCO's report on Form 10-Q for the quarterly period ended June 30, 1994, under File No. 1-1196 and incorporated herein by reference. 3.2 By-Laws of ARCO as amended through January 23, 1989, filed with the Commission as Exhibit 3.2 to ARCO's report on Form 10-K for the year 1993, under File No. 1-1196 and incorporated herein by reference. 4.1 Rights Agreement dated as of July 24, 1995 between ARCO and First Chicago Trust Company of New York, as Rights Agent, filed with the Commission as Exhibit 4 to ARCO's report on Form 10-Q for the quarterly period ended June 30, 1995, under File No. 1-1196 and incorporated herein by reference. 4.2 Indenture dated as of May 15, 1985 between ARCO and The Chase Manhattan Bank, N.A., filed as Exhibit 4.4 to ARCO's report on Form 10-Q for the quarterly period ended June 30, 1985, under File No. 1-1196 and incorporated herein by reference. 4.3 Indenture, dated as of January 1, 1992, between ARCO and The Bank of New York, filed with the Commission on January 6, 1992 as Exhibit 4.3 to ARCO's Registration Statement on Form S-3 (No. 33-44925) and incorporated herein by reference. 53 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% 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 Retirement Plan, as adopted by the Board of Directors of ARCO on March 26, 1990 and effective as of October 1, 1990, filed with the Commission as Exhibit 10.2 to ARCO's report on Form 10-K for the year 1990, under File No. 1-1196 and incorporated herein by reference. 10.1(b)* Amendment No. 1 to the Atlantic Richfield Company Supplemen- tary Executive Retirement Plan, effective as of March 22, 1993, filed with the Commission as Exhibit 10 to ARCO's report on Form 10-Q for the quarterly period ended June 30, 1993, un- der File No. 1-1196 and incorporated herein by reference. 10.1(c)* Amendment No. 2 to the Atlantic Richfield Company Supplemen- tary Executive Retirement Plan, effective as of February 28, 1994, filed herewith. 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 as of October 1, 1990, filed with the Commission as Exhibit 10.3 to ARCO's report on Form 10-K for the year 1990, under File No. 1-1196 and incorporated herein by reference. 10.2(b)* Amendment No. 1 to the Atlantic Richfield Company Executive Deferral Plan, effective as of July 27, 1992, filed with the Commission as Exhibit 10.2(b) to ARCO's report on Form 10-K for the year 1992, under File No. 1-1196 and incorporated herein by reference. 10.2(c)* Amendment No. 2 to the Atlantic Richfield Company Executive Deferral Plan, effective as of February 28, 1994, filed here- with. 10.3* Atlantic Richfield Executive Medical Insurance Plan-Summary Plan Description, effective as of January 1, 1994, filed with the Commission as Exhibit 10.3 to ARCO's report on Form 10-K for the year 1993, under 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 as of July 1, 1988, filed with the Commission as Exhibit 10.6 to ARCO's re- port on Form 10-K for the year 1988, under File No. 1-1196 and incorporated herein by reference. 10.4(b)* Amendment No. 1 to the Atlantic Richfield Company Executive Supplementary Savings Plan II, as amended and effective as of January 1, 1989, filed with the Commission as Exhibit 10.6(b) to ARCO's report on Form 10-K for the year 1989, under File No. 1-1196 and incorporated herein by reference. 10.4(c)* Amendment No. 2 to the Atlantic Richfield Company Executive Supplementary Savings Plan II, as amended and effective as of July 1, 1994, filed with the Commission as Exhibit 10.4(c) to ARCO's report on Form 10-K for the year 1994, under File No. 1-1196 and incorporated herein by reference. 10.5* Atlantic Richfield Company Policy on Financial Counseling and Individual Income Tax Service, as revised and effective Janu- ary 1, 1994, filed with the Commission as Exhibit 10.5 to AR- CO's report on Form 10-K for the year 1994, under File No. 1- 1196 and incorporated herein by reference. 10.6(a)* Annual Incentive Plan, as adopted by the Board of Directors of ARCO on November 26, 1984, and effective as of that date, as amended through February 28, 1994, filed with the Commission as Exhibit 10.6 to ARCO's report on Form 10-K for the year 1994, under File No. 1-1196 and incorporated herein by refer- ence. 54 10.6(b)* Amendment No. 3 to the Annual Incentive Plan, effective as of January 1, 1995, filed herewith. 10.7* Atlantic Richfield Company's 1985 Executive Long-Term Incen- tive Plan, as adopted by the Board of Directors of ARCO on May 28, 1985, and effective as of that date, as amended through February 28, 1994, filed with the Commission as Exhibit 10.7 to ARCO's report on Form 10-K for the year 1994, under File No. 1-1196 and incorporated herein by reference. 10.8* Atlantic Richfield Company Executive Life Insurance Plan--Sum- mary Plan Description, effective as of January 1, 1994, filed with the Commission as Exhibit 10.8 to ARCO's report on Form 10-K for the year 1993, under File No. 1-1196 and incorporated herein by reference. 10.9(a)* Atlantic Richfield Company Executive Long-Term Disability Plan--Summary Plan Description, effective as of January 1, 1994, filed with the Commission as Exhibit 10.9 to ARCO's re- port on Form 10-K for the year 1993, under File No. 1-1196 and incorporated herein by reference. 10.9(b)* Amendment No. 1 to the Atlantic Richfield Company Executive Long-Term Disability Plan, effective as of February 28, 1994, filed herewith. 10.10 Form of Indemnity Agreement adopted by the Board of Directors of ARCO on January 26, 1987 and executed in February 1987 by ARCO 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* Retirement Plan for Outside Directors effective as of October 1, 1990, as amended March 31, 1993, filed with the Commission as Exhibit 10 to ARCO's report on Form 10-Q for the quarterly period ended March 31, 1993, under File No. 1-1196 and incor- porated herein by reference. 10.12(a)* Stock Option Plan for Outside Directors effective as of Decem- ber 17, 1990, filed with the Commission as Exhibit 10.14 to ARCO's report on Form 10-K for the year 1990, under File No. 1-1196 and incorporated herein by reference. 10.12(b)* Amendment No. 1 to the Stock Option Plan for Outside Directors, effective as of June 22, 1992, filed with the Commission as Exhibit 10.13(b) to ARCO's report on Form 10-K for the year 1992, under File No. 1-1196 and incorporated herein by reference. 10.13(a)* Deferral Plan for Outside Directors, effective as of October 1, 1990, filed herewith. 10.13(b)* Amendment No. 1 to the Deferral Plan for Outside Directors, effective as of July 27, 1992, filed herewith. 10.14* Special Incentive Plan, as adopted by the Board of Directors of ARCO on February 28, 1994, and as 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. 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, 1995, and thereafter through February 27, 1996. 55 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 12, 1996, on our audits of the consolidated financial statements and financial statement schedule of Atlantic Richfield Company as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Los Angeles, California February 27, 1996 56 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. ATLANTIC RICHFIELD COMPANY /s/ Mike R. Bowlin By ___________________________________ Mike R. Bowlin Chairman of the Board, Chief Executive Officer and President FEBRUARY 26, 1996 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/ Mike R. Bowlin Chairman of the February 26, - ------------------------------------- Board, Chief 1996 Mike R. Bowlin Principal executive Executive Officer officer and President /s/ Ronald J. Arnault Executive Vice February 26, - ------------------------------------- President, Chief 1996 Ronald J. Arnault Principal Financial Officer financial officer and Director /s/ Anthony G. Fernandes Executive Vice February 26, - ------------------------------------- President and 1996 Anthony G. Fernandes Director /s/ William E. Wade, Jr. Executive Vice February 26, - ------------------------------------- President and 1996 William E. Wade, Jr. Director 57 SIGNATURE TITLE DATE /s/ Frank D. Boren Director February 26, - ------------------------------------ 1996 Frank D. Boren /s/ Lodwrick M. Cook Director February 26, - ------------------------------------ 1996 Lodwrick M. Cook /s/ Richard H. Deihl Director February 26, - ------------------------------------ 1996 Richard H. Deihl /s/ John Gavin Director February 26, - ------------------------------------ 1996 John Gavin /s/ Hanna H. Gray Director February 26, - ------------------------------------ 1996 Hanna H. Gray /s/ Philip M. Hawley Director February 26, - ------------------------------------ 1996 Philip M. Hawley /s/ Kent Kresa Director February 26, - ------------------------------------ 1996 Kent Kresa /s/ David T. McLaughlin Director February 26, - ------------------------------------ 1996 David T. McLaughlin /s/ John B. Slaughter Director February 26, - ------------------------------------ 1996 John B. Slaughter /s/ Henry Wendt Director February 26, - ------------------------------------ 1996 Henry Wendt /s/ Allan L. Comstock Vice President and February 26, - ------------------------------------ Controller 1996 Allan L. Comstock Principal accounting officer 58 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 1995 Amounts deducted from applicable assets: Accounts receivable....... $ 15 5 -- 4(a) $ 16 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.......... 848 65 -- 31 882 Reduction in force........ 177 -- -- 102 75 Insurance ................ 202 47 -- 48 201 Environmental remediation. 670 101 -- 113 658 Other..................... 249 15 -- 63 201 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
- -------- (a) Write-off for uncollectible accounts, net of recoveries. 59 EXHIBIT INDEX EXHIBIT DESCRIPTION 3.1 Restated Certificate of Incorporation of Atlantic Richfield Company ("ARCO") as of June 27, 1994, filed with the Securities and Exchange Commission (the "Commission") as Exhibit 3 to ARCO's report on Form 10-Q for the quarterly period ended June 30, 1994, under File No. 1-1196 and incorporated herein by reference. 3.2 By-Laws of ARCO as amended through January 23, 1989, filed with the Commission as Exhibit 3.2 to ARCO's report on Form 10-K for the year 1993, under File No. 1-1196 and incorporated herein by reference. 4.1 Rights Agreement dated as of July 24, 1995 between ARCO and First Chi- cago Trust Company of New York, as Rights Agent, filed with the Com- mission as Exhibit 4 to ARCO's report on Form 10-Q for the quarterly period ended June 30, 1995, under File No. 1-1196 and incorporated herein by reference. 4.2 Indenture dated as of May 15, 1985 between ARCO and The Chase Manhat- tan Bank, N.A., filed as Exhibit 4.4 to ARCO's report on Form 10-Q for the quarterly period ended June 30, 1985, under File No. 1-1196 and incorporated herein by reference. 4.3 Indenture, dated as of January 1, 1992, between ARCO and The Bank of New York, filed with the Commission on January 6, 1992 as Exhibit 4.3 to ARCO's Registration Statement on Form S-3 (No. 33-44925) and incor- porated herein by reference. 4.4 Instruments defining the rights of holders of long-term debt which is not registered under the Securities Exchange Act of 1934 are not filed because the total amount of securities authorized under any such in- strument does not exceed 10% 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 Retirement Plan, as adopted by the Board of Directors of ARCO on March 26, 1990 and effec- tive as of October 1, 1990, filed with the Commission as Exhibit 10.2 to ARCO's report on Form 10-K for the year 1990, under File No. 1-1196 and incorporated herein by reference. 10.1(b)* Amendment No. 1 to the Atlantic Richfield Company Supplementary Execu- tive Retirement Plan, effective as of March 22, 1993, filed with the Commission as Exhibit 10 to ARCO's report on Form 10-Q for the quar- terly period ended June 30, 1993, under File No. 1-1196 and incorpo- rated herein by reference. 10.1(c)* Amendment No. 2 to the Atlantic Richfield Company Supplementary Execu- tive Retirement Plan, effective as of February 28, 1994, filed here- with. 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 as of October 1, 1990, filed with the Commission as Exhibit 10.3 to AR- CO's report on Form 10-K for the year 1990, under File No. 1-1196 and incorporated herein by reference. 10.2(b)* Amendment No. 1 to the Atlantic Richfield Company Executive Deferral Plan, effective as of July 27, 1992, filed with the Commission as Ex- hibit 10.2(b) to ARCO's report on Form 10-K for the year 1992, under File No. 1-1196 and incorporated herein by reference. 10.2(c)* Amendment No. 2 to the Atlantic Richfield Company Executive Deferral Plan, effective as of February 28, 1994, filed herewith. 10.3* Atlantic Richfield Executive Medical Insurance Plan-Summary Plan De- scription, effective as of January 1, 1994, filed with the Commission as Exhibit 10.3 to ARCO's report on Form 10-K for the year 1993, under File No. 1-1196, and incorporated herein by reference.
EXHIBIT DESCRIPTION 10.4(a)* Atlantic Richfield Company Executive Supplementary Savings Plan II, as amended, restated and effective as of July 1, 1988, filed with the Commission as Exhibit 10.6 to ARCO's report on Form 10-K for the year 1988, under File No. 1-1196 and incorporated herein by reference. 10.4(b)* Amendment No. 1 to the Atlantic Richfield Company Executive Supplemen- tary Savings Plan II, as amended and effective as of January 1, 1989, filed with the Commission as Exhibit 10.6(b) to ARCO's report on Form 10-K for the year 1989, under File No. 1-1196 and incorporated herein by reference. 10.4(c)* Amendment No. 2 to the Atlantic Richfield Company Executive Supplemen- tary Savings Plan II, as amended and effective as of July 1, 1994, filed with the Commission as Exhibit 10.4(c) to ARCO's report on Form 10-K for the year 1994, under File No. 1-1196 and incorporated herein by reference. 10.5* Atlantic Richfield Company Policy on Financial Counseling and Individ- ual Income Tax Service, as revised and effective January 1, 1994, filed with the Commission as Exhibit 10.5 to ARCO's report on Form 10- K for the year 1994, under File No. 1-1196 and incorporated herein by reference. 10.6(a)* Annual Incentive Plan, as adopted by the Board of Directors of ARCO on November 26, 1984, and effective as of that date, as amended through February 28, 1994, filed with the Commission as Exhibit 10.6 to ARCO's report on Form 10-K for the year 1994, under File No. 1-1196 and in- corporated herein by reference. 10.6(b)* Amendment No. 3 to the Annual Incentive Plan, effective as of January 1, 1995, filed herewith. 10.7* Atlantic Richfield Company's 1985 Executive Long-Term Incentive Plan, as adopted by the Board of Directors of ARCO on May 28, 1985, and ef- fective as of that date, as amended through February 28, 1994, filed with the Commission as Exhibit 10.7 to ARCO's report on Form 10-K for the year 1994, under File No. 1-1196 and incorporated herein by refer- ence. 10.8* Atlantic Richfield Company Executive Life Insurance Plan--Summary Plan Description, effective as of January 1, 1994, filed with the Commis- sion as Exhibit 10.8 to ARCO's report on Form 10-K for the year 1993, under File No. 1-1196 and incorporated herein by reference. 10.9(a)* Atlantic Richfield Company Executive Long-Term Disability Plan--Sum- mary Plan Description, effective as of January 1, 1994, filed with the Commission as Exhibit 10.9 to ARCO's report on Form 10-K for the year 1993, under File No. 1-1196 and incorporated herein by reference. 10.9(b)* Amendment No. 1 to the Atlantic Richfield Company Executive Long-Term Disability Plan, effective as of February 28, 1994, filed herewith. 10.10 Form of Indemnity Agreement adopted by the Board of Directors of ARCO on January 26, 1987 and executed in February 1987 by ARCO 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 incor- porated herein by reference. 10.11* Retirement Plan for Outside Directors effective as of October 1, 1990, as amended March 31, 1993, filed with the Commission as Exhibit 10 to ARCO's report on Form 10-Q for the quarterly period ended March 31, 1993, under File No. 1-1196 and incorporated herein by reference. 10.12(a)* Stock Option Plan for Outside Directors effective as of December 17, 1990, filed with the Commission as Exhibit 10.14 to ARCO's report on Form 10-K for the year 1990, under File No. 1-1196 and incorporated herein by reference. 10.12(b)* Amendment No. 1 to the Stock Option Plan for Outside Directors, effec- tive as of June 22, 1992, filed with the Commission as Exhibit 10.13(b) to ARCO's report on Form 10-K for the year 1992, under File No. 1-1196 and incorporated herein by reference.
EXHIBIT DESCRIPTION 10.13(a)* Deferral Plan for Outside Directors, effective as of October 1, 1990, filed herewith. 10.13(b)* Amendment No. 1 to the Deferral Plan for Outside Directors, effective as of July 27, 1992, filed herewith. 10.14* Special Incentive Plan, as adopted by the Board of Directors of ARCO on February 28, 1994, and as 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. - -------- * Management compensatory plans filed as exhibits hereto pursuant to Item 14(c) of Form 10-K. EX-10.1(C) 2 AMEND NO. 2 TO ATLANTIC RICHFIELD SUPP ERP Exhibit 10.1(c) AMENDMENT NO. 2 TO ATLANTIC RICHFIELD COMPANY SUPPLEMENTARY EXECUTIVE RETIREMENT PLAN ___________________________ Pursuant to the power of amendment reserved therein, the following amendment is hereby made to the Atlantic Richfield Company Supplementary Executive Retirement Plan (the "Plan") effective as of February 28, 1994. 1. Article I, Section 1.2(a) of the Plan is amended to read as follows: "(a) have received Awards under the Atlantic Richfield Company Annual Incentive Plan, the Atlantic Richfield Company Special Incentive Plan, the ARCO Chemical Company Annual Incentive Plan or the Lyondell Petrochemical Company Annual Incentive Plan. 2. Article I, Section 3.3 of the Plan is amended to read as follows: "3.3 Award or Awards means cash awards made under the Atlantic Richfield Company Annual Incentive Plan, the Atlantic Richfield Company Special Incentive Plan, the ARCO Chemical Company Annual Incentive Plan and the Lyondell Petrochemical Company Annual Incentive Plan." 3. Article II, Section 2.5 of the Plan is amended to read as follows: "2.5 Computation Procedure. For purposes of computing the amount of monthly benefit payable under Sections 2.2 and 2.3 of this Article, it shall be assumed that an award under the Atlantic Richfield Company Annual Incentive Plan has been made with respect to the calendar year in which a Participant's termination or death occurs equal in amount to a pro rata share of such award, if any, made with respect to the calendar year immediately preceding such event. If the Participant receives an Award or Awards following termination and after commencement of benefits under this Article, the benefit under this Article shall be re- calculated, using each actual Award granted subsequent to the Participant's termination rather than the Award calculated on the pro rata basis, provided; however, that such recalculation shall not result in a reduction of the benefit that has commenced under this Article." Executed this 31st day of March, 1995. ---- ----- ATTEST ATLANTIC RICHFIELD COMPANY BY: /s/ Armineh Simonian BY: /s/ JOHN H. KELLY -------------------- ----------------- John H. Kelly Vice President Human Resources EX-10.2(C) 3 AMEND NO. 2 TO ATLANTIC RICHFIELD EXEC DEF PLAN Exhibit 10.2(c) AMENDMENT NO. 2 TO ATLANTIC RICHFIELD COMPANY EXECUTIVE DEFERRAL PLAN ___________________________ Pursuant to the power of amendment reserved therein, the following amendment is hereby made to the Atlantic Richfield Company Executive Deferral Plan (the "Plan") effective as of February 28, 1994. 1. Article I, Section 1.1 of the Plan is amended to read as follows: "1.1 This Plan is intended to provide the opportunity for eligible Employees to accumulate supplemental funds through the deferral of portions of their regular salary, Annual Incentive Plan awards, Special Incentive Plan awards and Executive Supplementary Savings Plan benefits for retirement or special needs prior to retirement." 2. Article I, Section 3.3 of the Plan is amended to read as follows: "3.2 Awards means cash awards made under the Atlantic Richfield Company Annual Incentive Plan and the Atlantic Richfield Special Incentive Plan". Executed this 1st day of June, 1995. --- ---- ATTEST ATLANTIC RICHFIELD COMPANY BY: /s/ Armineh Simonian BY: /s/ JOHN H. KELLY -------------------- --------------------- John H. Kelly Vice President Human Resources EX-10.6(B) 4 AMEND NO. 3 TO ATLANTIC RICHFIELD ANN INCTV PLAN Exhibit 10.6(b) AMENDMENT NO. 3 TO ATLANTIC RICHFIELD COMPANY ANNUAL INCENTIVE PLAN ___________________________ Pursuant to authority contained in resolutions adopted by the Board of Directors on February 27, 1995, the following amendment is hereby made to the Atlantic Richfield Company Annual Incentive Plan (the "Plan") with respect to plan years commencing on or after January 1, 1995. Section 5(b) of the Plan is amended to read as follows: "(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:
APPLICABLE SALARY GRADE PERCENTAGE ---------------------------- ---------- Chairman of the Board and/or Chief Executive Officer (EO) 65 President and/or Chief Operating Officer and any other Officer in Grade EO 60 E1 55 E2 35 E3 25 E4 20 10 15 9 15
- 1 - (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." Executed this 31st day of March, 1995. ---- ----- ATTEST ATLANTIC RICHFIELD COMPANY BY: /s/ Armineh Simonian BY: /s/ JOHN H. KELLY ----------------------- -------------------- John H. Kelly Vice President Human Resources - 2 - EX-10.9(B) 5 AMEND NO. 1 TO ATLANTIC RICHFIELD ELTDP Exhibit 10.9(b) AMENDMENT NO. 1 TO ATLANTIC RICHFIELD COMPANY EXECUTIVE LONG-TERM DISABILITY PLAN ___________________________ Pursuant to the power of amendment reserved therein, the following amendment is hereby made to the Atlantic Richfield Company Executive Long-Term Disability Plan (the "Plan") effective as of February 28, 1994. 1. Article 1 Section 1.5 of the Plan is amended to read as follows: "1.5 Earnings means Annual Base Pay, as defined in the Atlantic Richfield Retirement Plan II, paid by the Company to the Participant plus the yearly average of the sum of any Annual Incentive Plan (AIP) and Special Incentive Plan (SIP) awards granted to the Participant during each of the preceding three years, and excluding other allowances or payments by the Company. If the Participant has less than three AIP awards during the immediately preceding three years, due to ineligibility for such awards, only the years in which an AIP award was granted will be used in calculating the average described in the preceding sentence. In the case of a Participant without any AIP awards during the immediately preceding three years due to ineligibility for such awards, (e.g., new hire or recent promotion) the award amount will be an estimate, based on the average, projected AIP award for the immediately following Plan Year for participants in the same grade and other, similar circumstances as the Participant." Executed this 1st day of June, 1995. --- ---- ATTEST ATLANTIC RICHFIELD COMPANY BY: /s/ Armineh Simonian BY: /s/ JOHN H. KELLY ----------------------- -------------------- John H. Kelly Vice President Human Resources EX-10.13(A) 6 DEFFERAL PLAN FOR OUTSIDE DIRECTORS Exhibit 10.13(a) ATLANTIC RICHFIELD COMPANY - -------------------------------------------------------------------------------- DEFERRAL PLAN FOR OUTSIDE DIRECTORS Effective October 1, 1990 ATLANTIC RICHFIELD COMPANY DEFERRAL PLAN FOR OUTSIDE DIRECTORS To record the adoption of the Atlantic Richfield Deferral Plan For Outside Directors, effective October 1, 1990, the undersigned, being duly authorized to act on behalf of Atlantic Richfield Company has executed this plan document at Los Angeles, California on the 12th day of September, 1991. ATTEST: ATLANTIC RICHFIELD COMPANY BY: /s/ARMINEH SIMONIAN BY: /s/ DONALD A. MURRAY -------------------- -------------------- Donald A. Murray Vice President Human Resources Atlantic Richfield Company Deferral Plan For Outside Directors TABLE OF CONTENTS ----------------- Page No. ------- ARTICLE I. GENERAL PROVISIONS Section 1 Purpose and Intent of Plan............................... 1 Section 2 Effective Date of Plan................................... 1 Section 3 Definitions.............................................. 1 ARTICLE II. PARTICIPATION AND DEFERRAL COMMITMENTS Section 1 Participation............................................ 5 Section 2 Basic Forms of Deferral.................................. 5 Section 3 Deferral Elections....................................... 5 Section 4 Limitation on Deferral................................... 5 Section 5 Termination of Service................................... 6 Section 6 Modification of Deferral Commitments..................... 6 ARTICLE III. DEFERRED COMPENSATION ACCOUNTS Section 1 Accounts................................................. 7 Section 2 Deferred Compensation.................................... 7 Section 3 Interest Rate............................................ 7 Section 4 Determination of Accounts................................ 8 Section 5 Vesting of Accounts...................................... 8 Section 6 Statement of Accounts.................................... 8 ARTICLE IV. PLAN BENEFITS Section 1 Plan Benefit............................................. 9 Section 2 Distribution Upon Retirement............................. 9 Section 3 Distribution Upon Termination of Service.................10 Section 4 Survivor Benefits........................................10 Section 5 In-Service Distributions.................................11 Section 6 Unscheduled Distributions................................12 Section 7 Valuation and Settlement.................................12 Section 8 Small Benefit............................................12 Section 9 Change in Control........................................13 (i) Page No. ------- ARTICLE V. DESIGNATION OF BENEFICIARY Section 1 Designation of Beneficiary...............................14 Section 2 Failure to Designate Beneficiary.........................14 ARTICLE VI. ADMINISTRATION Section 1 Administrative Committee.................................15 Section 2 Rules of Conduct.........................................15 Section 3 Legal, Accounting, Clerical and Other Services...........15 Section 4 Interpretation of Provisions.............................15 Section 5 Records of Administration................................15 Section 6 Denial of Claim..........................................15 Section 7 Liability of Committee...................................16 ARTICLE VII. AMENDMENT AND DISCONTINUANCE Section 1 Amendment of Plan........................................17 Section 2 Termination..............................................17 Section 3 Effect of Amendment or Termination.......................17 ARTICLE VIII. MISCELLANEOUS Section 1 Unsecured General Creditor...............................18 Section 2 Grantor Trust............................................18 Section 3 Payments and Benefits Not Assignable.....................18 Section 4 No Right To Service On The Board.........................19 Section 5 Adjustments..............................................19 Section 6 Obligation to Company....................................19 Section 7 Protective Provisions....................................19 Section 8 Gender, Singular and Plural..............................20 Section 9 Law Governing............................................20 Section 10 Notice...................................................20 Section 11 Successors and Assigns...................................20 Section 12 Provisions for Incapacity................................20 (ii) ARTICLE I GENERAL PROVISIONS Section 1. Purpose and Intent of Plan 1.1 This Plan is intended to provide the opportunity for Directors who are not employees of the Company to accumulate supplemental funds through the deferral of portions of their Board and Committee Retainers and Meeting Fees for retirement or special needs prior to retirement. Section 2. Effective Date of Plan 2.1 This Plan shall generally be effective as of October 1, 1990 and shall apply to those persons who are not employees of the Company and who serve on the Board of Directors of the Company on or after October 1, 1990. Section 3. Definitions 3.1 Account means a separate bookkeeping account maintained by the Company for each Participant and which measures and determines the amounts to be paid to the Participant under the Plan for each Deferral Unit. Separate subaccounts will be established for separate Deferral Units and for amounts of Retainers and Meeting Fees, as applicable, deferred by a Participant under separate Deferral Units. 3.2 Administrative Committee means the group of three employees of the Company which has been appointed by the Board and given authority to administer the Plan. 3.3 Beneficiary means a person who is entitled to receive a Participant's interest under this Plan in the event of the Participant's death. 3.4 Board means the Board of Directors of Atlantic Richfield Company. 3.5 Board Committee means any committee established by the Board which consists of Directors and which reports to the Board. 3.6 Citibank Base Rate means the average of the base rates in effect on January 1, April 1, July 1 and October 1 of such year at Citibank. 1 3.7 Code means the Internal Revenue Code of 1986, as amended. 3.8 Company means Atlantic Richfield Company and any of its Subsidiaries or Affiliates. 3.9 Deferral Commitment means a promise made by a Director to establish a Deferral Unit pursuant to Article III for which a Participation Agreement has been submitted by the Director to the Company. 3.10 Deferral Period means the period of years the maximum number of which is established by the Administrative Committee in advance of the Deferral Commitment, over which the Director elects to defer a Retainer or Meeting Fee. A new Deferral Period shall normally start each January 1, except that with respect to a new Director, the Deferral Period shall commence 30 days following the Director's first day of service. 3.11 Deferral Unit means the amount of Retainer or Meeting Fee, as the case may be, for which the Director makes a Deferral Commitment for a specific Deferral Period. 3.12 Deferred Compensation means the amount of Retainer or Meeting Fee that a Director elects to defer pursuant to a Deferral Commitment. 3.13 Director means a Director of the Board who is not an employee of Atlantic Richfield Company, Lyondell Petrochemical Company or ARCO Chemical Company. 3.14 Effective Date means October 1, 1990. 3.15 Financial Hardship means a condition of financial difficulty, determined by the Administrative Committee, upon advice of counsel, on the basis of written information supplied by the Participant or Beneficiary, as the case may be, in accordance with such standards as are, from time to time, established by the Administrative Committee and which condition is sufficient, in the judgment of counsel, to justify a change of election under the Plan without causing the receipt of taxable income by any other Participant in the Plan in advance of the time the Participant or Beneficiary, as the case may be, actually receives his benefit. 3.16 In-Service Distribution means a distribution to a Participant prior to Termination of Service pursuant to Article IV, Section 5. 3.17 Interest Rate means the interest rate announced by the Company in advance of the election period for a Plan Year which shall constitute the interest rate applicable to that Plan Year. 2 3.18 Meeting Fee means the allowance paid to a Director as compensation for each Board and/or Board Committee meeting attended by the Director. 3.19 Participant means any Director who is participating in this Plan as provided in Article II. 3.20 Participation Agreement means the agreement submitted by a Director to the Company prior to the beginning of the Deferral Period, with respect to one or more Deferral Commitments made for such Deferral Period. 3.21 Plan means the Atlantic Richfield Company Deferral Plan for Outside Directors. 3.22 Plan Year means each calendar year beginning on January 1 and ending on December 31, except that the first Plan Year shall be the period commencing on October 1, 1990 and ending on December 31, 1990. 3.23 Retainer means the annual allowance paid to a Director and/or to a Board Committee Chairman as compensation for serving in such capacity. 3.24 Retirement means the Director's Termination of Service with a right to an immediate retirement allowance from the Director's regular, full-time employer. 3.25 Subsidiary or Affiliate means: (a) All corporations, which are members of a controlled group of corporations within the meaning of Section 1563(a) of the Code [determined without regard to Section 1563(a)(4) and Section 1563(e)(3)(C) of said Code] and of which Atlantic Richfield Company is then a member, and (b) All trades or businesses, whether or not incorporated, which, under the regulations prescribed by the Secretary of the Treasury pursuant to Section 210(d) of ERISA, are then under common control with Atlantic Richfield Company. 3.26 Survivor Benefit means the benefit described in Article IV, Section 4 of the Plan. 3.27 Ten-Year Treasury Note Rate means the rate periodically published by the U.S. Department of Treasury under the heading "10-year Treasury Note Rate". 3 3.28 Termination of Service means the Director's Termination of Service from the Board. 3.29 Valuation Date means the last day of each month, or such other dates as the Administrative Committee may determine in its discretion, which may be either more or less frequent, for the valuation of Participants' Accounts. 4 ARTICLE II PARTICIPATION AND DEFERRAL COMMITMENTS Section 1. Participation 1.1 A Director may elect to participate in the Plan by submitting a Participation Agreement, in accordance with rules, including the time and form of submission, established by the Administrative Committee. Section 2. Basic Forms of Deferral 2.1 A Participant may elect to establish any or all of the following Deferral Units in a Participation Agreement: (a) Board Retainer and Board Meeting Fees Deferral Unit. Commencing with Board Retainer and Board Meeting fees earned on and after October 1, 1990, a Participant may elect to defer such amounts earned during a Deferral Period, subject to any limitations, conditions or restrictions, such as minimum or maximum amounts that may be deferred, as are prescribed by the Administrative Committee in advance of the Deferral Period. (b) Board Committee Retainer and Board Committee Meeting Fees Deferral Unit. Commencing with Committee Retainer and Committee Meeting Fees earned on or after October 1, 1990, a Participant may elect to defer during a Deferral Period, subject to any limitations, conditions or restrictions, such as minimum or maximum amounts that may be deferred, as are prescribed by the Administrative Committee in advance of the Deferral Period. Section 3. Deferral Elections 3.1 Prior to each Deferral Period, at a time and on a form prescribed by the Administrative Committee, each Director may execute an election form to defer Retainers or Meeting Fees, as applicable, which shall be irrevocable except as modifications are authorized pursuant to Section 6 of this Article. Section 4. Limitation on Deferral 4.1 Deferral Commitments shall be subject to any limitations, including minimum amounts that may be deferred for the Deferral Period relating to a Deferral Commitment, as are established by the Administrative Committee in advance of the Deferral Period. Any 5 minimum amounts shall be allocable among the Deferral Units described in Article II, Section 2.1(a) and (b). Section 5. Termination of Service 5.1 A Participant's Deferral Commitments shall terminate upon the Participant's Termination of Service. Section 6. Modification of Deferral Commitments 6.1 Deferral Commitments shall be irrevocable except as follows: (a) Financial Hardship. The Administrative Committee may permit a Participant to reduce the amount elected under a prior Deferral Commitment, or to waive the remaining deferrals under a prior Deferral Commitment, upon a finding that the Participant has suffered a Financial Hardship. (b) Accelerated Deferral. At the discretion of the Administrative Committee, prior to the beginning of any Plan Year in any Deferral Period as to which there are two or more Plan Years remaining, a Participant may elect, on a form prescribed by the Administrative Committee, to accelerate the amount of Deferred Compensation previously elected for any of the Plan Years remaining in such Deferral Period; provided, however, that any such acceleration of Deferred Compensation for any remaining Plan Years in the Deferral Period shall not increase, for any single Plan Year, the total Board Retainer or Board Meeting Fees deferrals above hundred percent (100%) of the Board Retainer and Board Meeting Fees during the Plan Year or the Board Committee Retainer or Board Committee Meeting Fee deferrals above hundred percent (100%) of the Board Committee Retainer or Board Committee Meeting Fees during the Plan Year. 6 ARTICLE III DEFERRED COMPENSATION ACCOUNTS Section 1. Accounts 1.1 For record-keeping purposes only, Accounts shall be maintained for each Participant. Separate subaccounts shall be maintained for each Deferral Unit of a Participant. Section 2. Deferred Compensation 2.1 A Participant's Deferred Compensation shall be credited to the Participant's Account as of the date when the corresponding non-deferred portion of the compensation is paid or would have been paid but for the Deferral Commitment. The Company shall have the right to withhold from any Deferred Compensation (or otherwise to cause the Director or the executor or administrator of his estate, or his Beneficiary to make payment of) any federal, state local or foreign taxes required to be withheld with respect to any Deferred Compensation. Section 3. Interest Rate 3.1 The Accounts shall be credited as of each Valuation Date with interest based on the rates specified below, compounded annually. Interest shall be credited as of each Valuation Date from the dates when deferred amounts are credited to Accounts based on the balance of each Account. (a) Interest Rate During Participant's Lifetime. During a Participant's lifetime, the Participant's Accounts will be credited with interest as of each Valuation Date during each Plan Year at the Interest Rate previously announced by the Company to be applicable for the Plan Year. The Interest Rate for the first Plan Year shall be 125% of the rolling average Ten-Year Treasury Note Rate. (b) Interest Rate After Participant's Death. Except with respect to payments made pursuant to Article IV, Section 4.1(a), following a Participant's death, the Participant's Account will be credited with interest on a monthly basis during each Plan Year at an interest rate equal to the Citibank Base Rate. 7 Section 4. Determination of Accounts 4.1 A Participant's Account as of each Valuation Date shall consist of the balance of the Participant's Account as of the immediately preceding Valuation Date, plus the amount of the Participant's Deferred Compensation since such Valuation Date and interest credited to such Account and minus any distributions or reductions made from such Account since the immediately preceding Valuation Date. Section 5. Vesting of Accounts 5.1 Each Participant shall be one hundred percent (100%) vested at all times in the amounts credited to such Participant's Accounts. Section 6. Statement of Accounts 6.1 The Company shall submit to each Participant periodic statements setting forth the balance of the Participant's Account. 8 ARTICLE IV PLAN BENEFITS Section 1. Plan Benefit 1.1 If a Participant has a Termination of Service for any reason the Company shall pay a Plan benefit for each Deferral Unit equal to the Participant's Account for the Deferral Unit, as determined below: (a) Accounts of Participants shall be credited with the rate of interest previously determined under Article III, Section 3.1(a) and communicated in advance of each Deferral Period, to be applicable for each Plan Year that the Account has been maintained. (b) The Interest Rates provided under Section 1.1(a) of this Article, shall be payable until the Participant's Accounts are distributed in full except in the event of the Participant's death. After the Participant's death interest shall be credited at the Interest Rate previously determined under Article III, Section 3.1(b). Section 2. Distribution Upon Retirement 2.1 Retirement distributions shall be paid in accordance with the form of benefit elected by the Participant for each Deferral Unit, at the time of the Deferral Commitment establishing such Deferral Unit, on the Participation Agreement. A Participant's election shall be irrevocable, except that a Participant may request the Administrative Committee to approve a change of the prior election at any time prior to Retirement or commencement of benefits, or in the case of installment payments, following commencement of payments, for any Deferral Unit, provided that (i) the Administrative Committee determines, upon application of the Participant, that the Participant has experienced a Financial Hardship justifying the request for a change of election, or (ii) the Participant agrees to accept a reduction in the value of the benefit, as determined by the Administrative Committee, upon advice of counsel, to be necessary to preclude the receipt of taxable income by any Participant in the Plan in advance of the time the Participant actually receives his benefit. Absent an election by the Participant of the form of distribution as of the Retirement date, payment will be made in a Lump Sum. 2.2 The available forms of Retirement distributions are as follows: 9 (a) Lump Sum. A single payment upon Retirement. (b) Installment Payments. Monthly installment payments, commencing upon Retirement, in substantially equal payments of principal and interest over payment periods prescribed and communicated by the Administrative Committee in advance of the applicable Deferral Period. The amount of each of the monthly installments shall be redetermined effective as of January 1 of each year based on the remaining Account balance and the remaining number of installment payments. Section 3. Distribution Upon Termination of Service 3.1 Benefits payable on account of a Participant's Termination of Service other than due to Retirement or death shall be paid in one of the following forms commencing either immediately following Termination of Service or at one of the optional subsequent times prescribed and communicated by the Administrative Committee in advance of the applicable Deferral Period, as elected by the Participant; provided, however, that the Administrative Committee, may, in its sole discretion, pay such termination benefits in monthly installments over a three-year period: (a) Lump Sum. A single payment upon Termination of Service. (b) Installment Payments. Monthly installment payments in substantially equal payments of principal and interest over payment periods prescribed and communicated by the Administrative Committee in advance of the applicable Deferral Period. The amount of each of the monthly installments shall be redetermined effective as of January 1 of each year based on the remaining Account balance and the remaining number of installment payments. Section 4. Survivor Benefits 4.1 Amount and Form of Benefit: (a) Death Prior to Termination of Service. If the Participant dies prior to Termination of Service, the Survivor Benefit shall be paid to the Participant's Beneficiary in a Lump Sum or in monthly installments, as elected by the Participant, and shall be the sum of the Participant's Account balance in each Deferral Unit plus one-hundred percent (100%) of the Participant's unfulfilled Deferral Commitment, if any, for each Deferral Unit. (b) Death After Termination of Service. If the Participant dies after Termination of Service, the Participant's Account balance, if any, for each Deferral Unit shall be paid to the Participant's Beneficiary 10 by continuation of the form of benefit which was payable to the Participant for the remaining payments which would have been made to the Participant if the Participant had lived, increased by the applicable Interest Rate credited on unpaid Account balances of deceased Participants during each year of the payment period to the Beneficiary. Section 5. In-Service Distributions 5.1 A Participant may elect to receive an In-Service Distribution from his Account for a Deferral Unit subject to the following restrictions: (a) Timing of Election. The election to take an In-Service Distribution from an Account for a Deferral Unit must be made at the same time the Participant makes the Deferral Commitment relating to the Deferral Unit. (b) Amount of Distribution. The amount which a Participant can elect to receive as an In-Service Distribution with respect to an Account for a Deferral Unit shall be such portions of the Participant's Account balance for the Deferral Unit, as prescribed by the Administrative Committee in advance of the Deferral Period. If a previously elected amount exceeds the Account balance when an In-Service Distribution is to be made, only the Account balance will be paid. (c) Timing and Form of In-Service Distribution. The In-Service Distribution shall commence at the time and in the form elected by the Participant on the Participant Agreement at the time of the Deferral Commitment; provided, however, that if the Participant terminates service, the In-Service Distribution election will be canceled and distribution will be made pursuant to Section 3 of this Article; and provided, further, that if the Participant commences Retirement, the In-Service Distribution election will be canceled and distribution will be made pursuant to Section 2 of this Article. In no event shall an In-Service Distribution for a Deferral Unit be made prior to seven years following the start of the Deferral Period for the Deferral Unit. (d) Amounts paid to a Participant pursuant to this section shall be treated as distributions from the Participant's Account. Section 6. Unscheduled Distributions 6.1 Upon a finding that a Participant has suffered a Financial Hardship or upon the Participant's agreeing to accept a reduction of his benefit in an amount determined necessary by the Administrative 11 Committee, upon advice of counsel, to avoid constructive receipt of taxable income by any Participant, the Administrative Committee may, in its sole discretion, make distributions from an Account prior to the time specified for payment of the Account; provided, however, that in no event may an In-Service Distribution for a Deferral Unit be made prior to seven (7) years following the start of the Deferral Period for the Deferral Unit. Any unscheduled withdrawal will be paid in Lump Sum and will be subject to such minimum or maximum amounts and any additional conditions prescribed by the Adminis-trative Committee in advance of the Deferral Period. Applications for unscheduled distributions and determinations thereon by the Administrative Committee shall be in writing, and a Participant or Beneficiary may be required to furnish proof of the Financial Hardship in a formal manner as deemed appropriate by the Administrative Committee, upon advice of counsel. Section 7. Valuation and Settlement 7.1 The date on which a Lump Sum is paid or the date on which installment payments commence shall be the "Settlement Date". The Settlement Date for a Deferral Unit shall be no more than thirty (30) days after the last day of the month in which the Participant or his Beneficiary becomes entitled to payments on account of Retirement, Termination of Service or death, unless the Participant elects to defer commencement of payments to a later date in the Participation Agreement relating to the Deferral Unit. The Settlement Date for an In-Service Distribution or delayed payments shall be the month which the Participant elects for commencement of such payments in the election form for designation of form of payment for the Deferral Unit. The amount of a Lump Sum and the initial amount of installment payments for a Deferral Unit shall be based on the value of the Participant's Account as of the Valuation Date at the end of the immediately preceding month before the Settlement Date. For example, the Valuation Date at the end of December shall be used to determine Lump Sum or the initial amount of installment payments which will be made in the following January. Section 8. Small Benefit 8.1 Notwithstanding any election made by the Participant, the Administrative Committee, in its sole discretion, may pay any benefit in the form of a Lump Sum payment to the Participant or any Beneficiary, if the Lump Sum amount of the Account balance of the applicable Deferral Unit which remains in the Account following a distribution for any reason, or which is payable to the Participant or Beneficiary when payments to such Participant or Beneficiary would otherwise commence, is less than $2,000 for such Deferral Unit. 12 Section 9. Change of Control 9.1 (a) Subject to the provisions of Section 9.1(b) hereof, upon a Change of Control as defined in the Trust Agreement between Atlantic Richfield Company and the Northern Trust Company, effective as of May 6, 1991, and incorporated herein by reference, the interests of all then remaining Participants shall continue, and provisions shall be made in connection with such transaction for the continuance of the Plan and the assumption of the obligations of the Company under the Plan by the Company's successor(s) in interest. (b) Notwithstanding any other provisions of the Plan, at any time after a Change of Control as defined in the Trust Agreement between Atlantic Richfield Company and Northern Trust Company effective as of May 6, 1991, a Participant or a Beneficiary of a deceased Participant may elect to receive an immediate Lump Sum payment of the balance of his Account(s), in lieu of payments in accordance with the form previously selected by the Participant for any Deferral Unit(s), reduced by a penalty, which shall be forfeited to the Company, and which shall be determined by the Administrative Committee, upon advice of counsel, and shall be a portion of the balance of such Accounts as deemed necessary by counsel to avoid constructive receipt of taxable income by any other Participant in the Plan. However, this penalty shall not apply in the event of (i) a determination by the Administrative Committee based on advice of counsel or (ii) a final determination by the Internal Revenue Service or any court of competent jurisdiction, that by reason of the foregoing provision any Participant or Beneficiary has recognized or will recognize gross income for federal income tax purposes under this Plan in advance of payment to him of Plan benefits. The Company shall notify all Participants (and Beneficiaries of deceased Participants) of any such determination. Whenever any such determination is made, the Company shall refund all penalties which were imposed hereunder on account of making Lump Sum payments at any time during or after the first year to which such determination applies (i.e., the first year when gross income is recognized for federal income tax purposes). Interest shall be paid on any such refunds at the Interest Rate previously determined to be applicable for such Plan Year. 13 ARTICLE V DESIGNATION OF BENEFICIARY Section 1. Designation of Beneficiary 1.1 Each Participant shall have the right to designate a Beneficiary or Beneficiaries to receive his interest in each of his Accounts upon his death. Such designation shall be made on a form prescribed by and delivered to the Administrative Committee. The Participant shall have the right to change or revoke any such designation from time to time by filing a new designation or notice of revocation with the Administrative Committee, and no notice to any Beneficiary nor consent by any Beneficiary shall be required to effect any such change or revocation. Section 2. Failure to Designate Beneficiary 2.1 If a Participant shall fail to designate a Beneficiary before his death, or if no designated Beneficiary survives the Participant, the Administrative Committee shall direct the Company to pay the balance in each of his Accounts in a Lump Sum to the executor or administrator for his estate. 14 ARTICLE VI ADMINISTRATION Section 1. Administrative Committee 1.1 The Administrative Committee shall be responsible for the administration of the Deferral Plan for Outside Directors. Section 2. Rules of Conduct 2.1 The Administrative Committee shall adopt such rules for the conduct of its business and administration of this Plan as it considers desirable, provided they do not conflict with the provisions of this Plan. Section 3. Legal, Accounting, Clerical and Other Services 3.1 The Administrative Committee may authorize one or more of its members or any agent to act on its behalf and may contract for legal, accounting, clerical and other services to carry out this Plan. All expenses of the Administrative Committee shall be paid by the Company. Section 4. Interpretation of Provisions 4.1 The Administrative Committee shall have the right to interpret the provisions of this Plan and to decide questions arising in its administration. The decisions and interpretations of the Administrative Committee shall be final and binding on the Company, Participants, Directors and all other persons. Section 5. Records of Administration 5.1 The Administrative Committee shall keep records reflecting the administration of this Plan which shall be subject to audit by the Company. Section 6. Denial of Claim 6.1 The Administrative Committee shall provide adequate notice in writing to any Participant, Director or Beneficiary whose claim for benefits under this Plan has been denied, setting forth the specific reasons for such denial. The Participant, Director or Beneficiary will be given an opportunity for a full and fair review by the 15 Administrative Committee of the decision denying the claim. The Participant, Director or Beneficiary shall be given sixty (60) days from the date of the notice denying any such claim within which to request such review. Section 7. Liability of Committee 7.1 No member of the Administrative Committee shall be liable for any action taken in good faith or for exercise of any power given the Administrative Committee, or for the actions of other members of said Administrative Committee. 16 ARTICLE VII AMENDMENT AND DISCONTINUANCE Section 1. Amendment of Plan 1.1 This Plan may be amended from time to time by the Board of Directors of Atlantic Richfield Company. Section 2. Termination 2.1 Atlantic Richfield Company intends to continue this Plan indefinitely, but reserves the right to terminate it at any time. Section 3. Effect of Amendment or Termination 3.1 No amendment or termination of this Plan may adversely affect the benefit payable to any former Participant receiving benefits under this Plan prior to the effective date of the amendment or termination, or any Participant who, as of such date, was eligible to receive a benefit under this Plan. 17 ARTICLE VIII MISCELLANEOUS Section 1. Unsecured General Creditor 1.1 Participants and their Beneficiaries shall have no legal or equitable rights, claims or interests in any specific assets or property of the Company, nor shall they be the Beneficiaries of, or have any rights, claims or interests in any life insurance policies, annuity contracts, or the proceeds therefrom owned, or which may be acquired by, the Company (Policies). Any such Policies or other assets of the Company shall be, and remain, the general, unpledged, unrestricted assets of the Company. The Company's obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Company to pay money in the future. Section 2. Grantor Trust 2.1 Although the Company is responsible for the payment of all benefits under the Plan, the Company may, in its discretion, contribute funds to a grantor trust for the purpose, as it deems appropriate, of paying benefits under this Plan. Such trust may be irrevocable, but assets of the trust shall be subject to the claims of creditors of Atlantic Richfield Company. To the extent any benefits provided under the Plan are actually paid from the trust, the Company shall have no further obligation with respect thereto but to the extent not so paid, such benefits shall remain the obligation of, and shall be paid, by the Company. The Participants shall have the status of unsecured creditors insofar as their legal claim for benefits under the Plan and the Participants shall have no security interest in the grantor trust. Section 3. Payments and Benefits Not Assignable 3.1 Payments to and benefits under this Plan are not assignable, transferable or subject to alienation since they are primarily for the support and maintenance of the Participants and Beneficiaries. Likewise, such payments shall not be subject to attachments by creditors of, or through legal process against, the Company, the Administrative Committee or the Participants. 18 Section 4. No Right To Service On The Board 4.1 The provisions of this Plan shall not give a Director the right to be retained in the service of the Company nor shall this Plan or any action taken under the Plan be construed as a contract for service on the Board. Section 5. Adjustments 5.1 At the request of the Company, the Administrative Committee may, with respect to a Participant, adjust such Participant's benefit under this Plan or make such other adjustments with respect to such Participant as are required to correct administrative errors or provide uniform treatment of Participants in a manner consistent with the intent and purpose of this Plan. Section 6. Obligation to Company 6.1 If a Participant becomes entitled to a distribution of benefits under the Plan, and if at such time the Participant has outstanding any debt, obligation, or other liability representing an amount owing to the Company, or any benefit plan maintained by the Company, then the Company may offset such amount owed to it or such benefit plan against the amount of benefits otherwise distributable. Such determination shall be made by the Administrative Committee. Section 7. Protective Provisions 7.1 Each Participant shall cooperate with the Company by furnishing any and all information requested by the Company in order to facilitate the payment of benefits hereunder, taking such physical examinations as the Company may deem necessary and taking such other relevant action as may be requested by the Company. If a Participant refuses to cooperate, the Company shall have no further obligation to the Participant under the Plan. If the Participant makes any material misstatement of information or nondisclosure of medical history, then no benefits will be payable hereunder to such Participant or his Beneficiary, provided, that in the Company's sole discretion, benefits may be payable in an amount reduced to compensate the Company for any loss, cost, damage or expense suffered or incurred by the Company as a result in any way of any such action, misstatement or nondisclosure. 19 Section 8. Gender, Singular and Plural 8.1 All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person or persons may require. As the context may require, the singular may be read as the plural and the plural as the singular. Section 9. Law Governing 9.1 This Plan shall be construed, regulated and administered under the laws of the State of Delaware. Section 10. Notice 10.1 Any notice or filing required or permitted to be given to the Administrative Committee under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the principal office of the Company, directed to the attention of the Secretary of the Administrative Committee. Such notice shall be deemed given as to the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Section 11. Successors and Assigns 11.1 This Plan shall be binding upon the Company and its successors and assigns. Section 12. Provisions for Incapacity 12.1 If the Administrative Committee deems any person entitled to receive any payment under the provisions of this Plan incapable of receiving or disbursing the same by reason of minority, illness or infirmity, mental incompetency, or incapacity of any kind, the Administrative Committee may, in its sole discretion, take any one or more of the following actions: it may apply such payment directly for the comfort, support and maintenance of such person; it may reimburse any person for any such support theretofore supplied to the person entitled to receive any such payment; or it may pay such payment to any other person selected by the Administrative Committee to disburse such payment for the comfort, support and maintenance of the person entitled thereto, including, without limitations, to any relative who has undertaken, wholly or partially, the expense of such person's comfort, care and maintenance, or any institution in whose care or custody the person entitled to the payment may be. The Administrative Committee may, in its sole discretion, deposit any payment due to a minor to the minor's credit in any savings or commercial bank of the Administrative Committee's choice. 20 EX-10.13(B) 7 AMEND NO. 1 TO ATLANTIC RICHFIELD DPOD Exhibit 10.13(b) AMENDMENT NO. 1 TO ATLANTIC RICHFIELD COMPANY DEFERRAL PLAN FOR OUTSIDE DIRECTORS ___________________________ Pursuant to the power of amendment reserved therein, the following amendment is hereby made to the Atlantic Richfield Company Deferral Plan For Outside Directors (the "Plan") effective as of July 27, 1992. 1. Article IV, Section 2 of the Plan is amended to read as follows: "Section 2. Form and Time of Retirement Distribution 2.1 Retirement Distributions shall be paid at the time and in the form of benefit elected by the Participant for each Deferral Unit, at the time of the Deferral Commitment establishing such Deferral Unit, on the Participation Agreement. A Participant's election shall be irrevocable, except that a Participant may request, by application to the Administrative Committee, approval of a change of the prior election at any time prior to retirement or commencement of benefits, or in the case of installment payments, following commencement of payments, for any Deferral Unit, (i) without any reduction in, or imposition of any penalty on, the Participant's Account, provided that the Administrative Committee determines, upon application of the Participant, that the Participant has experienced a Financial Hardship justifying the request for a change of election; or (ii) the Administrative Committee, in its sole discretion, determines that it is appropriate to grant the Participant's request. Absent an election by the Participant of the form and/or commencement date of the Retirement Distribution, payment will be made in a lump sum immediately following the Participant's date of retirement. 1 2.2 The available forms and times of payment upon retirement are as follows: (a) Lump Sum. A single payment at retirement. (b) Installment Payments. Monthly installment payments in substantially equal payments of principal and interest over payment periods prescribed and communicated by the Administrative Committee in advance of the applicable Deferral Period. The amount of each of the monthly installments shall be redetermined effective as of January 1 of each year based on the remaining Account balance and the remaining number of installment payments. (c) Deferred Payments. A lump sum or installment payments commencing subsequent to retirement at one of the optional deferral times prescribed and communicated by the Administrative Committee in advance of the applicable Deferral Period." 2. Article IV, Section 5(c) of the Plan is amended to read as follows: "(c) Timing and Form of In-Service Distribution. The In-Service Distribution shall commence at a time prescribed by the Administrative Committee and in the form elected by the Participant on the Participant Agreement at the time of the Deferral Commitment; provided, however, that if the Participant terminates employment without a right to commence a retirement allowance under the Retirement Plan, the In-Service Distribution election will be canceled and distribution will be made pursuant to Section 3 of this Article, and provided, 2 further, that if the Participant terminates employment with a right to commence a retirement allowance, the In-Service Distribution election will be canceled and distribution will be made pursuant to Section 2 of this Article." 3. Article IV, Section 6 of the Plan is amended to read as follows: "Section 6. Unscheduled Distributions 6.1 Upon a finding that a Participant has suffered a Financial Hardship, following submission of an application by the Participant, the Administrative Committee shall make a distribution of all or a portion of the Participant's Account, consistent with the finding of Financial Hardship but in no event exceeding the amount of the Participant's request, without any reduction in, or imposition of any penalty on, the Participant's Account. The distribution shall be made as soon as administratively practical following the finding of Financial Hardship. 6.2 A Participant may apply for a distribution of all or part of his Account, without regard to any condition of Financial Hardship. Such distribution shall be made as soon as practical following the Participant's application and shall be subject to whatever penalty, in the form of a forfeiture of a percentage of the amount requested and/or a suspension of participation as determined by the Administrative Committee upon the advice of Counsel for the Plan as is deemed necessary to preclude the constructive receipt of taxable income by any Participant in the Plan. 6.3 Counsel for the Plan shall review legal and tax developments to assure continuous compliance with the relevant authorities governing plan design to prevent constructive receipt and shall advise the Administrative 3 Committee in writing in advance of any change in its most recent written advice on the penalty which is to be imposed. 6.4 The Company shall notify Participants in writing of this amendment and of the specific, currently effective penalty as described under Section 6.2, and shall update this written notification periodically and in advance of any subsequent change of which it is notified under Section 6.3, unless administratively impossible to do so, in which case such notification shall be provided no later than 30 days following the effective date of the change." 4. Article IV, Section 9(b) of the Plan is deleted. Executed this 31st day of July, 1992. ---- ---- ATTEST ATLANTIC RICHFIELD COMPANY BY: /s/ Armineh Simonian BY: /s/ DONALD A. MURRAY -------------------- ------------------------ Donald A. Murray Vice President Human Resources 4 EX-22 8 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 Subsidiaries of Registrant in consolidated financial statements, as of December 31, 1995: ARCO Alaska, Inc............................ Delaware 100.0 ARCO Chemical Company....................... Delaware 82.9 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 9 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 12, 1996, on our audits of the consolidated financial statements and financial statement schedule of Atlantic Richfield Company as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Los Angeles, California February 27, 1996 EX-27 10 FINANCIAL DATA SCHEDULE
5 1,000,000 12-MOS DEC-31-1995 DEC-31-1995 1,537 1,569 1,684 0 877 5,888 32,544 17,189 23,999 3,963 6,708 0 1 402 6,355 23,999 17,337 18,257 13,017 13,540 0 0 750 2,173 687 1,376 0 0 0 1,376 8.42 8.42
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