-----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, Thj9R2OwfaUVgvXIBUxELeViQCxHoteQk2AVF8PD1p5dBRLOvzVxPjAKVMAu647G /iwMWZbfVDvaNKDPQcDhAw== 0000950109-96-001248.txt : 19960304 0000950109-96-001248.hdr.sgml : 19960304 ACCESSION NUMBER: 0000950109-96-001248 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960229 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARCO CHEMICAL CO CENTRAL INDEX KEY: 0000819544 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 510104393 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09678 FILM NUMBER: 96529359 BUSINESS ADDRESS: STREET 1: 3801 WEST CHESTER PIKE CITY: NEWTOWN SQUARE STATE: PA ZIP: 19073 BUSINESS PHONE: 2153592000 10-K 1 FORM 10-K [LOGO OF ARCO CHEMICAL COMPANY APPEARS HERE] ARCO Chemical Company ANNUAL REPORT ON FORM 10-K 1995 1995 FORM 10-K ---------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 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 1-9678 ARCO CHEMICAL COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 51-0104393 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 3801 WEST CHESTER PIKE, NEWTOWN SQUARE, PENNSYLVANIA 19073-2387 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (610) 359-2000 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ------------------- COMMON STOCK, $1.00 PAR VALUE 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 non-affiliates of the registrant on February 1, 1996, based on the closing price on the New York Stock Exchange composite tape on that date, was $856,964,775. Number of shares of Common Stock, $1.00 par value, outstanding at December 31, 1995: 96,488,880. DOCUMENTS INCORPORATED BY REFERENCE The registrant's definitive proxy statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1995 (incorporated by reference under Part III). TABLE OF CONTENTS PART I
PAGE ITEM ---- 1. and 2. Business and Properties...................................... 1 General Development of Business............................ 1 Industry Segment and Geographic Disclosure................. 1 Summary Description of Business and Products............... 1 Sales and Marketing........................................ 4 Joint Ventures and Other Arrangements...................... 4 Research and Development................................... 4 Raw Materials.............................................. 5 Competition................................................ 5 Properties and Production Facilities....................... 6 Patents, Trade Names, and Trademarks....................... 7 Environmental Matters...................................... 7 Human Resources............................................ 8 3. Legal Proceedings............................................ 8 4. Submission of Matters to a Vote of Security Holders.......... 9 --------------------------- Executive Officers of the Company............................ 10 PART II 5. Market for Registrant's Common Stock and Related Stockholder Matters..................................................... 12 6. Selected Financial Data...................................... 13 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 13 8. Financial Statements......................................... 19 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 41 PART III 10. Directors and Executive Officers of the Registrant........... 41 11. Executive Compensation....................................... 41 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 41 13. Certain Relationships and Related Transactions............... 41 PART IV 14. Exhibits and Reports on Form 8-K............................. 41
(i) PART I ITEMS 1. AND 2.BUSINESS AND PROPERTIES GENERAL DEVELOPMENT OF BUSINESS ARCO Chemical Company (the Company) is a Delaware corporation with principal executive offices at 3801 West Chester Pike, Newtown Square, Pennsylvania 19073-2387 (telephone no. 610-359-2000). The Company is the successor to certain portions of the ARCO Chemical Division of Atlantic Richfield Company (ARCO), a Delaware corporation. On June 9, 1987, ARCO transferred substantially all the assets and liabilities of the oxygenates and polystyrenics businesses of the then ARCO Chemical Division to the Company in exchange for 80,000,001 shares of common stock. On October 5, 1987, the Company completed an initial public offering of 19,550,000 shares of common stock. As of February 1, 1996, ARCO's 80,000,001 shares represented approximately 82.9 percent of the outstanding shares of common stock. See Item 13. Prior to October 5, 1987, the Company and ARCO entered into a number of agreements for the purpose of defining the ongoing relationship between them. These agreements were developed in connection with the establishment of the Company by ARCO, and, therefore, were not the result of arm's-length negotiations between independent parties. For additional information relating to certain continuing relationships between the Company and ARCO, including potential conflicts of interest, see Item 13 and Note 3 of Notes to Consolidated Financial Statements. INDUSTRY SEGMENT AND GEOGRAPHIC DISCLOSURE The Company operates in one industry segment. Reference is made to Note 4 of Notes to Consolidated Financial Statements for disclosure of financial information by geographic location. SUMMARY DESCRIPTION OF BUSINESS AND PRODUCTS The Company, including its subsidiaries, is a leading international manufacturer and marketer of intermediate chemicals and specialty products used in a broad range of consumer goods. The Company'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. Following is a list of certain of the Company's principal products, the forms in which they are sold, and typical end uses.
PRODUCT FORM TYPICAL USES - ------- ---- ------------ Propylene oxide PO Polyether polyols (polyols), propylene (PO) glycols, ethers, and surfactants Polyols Combined with isocyanates, such as TDI, for polyurethane applications such as flexible foam for seat cushions, bedding and carpet underlay; and coatings, adhesives, sealants, and elastomers Propylene glycols (PG) Unsaturated polyester resins; food, cosmetic, and pharmaceutical applications; automotive coolants and aircraft deicers Propylene glycol ethers Coatings and paints, cleaning (PGE) and PGE acetates compounds, solvents, and inks Butanediol, Engineering resins, fibers, solvents, Tetrahydrofuran (THF) and resins, coatings and polyurethanes N-Methyl Pyrrolidone (NMP) Toluene diisocyanate TDI Combined with polyols to manufacture (TDI) polyurethanes Tertiary butyl Methyl tertiary butyl Gasoline additives to enhance octane alcohol ether (MTBE) and reduce emissions (TBA) and ethyl tertiary butyl ether (ETBE) Gasoline-grade TBA (GTBA) Octane enhancer Styrene monomer SM Acrylonitrile-butadiene-styrene (ABS) (SM) resins, polystyrene, expandable polystyrene, rubber components, and polyester resins DYLITE(R) expandable Hot and cold drink cups, packaging, polystyrene (EPS) building and roof insulation, and flotation devices DYLENE(R) polystyrene Disposable food service applications DYLARK(R) engineering Automotive instrument panel structures resin and headliners
Propylene Oxide and Derivatives Propylene oxide is a commodity chemical that the Company consumes directly or delivers to the merchant market through processing or sales agreements for further conversion by its customers into derivative products, including polyols for polyurethane applications, propylene glycols and PGEs, and various other chemical products. Sales and other operating revenues for PO and derivatives constituted 45 percent, 48 percent, and 46 percent, respectively, of the Company's total 1995, 1994, and 1993 sales and other operating revenues. In the aggregate, the Company consumed approximately 54 percent of its PO production in 1995 for production of derivatives. See Item 7 for additional discussion. Based on published data, worldwide demand for PO was approximately 7.8 billion pounds in 1995. Approximately 90 percent of that volume was consumed in the manufacture of three derivative families of products: polyols, PG, and PGE. The largest of the derivative families is polyols, which are used in the manufacture of polyurethanes. Within the polyurethane industry, the largest market for polyols is in flexible foams, which are produced when polyols are reacted with isocyanates, such as TDI. Isocyanates are not derivatives of PO. Polyols and isocyanates are also used in coating, adhesive, sealant and elastomer applications. In January 1995, the Company entered into long-term agreements under which Rhone-Poulenc supplies TDI, which the Company markets to customers. Adding TDI to the list of products sold by the Company complements the Company's existing line of polyols products and strengthens its position as a chemical supplier to the polyurethanes market. 2 Propylene glycols are principally used as an intermediate chemical to produce unsaturated polyester resins. Propylene glycols have low toxicity and are also used in food, cosmetic, and pharmaceutical applications and in automotive coolants and aircraft deicers. Propylene glycol ethers and acetates are low-toxicity, high-performance solvents. Past studies have indicated that these materials generally have safer toxicological profiles than their ethylene oxide-based counterparts. Butanediol is an intermediate chemical having diverse applications in engineering resins, elastomers, and solvents. In 1990, the Company commercialized acquired technology that produces butanediol from allyl alcohol, a PO derivative. Tertiary Butyl Alcohol and Derivatives Tertiary butyl alcohol is the major co-product of one of the Company's two PO process technologies. The Company utilizes most of its TBA, combined with methanol, to make MTBE, a gasoline blending component that enhances octane and reduces emissions. The Company also has the capability of producing ETBE, an alternative gasoline blending component. ETBE is manufactured from TBA and ethanol and has a lower vapor pressure than MTBE or ethanol. Sales and other operating revenues for TBA and derivatives constituted 27 percent, 30 percent, and 35 percent, respectively, of the Company's total 1995, 1994, and 1993 sales and other operating revenues. See Item 7 for additional discussion. Worldwide demand for MTBE in 1995 was approximately 375 thousand barrels per day, based on published data. MTBE demand has increased as a result of the U.S. Clean Air Act Amendments of 1990 (the Amendments), various state and local regulations and oxygenate blending programs, and the need for incremental octane in the U.S. and other countries. In the U.S., the Amendments set minimum levels for oxygenates, such as MTBE, in gasoline sold in areas not meeting specified air quality standards. The Amendments currently affect approximately 40 percent of the U.S. gasoline market. Styrene Monomer and Derivatives Styrene is the major co-product of the other of the Company's two PO process technologies. Styrene is a large-volume commodity chemical produced and traded worldwide. Based on published data, worldwide demand in 1995 was approximately 37 billion pounds. The major markets include commodity and specialty polymer applications, such as polystyrene, ABS, EPS and polyester resins, as well as various rubber industry uses. Sales and other operating revenues for SM and derivatives constituted 20 percent, 19 percent, and 16 percent, respectively, of the Company's total 1995, 1994, and 1993 sales and other operating revenues. The Company utilized about 12 percent of its styrene production in 1995 for the production of derivatives, principally expandable polystyrene and specialty polymer products that are used in the packaging, insulation and automotive industries, and a wide range of consumer goods. The balance was sold in the U.S. merchant market, in selected export markets, or delivered under processing agreements. See Item 7 for additional discussion. The Company's major polystyrenics and specialty polymer products are sold under the Company's trademarks (including DYLITE (R) EPS, DYLENE (R) polystyrene, and DYLARK (R) engineering resin). The Company's largest volume polystyrenics product, DYLITE(R) EPS, is a resin that is sold to foam molders for three major applications: food service, insulation, and protective packaging. The Company does not use chloroflourocarbons (CFCs) to make DYLITE (R) EPS. In its various forms, EPS competes with other hydrocarbon- based polymers and products based on natural materials. 3 SALES AND MARKETING In 1995, most of the Company's sales and other operating revenues were derived from sales to, or processing agreements with, unrelated third parties. Over the past three years, no single unrelated third-party customer, or any related party customer, accounted for more than 10 percent of total sales and other operating revenues in any one year. The Company delivers products through sales agreements, processing agreements, and spot sales. The Company purchases limited amounts of MTBE and SM for resale to the extent that demand for these co-products exceeds the Company's production. Production levels of co-products are based upon the demand for PO and the market economics of the co-products. For several years, the Company has followed the practice of entering into multi-year PO processing or sales agreements in an effort to mitigate any adverse impact from competitive factors and economic business cycles on demand for the Company's PO. The Company has also entered into a number of multi-year MTBE sales agreements and SM sales and processing agreements. The Company's sales are made through its own marketing and sales personnel and through distributors and independent agents. The Company maintains sales offices or sales representation in the United States, Australia, Austria, Brazil, Canada, China, Finland, France, Germany, Hong Kong, Indonesia, Italy, Japan, Mexico, the Netherlands, the Philippines, Russia, Singapore, Spain, Taiwan, Thailand, and the United Kingdom. For information about certain data relating to foreign operations and export sales, see Note 4 of Notes to Consolidated Financial Statements. JOINT VENTURES AND OTHER ARRANGEMENTS In January 1995, the Company entered into long-term TDI supply agreements with Rhone-Poulenc. Effective January 1, 1995, the Company has been entitled to the entire TDI output of Rhone-Poulenc's two plants in France, which have a combined annual capacity of approximately 264 million pounds. The Company markets the TDI principally in Europe and Asia. Adding TDI to the list of products sold by the Company complements the Company's existing line of polyols products and strengthens its position as a chemical supplier to the polyurethanes market. See Note 11 of Notes to Consolidated Financial Statements. The world-scale PO/SM plant at the Channelview, Texas complex that was completed in 1992 (PO/SM II) is owned by the Company together with two equity investors as limited partners. The limited partners each take a substantial portion of the SM output of the plant through long-term processing agreements. The limited partners' SM offtakes are proportionate to their equity interests. Under the terms of the limited partnership agreement, the Company sold an additional equity interest to one of the limited partners in 1994. The Company retains a majority equity interest in the PO/SM plant. The Company, through an affiliate, has a 50 percent equity interest in Nihon Oxirane Co., Ltd. (Nihon Oxirane), a joint venture with Sumitomo Chemical Co., Ltd. and Showa Denko K.K. Since 1976, Nihon Oxirane has operated a PO/SM plant in Chiba, Japan. RESEARCH AND DEVELOPMENT The Company has its principal research and development facility at Newtown Square, Pennsylvania, technical centers in Villers Saint Paul, France and Singapore, and technical facilities in South Charleston, West Virginia and Monaca, Pennsylvania. The Company's research and development expenditures for 1995, 1994, and 1993 were $79 million, $76 million, and $72 million, respectively. 4 RAW MATERIALS The principal hydrocarbon raw materials purchased by the Company are propylene, butanes, ethylene, benzene and methanol. The market prices of these raw materials historically have been related to the price of crude oil and its principal refinery derivatives and natural gas liquids. These materials are available in bulk quantities via pipeline or marine vessels. The Company's raw material requirements are purchased from numerous suppliers in the United States and Europe, with which the Company has established contractual relationships, and in the spot market. The Company receives a portion of its methanol requirements under a cost-based supply arrangement with a third party. See Item 13 and Note 3 of Notes to Consolidated Financial Statements. The Company is a large volume consumer of isobutane for chemical production. The Company has invested in facilities, or entered into processing agreements with unrelated third parties, to convert the widely available commodity normal butane to isobutane. The Company is also a large consumer of oxygen for its PO/TBA plants at Bayport, Texas; Rotterdam, the Netherlands; and Fos-sur-Mer, France. In order to assure adequate and reliable sources of supply at competitive prices and rates, the Company has entered into long-term agreements and other arrangements with suppliers of raw materials, products, industrial gas and other utilities. See Note 11 of Notes to Consolidated Financial Statements. COMPETITION Competition within the Company's segment of the chemical industry is significant and is affected by a variety of factors, including quality, product price, reliability of supply, technical support, customer service, and potential substitute materials. Capacity share figures for the Company and its competitors, disclosed below, are based on completed production facilities and include the full capacity of on-stream joint-venture facilities. The Company's major worldwide PO competitor is Dow Chemical Company (Dow). Dow's operations are based on chlorohydrin technology, and Dow is integrated upstream from chlorine and propylene and downstream into a variety of PO derivatives. Dow has announced expansions of annual PO capacity at existing facilities of approximately 575 million pounds in 1996 and an additional 450 million pounds in the 1998-1999 time frame. In late 1994, Texaco Chemical Company completed and brought on stream a PO/MTBE plant in Texas. Shell has announced the construction of a PO/SM plant in Singapore, which is scheduled for completion in 1997. In February 1996, Shell and BASF AG announced plans for a joint venture to construct a PO/SM plant in Europe, using Shell technology, with a target completion date in the 1999 time frame. Several other companies have been attempting to develop commercial PO processes, and additional PO plants may eventually be built by competitors. The Company has commenced engineering studies to expand PO capacity at its Channelview, Texas PO/SM plant by early 1998 and to build a new PO/SM plant at Rotterdam, the Netherlands, by the year 2000. Both projects are subject to final Board of Directors approval. Based on published data relating to the PO market, the Company believes that it has 39 percent and Dow has 31 percent of the total worldwide capacity for PO. No other producer is believed to have more than 5 percent of worldwide PO capacity. The Company competes with many polyols producers worldwide, including Dow and Bayer AG. Based on published data, Dow is believed to have 25 percent of worldwide polyols capacity while the Company is believed to have 16 percent and Bayer AG is believed to have 12 percent. No other polyols producer is believed to have more than 8 percent of worldwide polyols capacity. The Company has long-term supply agreements for TDI, an isocyanate, which is reacted with polyols to produce flexible foams. The addition of TDI to the Company's product portfolio enables the 5 Company to compete more effectively with other suppliers to the flexible foam market who offer both polyols and TDI to customers. In the majority of flexible foam applications, such as furniture, bedding and automotive seating, there is some competition for foams from substitute materials. The Company competes with many MTBE producers worldwide; the most significant is Ibn Zahr (a joint venture 70 percent owned by Saudi Basic Industries Corp.). Based on published data, the Company believes that it has 12 percent of the total worldwide capacity for MTBE while Ibn Zahr is believed to have 11 percent. No other producer is believed to have more than 6 percent of worldwide MTBE capacity. MTBE may face increased competition from substitute products such as ethanol. The Company competes with several SM producers worldwide; among them are Dow and Shell. Based on published data, Dow is believed to have 10 percent of the total worldwide SM capacity while the Company and Shell are each believed to have 8 percent. No other producer is believed to have more than 6 percent of worldwide SM capacity. There can be no assurance that the Company will not face additional competition in the future. PROPERTIES AND PRODUCTION FACILITIES The Company's corporate and executive headquarters and its principal research operations are located at Newtown Square, Pennsylvania. The Company leases the Newtown Square property from ARCO. See Item 13. The Company's European headquarters are located in leased facilities in Maidenhead, England, and the Company's Asia Pacific headquarters are located in leased facilities in Hong Kong. Depending on location and market needs, the Company's production facilities can receive primary raw materials by pipeline, rail car, truck, barge, or ship and can deliver finished products by pipeline, rail car, truck, barge, isotank, ship, or in drums. The Company charters ships, owns and charters barges, leases isotanks and owns and leases rail cars for the dedicated movement of interplant products, products to customers or terminals, or raw materials to plants, as necessary. The Company leases liquid and bulk storage and warehouse facilities at terminals in the Americas, in Europe, and in the Asia Pacific region. In the Rotterdam outer harbor area, the Company operates an on-site butane storage tank, propylene spheres, pipeline connections, and a jetty that accommodates deep-draft vessels. In the United States, the Company produces PO, TBA, PG, and PGE at the Bayport, Texas plants and PO, SM, MTBE, polyols, and butanediol at the Channelview, Texas plants. The Channelview plant has the capability to produce either MTBE or ETBE. Polyols are also produced at the Company's plants in South Charleston and Institute, West Virginia, which are situated on leased land. The Company's polystyrenics and specialty polymer plants are located in Monaca, Pennsylvania and Painesville, Ohio. In Europe, the Company produces PO, TBA, MTBE, and PG at plants located in Rotterdam, the Netherlands and Fos-sur-Mer, France. In addition, polyols are produced at plants located in Rieme, Belgium and Fos-sur-Mer, France, and PGE is produced at the Rotterdam plant. In the Asia Pacific region, the Company's PO/SM plant, owned by Nihon Oxirane, is located in Chiba, Japan. Polyols plants are located in Kaohsiung, Taiwan and Anyer, West Java, Indonesia. The Anyer plant is owned by P.T. ARCO Chemical Indonesia, an Indonesian joint venture with P.T.Gema Supra Abadi in which the Company, through a subsidiary, has a majority interest. 6 The following table shows the Company's worldwide production capacity (in millions of pounds per year, except where otherwise noted) for certain key products:
PRODUCT DOMESTIC FOREIGN TOTAL ------- -------- ------- ------ PO 2,335 1,335 3,670 Polyols 720 580 1,300 PG 565 345 910 PGE 110 155 265 Butanediol 75 -- 75 MTBE--Bbls/day 30,000 28,500 58,500 SM 2,570 790 3,360 DYLITE (R)/DYLENE (R) resins 445 -- 445 DYLARK (R) resin 70 -- 70
Capacities shown are the production capacities that the Company believes could be obtained, as of December 31, 1995, based upon plant design and subject to certain on-stream factors, product mix, and other variable factors. Capacities shown include the full capacity of on-stream joint-venture facilities. Plants can and have exceeded these capacities for extended periods of time. The Company also contracts for the manufacture of certain of its products, from time to time, at third party facilities under supply and processing agreements. The Company has long-term supply agreements with Rhone-Poulenc for TDI. These agreements entitle the Company to all of the TDI output of the supplier's two plants in France with a combined capacity of approximately 264 million pounds per year. Under a processing agreement with a producer located in Corpus Christi, Texas, the Company has secured additional MTBE capacity totaling 12,000 bbls/day. The production facility at Corpus Christi, Texas has the capability for either MTBE or ETBE production. PATENTS, TRADE NAMES, AND TRADEMARKS ARCO has granted the Company a license to use "ARCO" in its name and the ARCO spark design as a logo. This license by ARCO has been granted on a royalty-free basis, which is consistent with ARCO's practice of licensing its name and design to its subsidiaries and affiliates. The Company owns and has licensed from ARCO various domestic and foreign trademarks. The Company possesses a body of patented and unpatented technology and trade secrets relating to its products, processes and the design and operation of its plants, all of which are valuable to the Company. The Company does not believe that the loss of any individual patent or trade secret would have a material adverse effect on its business. The basic patents relating to the Company's PO/SM and PO/TBA process technologies have expired. ENVIRONMENTAL MATTERS The Company (together with the industry in which it operates) is subject to federal, state, local, and foreign environmental laws and regulations concerning emissions to the air, discharges to surface and subsurface waters, and the generation, handling, storage, transportation, treatment, and disposal of waste materials. The Company and the industry are also subject to other federal, state, local, and foreign environmental laws and regulations, including those that require the Company to remove or mitigate the effects of the disposal or release of certain chemical substances at various sites. It is impossible to predict precisely what effect these laws and regulations will have on the Company in the future. Compliance with environmental laws and regulations could result in significant capital expenditure requirements as well as other costs and liabilities. Management believes, based upon its past experience and best assessment of future events, that these environmental liabilities and costs 7 will be determined and incurred over an extended period of time, allowing the Company to fund such liabilities and costs in the ordinary course of business. See Item 3, "Legal Proceedings" and Note 11 of Notes to Consolidated Financial Statements. It is the Company's policy to comply with all environmental laws and regulations. In some cases, compliance can be achieved only by capital expenditures. The Company's annual environmental-related capital expenditures for 1995, 1994, and 1993 were $27 million, $29 million, and $46 million, respectively. For the years 1996 and 1997, the Company anticipates annual environmental-related capital expenditures to range from $35 million to $45 million. These figures do not include any environmental-related capital expenditures associated with construction of new facilities. Environmental- 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 environmental laws and regulations. For the past three years, the Company's charges for estimated future expenses for remediation have averaged approximately $12 million per year while actual expenditures have averaged $5 million per year. The Company's operating expenses also include ongoing costs of controlling or disposing of pollutants. The Company estimates that its operating expenses related to these ongoing costs were approximately $31 million and $36 million for 1995 and 1994, respectively. HUMAN RESOURCES At December 31, 1995, the Company employed approximately 4,460 people (exclusive of employees of unconsolidated joint ventures). The Company believes its relationships with its employees are satisfactory. Approximately 23 percent of the Company's domestic employees are represented by local or national unions. ITEM 3. LEGAL PROCEEDINGS ENVIRONMENTAL MATTERS AND RELATED LITIGATION In December 1993, the U.S. Environmental Protection Agency (the EPA) issued a Unilateral Administrative Order (the Order) to the Company and other potentially responsible parties requiring implementation of a remedial design/remedial action for the Turtle Bayou, Texas site under the Comprehensive Environmental Response, Compensation and Liability Act, as amended (Superfund). The Company has raised certain legal defenses against the enforcement of the Order. In January 1994, the EPA filed a complaint against the Company and certain other defendants, including ARCO, in the United States District Court for the Eastern District of Texas seeking recovery of costs of removal and/or remedial action allegedly incurred or to be incurred by the federal government. On November 28, 1994, the Company reached an agreement in principle with the EPA to settle the cost recovery lawsuit. The Company and ARCO have agreed (i) to pay $1.1 million in reimbursement of past costs incurred by the federal government and (ii) to perform remedial activities with respect to a portion of the site. Site remediation is expected to take at least five years. The parties are negotiating the terms of a consent decree to embody the settlement. Upon finalization of the consent decree, it is expected that the Order will be rescinded with respect to the Company. The Company is currently involved in administrative proceedings or lawsuits relating to eight other Superfund sites and may in the future be involved in additional environmental assessments and clean-ups under these laws. The future costs in connection with such matters cannot be determined with certainty due to such factors as the unknown magnitude of clean-up costs, the unknown timing and extent of the remedial actions which may be required, the determination of the Company's liability in proportion to other potentially responsible parties, and the extent, if any, to which such costs are recoverable from insurance. 8 The Company 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, the Company entered into a Consent Order and Agreement (the Consent Agreement) with the Pennsylvania Department of Environmental Resources (PADER) pursuant to which the Company 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, the Company paid civil penalties totalling $363,000 in 1994 and $63,000 in 1995. Under the terms of the Consent Agreement, the Company 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. The Company has an agreement with Beazer East, Inc., the successor to Koppers Inc. (the previous owner of the Beaver Valley plant), whereby Beazer East, Inc. agreed to pay for approximately 50 percent of the cost of the remediation. In addition to the matters reported herein, from time to time the Company and its subsidiaries become aware of compliance matters relating to, or receive notices from federal, state or local governmental entities of alleged violations of, environmental, health and/or safety laws and regulations pertaining to, among other things, the disposal or discharge of chemical substances (including hazardous wastes). In some instances, these matters may become the subject of administrative proceedings or lawsuits and may involve monetary sanctions of $100,000 or more (exclusive of interest and costs). See Items 1 and 2, "Business and Properties--Environmental Matters" and Note 11 of Notes to Consolidated Financial Statements. OTHER LITIGATION In addition, the Company and its subsidiaries are involved in a number of lawsuits, all of which have arisen in the ordinary course of the Company's business. The Company is unable to predict the outcome of the foregoing matters, but does not believe that the ultimate resolution of such matters will have a material adverse effect on the consolidated financial statements of the Company. 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. 9 EXECUTIVE OFFICERS OF THE COMPANY Set forth below are the executive officers of the Company as of February 1, 1996.
NAME, AGE, AND PRESENT BUSINESS EXPERIENCE DURING PAST POSITION WITH THE COMPANY FIVE YEARS AND PERIOD SERVED AS OFFICER(A) ------------------------- ------------------------------------------ Alan R. Hirsig, 56 Mr. Hirsig was elected President and Chief Executive Officer President, Chief on January 1, 1991. He was elected an officer of the Company Executive Officer, and on June 22, 1987 and a Director of the Company on November Director 14, 1989. Previously, Mr. Hirsig was President of the Company's European operations from July 1984 to December 1990 and a Senior Vice President of the Company from July 1988 to December 1990. Morris Gelb, 49 Mr. Gelb was elected an officer of the Company on June 22, Vice President, 1987. He assumed his current position in September 1991. Pre- Environmental, viously, he was Vice President, Research and Engineering from Engineering and September 1986 to September 1991. Manufacturing Programs Michael G. Griffith, 54 Mr. Griffith was elected an officer of the Company on May 9, Vice President, Research 1990. He assumed his current position on that date. Prior to and Development joining the Company, he was Vice President, Technology of Ow- ens-Corning Fiberglas Corp. (building products and reinforce- ments) from January 1989 to May 1990 and Vice President, Re- search and Development of Owens-Corning Fiberglas Corp. from 1983 to January 1989. Robert J. Millstone, 52 Mr. Millstone was elected Vice President and General Counsel Vice President, General of the Company, effective January 1, 1995. Previously, he was Counsel, and Secretary Associate General Counsel from January 1989 to December 1994. He has been Secretary of the Company since October 1990. Marvin O. Schlanger, 47 Mr. Schlanger was elected an officer of the Company on Septem- Executive Vice ber 1, 1987 and a Director of the Company on November 14, President, Chief 1989. He assumed his current position in November 1994. Pre- Operating Officer, and viously, he was Senior Vice President of the Company and Director President of ARCO Chemical Americas Company from August 1992 to November 1994, Senior Vice President and Chief Financial Officer from October 1989 to August 1992 and Vice President, Worldwide Business Management from September 1988 to Septem- ber 1989. John A. Shaw, 47 Mr. Shaw was elected an officer of the Company on May 13, Vice President and 1993. He assumed his current position in January 1995. Previ- Controller ously, he was Vice President and Treasurer of ARCO Chemical Company from July 1993 to January 1995 and Vice President, Planning and Control of the Company's European operations from July 1987 to July 1993. Walter J. Tusinski, 48 Mr. Tusinski was elected an officer and a Director of the Com- Senior Vice President, pany on September 1, 1992. He assumed his current position on Chief Financial Officer, that date. Previously, he served as Vice President, New Busi- and Director ness Ventures of ARCO International Oil and Gas Company from September 1990 to August 1992 and Vice President, Planning and Control of ARCO Products Company from October 1986 to Au- gust 1990.
10
NAME, AGE, AND PRESENT BUSINESS EXPERIENCE DURING PAST POSITION WITH THE COMPANY FIVE YEARS AND PERIOD SERVED AS OFFICER(A) ------------------------- ------------------------------------------ Francis W. Welsh, 52 Mr. Welsh was elected an officer of the Company on June 22, Vice President, Human 1987. He has held his current position since August 1983. Resources Previously, he was Manager of Compensation and Manager of Personnel Resources and Development, Corporate Employee Rela- tions of ARCO from September 1980 to May 1983.
- -------- (a) The By-Laws of the Company provide that each officer shall hold office until his successor is elected or appointed and qualified, or until his death or resignation, or his removal by the Board of Directors. 11 PART II ITEM 5.MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The common stock is listed on the New York Stock Exchange. The reported high and low sales prices of the common stock on the New York Stock Exchange (New York Stock Exchange Composite Tape) from January 1, 1994 through February 16, 1996, inclusive, were:
PERIOD HIGH LOW ------ ---- --- 1994 First Quarter.............................................. 50 1/2 43 1/8 Second Quarter............................................. 48 5/8 43 1/4 Third Quarter.............................................. 51 44 3/8 Fourth Quarter............................................. 49 7/8 43 5/8 1995 First Quarter.............................................. 45 41 3/8 Second Quarter............................................. 47 7/8 44 Third Quarter.............................................. 50 1/8 45 1/2 Fourth Quarter............................................. 50 1/2 47 5/8 1996 First Quarter (through February 16)........................ 52 5/8 49
On February 16, 1996, the closing price of the common stock was $50 3/4. As of December 31, 1995, the number of holders of record of common stock of the Company was 1,649. The Company has paid quarterly cash dividends as follows:
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ----------- ----------- ----------- 1994............................ $0.625 $0.625 $0.625 $0.625 1995............................ $0.625 $0.625 $0.700 $0.700 1996............................ $0.700*
- -------- * On January 25, 1996, a dividend of $0.70 per share was declared on the common stock, payable on March 1, 1996 to stockholders of record on February 16, 1996. The current quarterly dividend rate for the common stock is $0.70 per share. The declaration and payment of future dividends and the amount thereof will be dependent on the Company's results of operations, financial condition, cash requirements, and future prospects as well as on other factors deemed relevant by the Board of Directors. It is the current intention of the Company to declare and pay quarterly cash dividends on its common stock. 12 ITEM 6.SELECTED FINANCIAL DATA The following table sets forth selected financial information for the Company:
YEAR ENDED DECEMBER 31, -------------------------------------------- 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA) Sales and other operating reve- nues............................. $4,282 $3,423 $3,192 $ 3,100 $2,837 Costs and other operating ex- penses........................... 3,102 2,586 2,453 2,343 2,283 Income before changes in account- ing principles................... 508 269 214 197 188 Net income(1)..................... 508 269 214 195 188 Total assets...................... 4,135 3,737 3,502 3,599 3,676 Long-term debt, including current portion.......................... 912 913 905 1,102 1,173 Dividends per common share........ 2.65 2.50 2.50 2.50 2.50 Earnings per share before changes in accounting principles......... 5.28 2.80 2.23 2.05 1.96 Earnings per share(1)............. 5.28 2.80 2.23 2.03 1.96
- -------- (1) Net income in 1992 includes a charge of $2 million, or $.02 per share, for the net cumulative effect of changes in accounting principles, and a $56 million charge, or $.58 per share, related to the divestiture of a joint venture in Korea. ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in connection with the information contained in the Consolidated Financial Statements and the Notes thereto. OVERVIEW The Company manufactures and markets intermediate chemicals and specialty products, operating in a single industry segment. It conducts business primarily in the Western Hemisphere, Europe, and the Asia Pacific region. Each of the Company's two principal manufacturing processes yield its key product, propylene oxide (PO), and one of two co-products, styrene monomer (SM) or tertiary butyl alcohol (TBA). The Company also manufactures numerous derivatives of these products. Among these are methyl tertiary butyl ether (MTBE), a derivative of TBA used in oxygenated fuels and as an octane enhancer. Another is polyols, a derivative of PO. In 1995, the Company began selling toluene diisocyanate (TDI) obtained under long-term supply agreements. TDI and polyols are combined in the manufacture of polyurethanes. Net income for 1995 was $508 million compared with $269 million in 1994. Net income in 1995 increased over 1994 primarily due to improved margins for PO and derivatives and a significant improvement in SM margins. The margin improvements were primarily attributable to higher prices, which more than offset increases in the costs of raw materials. Net income of $269 million in 1994 increased over 1993 net income of $214 million primarily due to higher PO and derivatives volumes and higher SM margins and volumes, partly offset by the effects of a weaker MTBE market. The 1994 period also benefitted from lower interest expense. Net income for these years included special items, on an after-tax basis, as follows: a $19 million restructuring charge and a $12 million benefit from insurance proceeds in 1994; a $10 million loss on early debt retirement and $20 million of net benefits from lower income taxes in 1993. 13 RESULTS OF OPERATIONS Product Volumes Sales and other operating revenues include the sales and processing volumes of PO, TBA, SM and their derivatives as set forth below for the years indicated.
YEAR ENDED DECEMBER 31, ----------------------- 1995 1994 1993 ------- ------- ------- (MILLIONS) PO and derivatives (pounds)....................... 3,476 3,699 3,356 Co-products: TBA and derivatives (gallons)................... 1,140 1,004 1,164 SM and derivatives (pounds)..................... 2,579 2,496 2,084
Revenues Revenues increased 25 percent to $4,282 million in 1995 from $3,423 million in 1994 primarily due to higher sales prices. While sales prices were generally higher for all products, average SM sales prices increased significantly versus the 1994 period as a result of higher worldwide demand during the early part of 1995. Volume benefits from higher domestic MTBE volumes and first-time sales of TDI were substantially offset by lower volumes for PO and derivatives. Domestic MTBE volumes increased versus 1994 primarily due to increased demand, which resulted from implementation of the reformulated gasoline phase of the Clean Air Act in 1995. PO and derivatives volumes in 1995 decreased six percent compared to 1994 primarily due to the entry of a new PO producer into the U.S. market in late 1994 as well as lower Asia Pacific sales, which were affected by a slowdown in China markets. Revenues increased seven percent in 1994 versus 1993 with the majority of the increase attributable to higher average sales prices. Sales prices were generally higher for all products. Revenues also benefitted from higher volumes for PO and SM and their derivatives, partly offset by lower U.S. MTBE volumes. PO and derivatives volumes in 1994 increased 10 percent versus 1993 due to a strong U.S. economy, increased market penetration by propylene glycol-based deicers and coolants, and a recovering economy in Europe. SM and derivatives volumes in 1994 increased 20 percent over 1993 primarily due to higher SM export sales, reflecting increased worldwide demand, and higher SM contractual offtakes by the limited partners in the PO/SM II plant. Lower U.S. MTBE volumes reflected lower contractual sales volumes and flat demand for MTBE as an oxygenate coupled with increased worldwide capacity. Additionally, demand for MTBE in world octane markets was lower. Gross Profit Gross profit increased 41 percent to $1,180 million in 1995 from $837 million in 1994, reflecting the 25 percent increase in revenues as well as higher margins. Overall gross profit was 27.6 percent of sales in 1995 compared to 24.5 percent in 1994 as higher sales prices more than offset net increases in raw materials costs. The margin improvements were seen in PO and derivatives, especially in the fourth quarter, and in SM margins during the first half of the year. Average SM margins improved significantly in 1995 as evidenced by industry raw material margins, which doubled, on average, compared to 1994. SM prices and margins increased substantially during the first half of 1995, but declined over the second half as worldwide demand declined. Raw material cost comparisons, 1995 versus 1994, were mixed with substantial increases in average propylene costs, more moderate increases in average butane and ethylene costs and a decrease in average benzene and methanol costs. 14 Gross profit increased 13 percent to $837 million in 1994 from $739 million in 1993, reflecting the seven percent increase in revenues as well as higher margins, primarily for co-products. Overall gross profit was 24.5 percent of sales in 1994 compared to 23.2 percent in 1993. The improvement was primarily due to higher prices for SM and U.S. MTBE. Higher SM prices were attributable to increased worldwide demand and a series of planned and unplanned outages at producers' plants that reduced available supplies. U.S. MTBE prices reflected the escalation in market prices of methanol, which peaked in the fourth quarter of 1994. The 1995, 1994 and 1993 periods included pretax charges of $12 million, $13 million and $12 million, respectively, in costs and other operating expenses for estimated future environmental cleanup costs. These charges do not reflect any potential benefit from insurance proceeds. Other In 1994, management adopted a corporate restructuring program, resulting in a pretax charge of $30 million, primarily for costs associated with personnel reductions. This item was reported as restructuring costs in 1994. Interest expense was $89 million in 1995, $85 million in 1994 and $105 million in 1993. Interest expense declined in 1994 from 1993 due to lower debt levels and lower interest rates on certain foreign bank borrowing. Other income (expense), net, was $22 million in 1995, $26 million in 1994, and $(9) million in 1993. The 1995 period reflected higher equity earnings from the Company's Japanese PO/SM joint venture and higher interest income, partly offset by higher foreign exchange losses. The 1994 period included an $18 million pretax benefit from an insurance settlement related to the 1990 Channelview plant incident. The decrease in 1993 reflects a pretax loss of $13 million on early retirement of debt. Income Taxes The Company's effective income tax rate was 32.8 percent in 1995, 35.3 percent in 1994, and 31.2 percent in 1993. The decrease in 1995 reflected benefits from higher export income and increased utilization of foreign tax credits due to higher foreign earnings. The low rate in 1993 reflects recognition of deferred foreign assets. FINANCIAL CONDITION Liquidity and Capital Resources As of December 31, 1995, the Company had $235 million in cash and cash equivalents compared with $144 million at December 31, 1994. The Consolidated Statement of Cash Flows for the year ended December 31, 1995 shows that net cash flows provided by operating activities were $677 million, whereas net cash flows used by investment and financing activities were $301 million and $285 million, respectively. Operating cash flow in 1995 was affected by increases in receivables and inventories of $58 million and $64 million, respectively, excluding related party receivables and foreign exchange effects. The accounts receivable increase is primarily due to the integration of the TDI business in 1995. The increase in 1995 inventory reflects a combination of low inventory levels at year-end 1994 and a slowdown in second-half 1995 sales. Investment activities in 1995 included expenditures for plant and equipment of $195 million, which was comparable to the $186 million spent in 1994. A significant portion of the 1995 and 1994 capital 15 programs were devoted to environmental, health and safety projects as well as PO derivative capacity expansions at existing facilities. The Company's 1996 capital budget for plant and equipment is $285 million. The Board of Directors has approved commencement of engineering studies for the expansion of the PO/SM complex located in Channelview, Texas and the construction of a new world scale PO/SM plant in Rotterdam, the Netherlands. Final Board of Directors' approval of such projects will depend on the results of engineering studies, the receipt of permitting approvals and the conclusion of certain commercial arrangements. In connection with the plant project in Rotterdam, the Company anticipates that it will make capital commitments denominated in a foreign currency beginning in 1996 and extending through 2000. The Company has entered into foreign currency forward and purchased option contracts to minimize the foreign exchange exposures associated with these anticipated commitments. The notional amount of foreign currency contracts outstanding increased to $442 million at December 31, 1995 from $120 million at December 31, 1994, primarily due to these contracts. See Note 19 of Notes to Consolidated Financial Statements. In January 1995, the Company entered into a long-term supply arrangement with Rhone-Poulenc (RP) for toluene diisocyanate (TDI). Adding TDI to the list of products sold by the Company complements the Company's existing line of polyols products and strengthens the Company's position in the polyurethanes market. Effective January 1, 1995, the Company was entitled to the entire TDI output of RP's two plants in France, which have a combined annual capacity of approximately 264 million pounds. The Company made an initial payment of $80 million at closing for capacity reservation fees and other long-term rights and costs. These are reported in the accompanying consolidated balance sheet as "Deferred charges and other assets" and are being amortized on a straight-line basis over the 15-year period of the agreement. The Company is obligated to pay additional capacity reservation fees and purchase minimum quantities of TDI for periods of up to 15 years. The Company's projected TDI sales volumes exceed the minimum purchase quantities, and the Company expects to fund the obligations under this arrangement through cash flows from increased sales revenues. In December 1995, an explosion occurred at one of RP's plants. As a result, RP may not be able to supply the full amount of TDI to the Company from this RP plant for several months. During this period of time, certain of the fees payable by the Company to RP for the production from this RP plant will be abated. The Company paid dividends totalling $255 million in 1995, including a $.70 per share dividend, totalling $68 million, during the quarter ended December 31, 1995. On January 25, 1996, the Board of Directors declared a dividend of $.70 per share on the Company's common stock, payable March 1, 1996. The Company maintains a credit agreement under which it can borrow amounts of up to $300 million. At December 31, 1995, the Company had no outstanding borrowings against the credit agreement, which is used to back up the Company's commercial paper borrowing. It is expected that future cash requirements for capital expenditures, dividends and debt repayments will be met by cash generated from operating activities and additional borrowing. Effects of Inflation Based on the age of the Company's fixed assets, it is estimated that the replacement cost of those assets is greater than the historical cost reflected in the Company's financial statements. Accordingly, the Company's depreciation and amortization expense for the three years ended December 31, 1995, would be greater if the expense were stated on a current cost basis. 16 Risk Management The Company uses derivative financial instruments to reduce certain types of financial risk. Use of derivatives is limited to simple, non-leveraged instruments placed with major financial institutions whose creditworthiness is monitored. Company policy provides restrictions on concentrating credit risk in any one institution. Hedging strategies and transactions are reviewed and approved by management before being implemented. Monthly market valuations and quarterly sensitivity analyses are performed to monitor the effectiveness of the Company's risk management program. The Company enters into the following activities using derivative financial instruments: (1) foreign currency forward contracts, option contracts and swap contracts to reduce the risk of foreign currency fluctuations on future cash flows, and, to a lesser extent, (2) interest rate swaps to minimize the impact of fluctuating interest rates on the Company's outstanding floating rate debt. Feedstock Costs See "Raw Materials" included in Items 1 and 2. Environmental The Company is subject to loss contingencies pursuant to federal, state, local, and foreign environmental laws and regulations. These contingencies include possible obligations to remove or mitigate the effects on the environment of the past disposal or release of certain chemical substances at various sites (remediation costs). The Company continues to evaluate the amount of these remediation costs and periodically adjusts its reserve for remediation costs and its estimate of additional environmental loss contingencies based on progress made in determining the magnitude, method and timing of the remedial actions that may be required by government authorities and an evaluation of the Company's potential liability in relation to the liability and financial resources of any other potentially responsible parties. Reflected in costs and other operating expenses for 1995 is a $12 million pretax charge for estimated future remediation costs compared with $13 million in 1994 and $12 million in 1993. At December 31, 1995, the Company's environmental reserve totaled $59 million, which reflected the Company's latest assessment of potential future remediation costs associated with existing sites. A significant portion of the reserve is related to the Company's Beaver Valley (Pennsylvania) facility. The remainder of the reserve is related to four other plant sites and two federal Superfund sites for amounts ranging from $1 million to $15 million per site. The Company is involved in administrative proceedings or lawsuits relating to seven other Superfund sites. However, it estimates, based on currently available information, that potential loss contingencies associated with these seven sites, individually and in the aggregate, are not significant. Substantially all amounts reserved are expected to be paid out over the next five to ten years. The Company relies upon remedial investigation/feasibility studies (RI/FS) at each site as a basis for estimating remediation costs at the site. The Company has substantially completed RI/FS at most of its sites; however, two plant facilities are currently undergoing either RI/FS or preliminary assessments. In addition, selection of the remediation method and the cleanup standard to be applied is, in most cases, subject to approval by the appropriate government authority. Accordingly, the Company may have possible loss contingencies in excess of the amounts reserved to the extent the scope of remediation required, the final remediation method selected and the cleanup standard applied vary from the assumptions used in estimating the reserve. The Company estimates that the upper range of these possible loss contingencies should not exceed the amount accrued by more than $65 million. The extent of loss related to environmental matters ultimately depends upon a number of factors, including technological developments, changes in environmental laws, the number and ability to pay of other parties involved at a particular site and the Company's potential involvement in additional 17 environmental assessments and cleanups. Based upon currently known facts, management believes that any remediation costs the Company may incur in excess of the amounts reserved or disclosed above would not have a material adverse impact on the Company's consolidated 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 employee stock options or similar equity instruments, 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. The Company 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 method of SFAS No. 123. 18 ITEM 8.FINANCIAL STATEMENTS INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ARCO CHEMICAL COMPANY PAGE CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Accountants................................... 20 Consolidated Statements of Income for the Years Ended December 31, 1995, 1994, and 1993.............................................. 21 Consolidated Balance Sheets as of December 31, 1995 and 1994....... 22 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994, and 1993........................... 23 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1994, and 1993...... 24 Notes to Consolidated Financial Statements......................... 25
19 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of ARCO Chemical Company We have audited the consolidated financial statements of ARCO Chemical Company and Subsidiaries listed in the index on page 19 of this Form 10-K. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 ARCO Chemical Company and Subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania February 12, 1996 20 ARCO CHEMICAL COMPANY CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993 (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
1995 1994 1993 ------ ------ ------ Sales and other operating revenues: Unrelated parties.................................... $4,085 $3,267 $2,996 Related parties...................................... 197 156 196 ------ ------ ------ Total revenues....................................... 4,282 3,423 3,192 Costs and other operating expenses (includes costs of $134 in 1995, $85 in 1994, and $135 in 1993, of related parties sales)................................ 3,102 2,586 2,453 ------ ------ ------ Gross profit......................................... 1,180 837 739 Selling, general and administrative expenses........... 278 256 242 Research and development............................... 79 76 72 Restructuring costs.................................... -- 30 -- ------ ------ ------ Operating income..................................... 823 475 425 Interest expense....................................... (89) (85) (105) Other income (expense), net............................ 22 26 (9) ------ ------ ------ Income before income taxes........................... 756 416 311 Provision for income taxes............................. 248 147 97 ------ ------ ------ Net income........................................... $ 508 $ 269 $ 214 ====== ====== ====== Earnings per common share.............................. $ 5.28 $ 2.80 $ 2.23 ====== ====== ======
See accompanying notes. 21 ARCO CHEMICAL COMPANY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND 1994 (MILLIONS OF DOLLARS) ASSETS
1995 1994 ------ ------ Current assets: Cash and cash equivalents.................................... $ 235 $ 144 Short-term investments....................................... 25 -- Accounts receivable.......................................... 630 549 Accounts receivable--related parties......................... 1 16 Inventories.................................................. 472 397 Prepaid expenses and other current assets.................... 19 18 ------ ------ Total current assets......................................... 1,382 1,124 Investments and long-term receivables.......................... 90 97 Property, plant and equipment, net............................. 2,293 2,221 Deferred charges and other assets (net of accumulated amortiza- tion of $285 in 1995 and $247 in 1994)........................ 370 295 ------ ------ Total assets................................................. $4,135 $3,737 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable................................................ $ -- $ 23 Long-term debt due within one year........................... 25 15 Accounts payable............................................. 228 208 Accounts payable--related parties............................ 25 34 Taxes payable................................................ 94 66 Other accrued liabilities.................................... 217 199 ------ ------ Total current liabilities.................................... 589 545 ------ ------ Long-term debt................................................. 887 898 Other liabilities and deferred credits......................... 158 142 Deferred income taxes.......................................... 409 369 Minority interest.............................................. 123 124 Stockholders' equity: Common stock, $1 par value; authorized 250,000,000 shares; 99,550,001 issued; outstanding 96,488,880 (1995), 96,085,201 (1994)...................................................... 100 100 Additional paid-in capital................................... 869 864 Retained earnings............................................ 985 732 Foreign currency translation................................. 110 70 Treasury stock, at cost (shares: 3,061,121, 1995; 3,464,800, 1994)....................................................... (95) (107) ------ ------ Total stockholders' equity................................... 1,969 1,659 ------ ------ Total liabilities and stockholders' equity................... $4,135 $3,737 ====== ======
See accompanying notes. 22 ARCO CHEMICAL COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993 (MILLIONS OF DOLLARS)
1995 1994 1993 ----- ----- ----- Cash flows from operating activities Net income.............................................. $ 508 $ 269 $ 214 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................... 233 235 223 Deferred income taxes................................. 15 27 43 Restructuring costs................................... -- 30 -- Provision for environmental liabilities............... 12 13 12 Equity in net (income) loss of affiliate.............. (14) (2) 2 Dividends received from affiliate..................... 17 -- -- Net change in accounts receivable, inventories, accounts and other payables.......................... (68) 24 (73) Other................................................. (26) (31) 3 ----- ----- ----- Net cash provided by operating activities............... 677 565 424 ----- ----- ----- Cash flows from investment activities Capital expenditures.................................... (195) (186) (181) Increase in deferred charges............................ (82) (9) (10) Net (purchases of) proceeds from short-term investments ....................................................... (25) -- 9 Proceeds from asset sales............................... 6 22 69 Other................................................... (5) (3) 12 ----- ----- ----- Net cash used in investment activities.................. (301) (176) (101) ----- ----- ----- Cash flows from financing activities Dividends paid.......................................... (255) (240) (240) Net (repayment of) proceeds from notes payable ......... (24) (33) 21 Repayment of long-term debt............................. (23) (18) (57) Early debt extinguishment............................... -- -- (135) Other................................................... 17 3 (3) ----- ----- ----- Net cash used in financing activities................... (285) (288) (414) ----- ----- ----- Effect of exchange rate changes on cash................... -- 1 (2) ----- ----- ----- Net increase (decrease) in cash and cash equivalents...... 91 102 (93) Cash and cash equivalents at beginning of year............ 144 42 135 ----- ----- ----- Cash and cash equivalents at end of year.................. $ 235 $ 144 $ 42 ===== ===== =====
See accompanying notes. 23 ARCO CHEMICAL COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993 (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
ADDITIONAL FOREIGN COMMON STOCK PAID-IN RETAINED CURRENCY ISSUED TREASURY CAPITAL EARNINGS TRANSLATION ------ -------- ---------- -------- ----------- Balance December 31, 1992 (99,550,001 shares issued; 3,622,950 treasury shares).... $100 $(112) $864 $ 729 $ 49 Net income..................... -- -- -- 214 -- Cash dividends ($2.50 per share)........................ -- -- -- (240) -- Foreign currency translation... -- -- -- -- (30) Reissuance of 71,650 treasury shares upon exercise of stock options....................... -- 2 -- -- -- ---- ----- ---- ----- ---- Balance December 31, 1993 (99,550,001 shares issued; 3,551,300 treasury shares).... 100 (110) 864 703 19 Net income..................... -- -- -- 269 -- Cash dividends ($2.50 per share)........................ -- -- -- (240) -- Foreign currency translation... -- -- -- -- 51 Reissuance of 86,500 treasury shares upon exercise of stock options....................... -- 3 -- -- -- ---- ----- ---- ----- ---- Balance December 31, 1994 (99,550,001 shares issued; 3,464,800 treasury shares).... 100 (107) 864 732 70 Net income..................... -- -- -- 508 -- Cash dividends ($2.65 per share)........................ -- -- -- (255) -- Foreign currency translation... -- -- -- -- 40 Reissuance of 403,679 treasury shares in connection with purchases by employee benefit plan and upon exercise of stock options................. -- 12 5 -- -- ---- ----- ---- ----- ---- Balance December 31, 1995 (99,550,001 shares issued; 3,061,121 treasury shares).... $100 $ (95) $869 $ 985 $110 ==== ===== ==== ===== ====
See accompanying notes. 24 ARCO CHEMICAL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1.FORMATION OF THE COMPANY On June 9, 1987, Atlantic Richfield Company (ARCO) transferred substantially all the assets and liabilities of the oxygenates and polystyrenics businesses of the then ARCO Chemical Division to ARCO Chemical Company (the Company) in exchange for 80,000,001 shares of common stock. On October 5, 1987, the Company completed an initial public offering of 19,550,000 shares of common stock. ARCO's 80,000,001 shares represented approximately 82.9 percent of the outstanding shares of common stock at December 31, 1995. 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation--The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries and partnerships. Investments in affiliates (20 percent to 50 percent owned) are accounted for under the equity method. All significant intercompany transactions have been eliminated in consolidation. Certain amounts in 1994 and 1993 have been reclassified for comparative purposes. 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, 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. See Note 11. Cash Equivalents; Short-Term Investments--Cash equivalents consist of highly liquid investments, such as time deposits, certificates of deposit and marketable securities other than equity securities, maturing within three months from the date of purchase. Short-term investments consist of similar investments maturing in more than three months from the date of purchase. Cash equivalents and short-term investments are carried at cost, which approximates market, and are classified as held-to-maturity. Property, Plant and Equipment--Property, plant and equipment are depreciated on a straight-line method over their estimated useful lives. Upon disposition, residual cost less salvage is included in current income. Maintenance and repairs are expensed and betterments are capitalized. Deferred Charges--Deferred charges are carried at cost and consist primarily of the value assigned to acquired technology, capacity reservation fees and other long-term processing rights and costs. These assets are being amortized on a straight-line method over their estimated useful lives or the term of the related agreement, if shorter. Environmental Expenditures--Environmental expenditures that relate to current operations are expensed or capitalized, depending upon their future economic benefit. Expenditures that result from the remediation of an existing condition caused by past operations are expensed. Liabilities are recognized for remedial activities when remediation is probable and the costs can be reasonably estimated. Income Taxes--The Company's results of operations are included in the consolidated federal income tax return, and certain consolidated, combined, or unitary state returns of ARCO. The Company's income tax expense in the consolidated financial statements is computed on a modified stand-alone basis pursuant to a tax sharing agreement, with any resulting liability or refund settled with ARCO. The agreement, as modified effective January 1, 1995, permits the Company to reduce its federal income tax liability through the use of certain tax attributes that produce a benefit to the ARCO affiliated group, but would not otherwise benefit the Company on a stand-alone basis. The modification had no effect on net income in 1995. Income tax expense also reflects the Company's liability under separate company returns filed with certain states. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) Long-Lived Asset Impairment--Effective January 1, 1995, the Company 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." The provisions of SFAS No. 121 require the Company to review its long- lived assets for impairment on an exception basis whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through future cash flows. If it is determined that an impairment loss has occurred based on expected future cash flows, then the loss is recognized in the income statement and certain disclosures regarding the impairment are made in the financial statements. The adoption of the provisions of SFAS No. 121 did not have an effect on the Company's 1995 consolidated financial statements. 3.RELATED PARTY TRANSACTIONS AND COST ALLOCATIONS Effective July 1, 1987, the Company and ARCO (including ARCO subsidiaries) entered into a series of agreements that included, among other things, purchase, exchange and processing agreements, product sales agreements, operational services agreements, and an administrative services agreement. Certain of these agreements are between the Company and Lyondell Petrochemical Company (Lyondell). Currently, ARCO's interest in Lyondell is 49.9 percent. In 1994, ARCO issued Exchangeable Notes due 1997, which, at ARCO's option, can be exchanged at maturity into Lyondell common stock or cash of 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. Lyondell is treated by the Company as a related party. The purchase, exchange, and processing agreements are principally for methanol, benzene, ethylene, propylene, and MTBE. Other purchases from ARCO and Lyondell principally include normal butane, isobutane, isobutylene, nonenes and tetramers, natural gas and certain butanediol feedstocks. Product sales include sales by the Company to ARCO and Lyondell of MTBE and propane. In 1991, the Company entered into long-term sales agreements with ARCO providing for delivery of fixed quantities of MTBE. The operational services agreements are for various plant services performed by ARCO and Lyondell. The administrative services agreement provides that beginning October 1, 1987, ARCO provides the Company with certain leased office space, insurance and other financial, internal audit, legal, aviation and administrative services, and the Company provides ARCO with various technical and legal services. These agreements have various durations, ranging from monthly renewals to a term extending to 2017. An analysis of the aggregate transactions for the years ended December 31, 1995, 1994, and 1993 is as follows:
1995 1994 1993 ---- ---- ---- (MILLIONS OF DOLLARS) Purchases........................................................ $344 $332 $276 Product sales.................................................... 197 156 196 Processing fees and operational services......................... 11 16 17 Administrative services: For ARCO....................................................... 1 1 4 By ARCO........................................................ 32 34 36
Outstanding balances under these agreements at December 31, 1995 and 1994, are included in "Accounts receivable--related parties" and "Accounts payable-- related parties." 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. GEOGRAPHIC INFORMATION The Company is an international manufacturer of intermediate chemicals and specialty chemical products which it principally markets to other industrial concerns. The Company operates in one industry segment. The geographic distribution of the Company's markets and assets is indicated by the table below.
1995 1994 1993 ---- ---- ---- (MILLIONS OF DOLLARS) Total revenues (by destination) United States.................................... $ 2,181 $ 1,911 $ 1,862 Europe and other foreign......................... 2,101 1,512 1,330 ------- ------- ------- Total.......................................... $ 4,282 $ 3,423 $ 3,192 ======= ======= ======= Total revenues (by origin) United States.................................... $ 2,878 $2,431 $2,280 Europe........................................... 1,497 943 900 Other foreign.................................... 313 302 247 Elimination of intercompany sales................ (406) (253) (235) ------- ------- ------- Total.......................................... $ 4,282 $3,423 $3,192 ======= ======= ======= Pretax earnings United States.................................... $ 764 $ 495 $ 428 Europe........................................... 76 3 16 Other foreign.................................... 21 4 (24) Interest expense................................. (89) (85) (105) Eliminations..................................... (16) (1) (4) ------- ------- ------- Total.......................................... $ 756 $ 416 $ 311 ======= ======= ======= Total assets United States.................................... $ 2,610 $2,462 $2,325 Europe........................................... 1,530 1,298 1,149 Other foreign.................................... 315 283 253 Eliminations..................................... (320) (306) (225) ------- ------- ------- Total.......................................... $ 4,135 $3,737 $3,502 ======= ======= ======= United States export sales Asia Pacific..................................... $ 294 $ 206 $ 128 Canada and Latin America......................... 115 114 86 Europe and other foreign......................... 11 9 2 ------- ------- ------- Total.......................................... $ 420 $ 329 $ 216 ======= ======= =======
Intercompany sales are made at prices approximating current market values. The amounts of intercompany sales that are included in total revenues are as follows:
1995 1994 1993 ------- ------- ------- (MILLIONS OF DOLLARS) United States........................................... $373 $ 218 $207 Europe.................................................. 32 34 28 Other foreign........................................... 1 1 -- ------- ------- ------- Total................................................. $406 $ 253 $235 ======= ======= =======
27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4.GEOGRAPHIC INFORMATION--(CONTINUED) Included in pretax earnings are royalty charges made to foreign operations for the use of Company technology. Eliminations principally include intercompany sales, profit, and receivables. 5.INVENTORIES Inventories are stated at the lower of cost or market. In 1995, approximately 90 percent of inventories, excluding materials and supplies, were determined by the last-in, first-out (LIFO) method. Materials and supplies and other non-LIFO inventories are valued using either the first-in, first-out (FIFO) or the average cost methods. Inventories at December 31, 1995 and 1994, comprised the following categories:
1995 1994 ---------- ---------- (MILLIONS OF DOLLARS) Finished goods............................................ $338 $272 Work-in-process........................................... 38 35 Raw materials............................................. 51 49 Materials and supplies.................................... 45 41 ---------- ---------- Total................................................... $472 $397 ========== ==========
If the FIFO inventory valuation method had been used exclusively, inventories would have been higher (lower) than the book value of such inventories by approximately $9 million and $(6) million at December 31, 1995 and 1994, respectively. 6.PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, at cost, and related accumulated depreciation at December 31, 1995 and 1994, were as follows:
1995 1994 ------ ------ (MILLIONS OF DOLLARS) Land............................................................. $ 18 $ 18 Buildings and equipment.......................................... 3,670 3,325 Construction in progress......................................... 124 181 ------ ------ 3,812 3,524 Less: Accumulated depreciation................................... 1,519 1,303 ------ ------ Total.......................................................... $2,293 $2,221 ====== ======
Depreciation expense for the years ended December 31, 1995, 1994 and 1993 was $192 million, $193 million, and $188 million, respectively. Expenses for maintenance and repairs, including costs associated with plant maintenance turnarounds, for the years ended December 31, 1995, 1994, and 1993 were $97 million, $105 million, and $109 million, respectively. 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7.BANK CREDIT FACILITIES In October 1994, the Company executed an amendment to an existing credit facility under which it can borrow a total amount of up to $300 million. This agreement effectively replaced the two previous revolving credit agreements entered into in December 1993. The credit agreement, as amended, has a restrictive financial covenant which requires that the Company maintain a minimum net worth of $1 billion and has a term of five years. At December 31, 1995, the Company had no outstanding borrowings against the credit agreement. Notes payable at December 31, 1994 consisted primarily of short-term bank borrowings and commercial paper issued to a variety of financial investors and institutions at various interest rates and maturities of up to 270 days. The weighted average effective interest rate for these borrowings at December 31, 1994 was 5.8 percent. As a condition of the sale of commercial paper, the Company is required to maintain a back-up credit facility at least equal to the amount of the outstanding commercial paper. The Company uses the credit agreement for this purpose. 8.OTHER ACCRUED LIABILITIES Other accrued liabilities at December 31, 1995 and 1994, were as follows:
1995 1994 ---- ---- (MILLIONS OF DOLLARS) Payroll and benefits.................................................. $ 79 $ 65 Contractual obligations............................................... 26 21 Interest.............................................................. 20 20 Restructuring costs................................................... 6 15 Other................................................................. 86 78 ---- ---- Total............................................................... $217 $199 ==== ====
9.TAXES The components of the provision for income taxes for the years ended December 31, 1995, 1994, and 1993 were as follows:
1995 1994 1993 ------- ------- ------- (MILLIONS OF DOLLARS) Federal: Current............................................. $ 202 $123 $ 50 Deferred............................................ 6 21 72 ------- ------- ------- Total............................................. 208 144 122 ------- ------- ------- Foreign: Current............................................. 21 (6) 2 Deferred............................................ 9 12 (33) ------- ------- ------- Total............................................. 30 6 (31) ------- ------- ------- State: Current............................................. 10 3 (1) Deferred............................................ -- (6) 7 ------- ------- ------- Total............................................. 10 (3) 6 ------- ------- ------- $248 $147 $ 97 ======= ======= =======
29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9.TAXES--(CONTINUED) Deferred tax liabilities and assets are comprised of the following at December 31, 1995 and 1994:
1995 1994 ---------- ---------- (MILLIONS OF DOLLARS) Deferred tax liabilities: Depreciation and amortization........................... $435 $415 Other................................................... 47 32 ---------- ---------- Gross deferred tax liabilities......................... 482 447 ---------- ---------- Deferred tax assets: Loss carryforwards...................................... 167 113 Tax basis in excess of book............................. 31 45 Provisions for benefit plans and estimated expenses..... 74 75 ---------- ---------- Gross deferred tax assets.............................. 272 233 ---------- ---------- Deferred tax asset valuation allowance................. 138 101 ---------- ---------- Net deferred tax liability................................ $348 $315 ========== ==========
The valuation allowance was $116 million at December 31, 1993. A reconciliation of the federal statutory rate to the effective tax rate for the years ended December 31, 1995, 1994, and 1993 is as follows:
PERCENT OF PRETAX INCOME ---------------------------- 1995 1994 1993 -------- -------- -------- Federal statutory rate...... 35.0 35.0 35.0 Increase (reduction) in taxes resulting from: State income taxes (net of federal effect)..... 0.9 (0.5) 1.9 Foreign deferred tax as- set recognition........ -- -- (8.3) Deferred tax effect of federal rate increase.. -- -- 2.1 Other................... (3.1) 0.8 0.5 -------- -------- -------- Effective tax rate.......... 32.8 35.3 31.2 ======== ======== ========
During 1993, the Company took certain actions to convert five-year foreign tax loss carryforwards into additional depreciable tax basis. Future losses attributable to the additional basis will have an unlimited carryforward period. At December 31, 1995, the Company had federal capital loss carryforwards of $75 million, foreign tax loss carryforwards of $366 million, and state tax loss carryforwards of $152 million. These carryforwards begin expiring in 1996. Existing foreign tax credits are sufficient to offset any tax on undistributed earnings of foreign subsidiaries. 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 10.LONG-TERM DEBT Long-term debt at December 31, 1995 and 1994, comprised the following:
1995 1994 ---- ---- (MILLIONS OF DOLLARS) 9.9% debentures due in 2000.......................................... $200 $200 9.375% debentures due in 2005........................................ 100 100 10.25% debentures due in 2010........................................ 100 100 9.8% debentures due in 2020.......................................... 224 224 Dutch bank loans..................................................... 187 172 French bank loans.................................................... 76 84 Other................................................................ 25 33 ---- ---- Total.............................................................. 912 913 Debt due within one year............................................. 25 15 ---- ---- Long-term debt..................................................... $887 $898 ==== ====
On December 1, 1993, the Company redeemed all of its outstanding 9.35 percent Debentures due 2019, in accordance with the provisions of the Debentures at a redemption price of 107.48 percent of principal plus interest accrued to the redemption date. The principal amount redeemed represented the original $125 million issue less amounts repurchased in the open market. The Company reported a fourth quarter charge for loss on early extinguishment of debt of approximately $13 million before tax, primarily due to repurchase and redemption premiums and write-off of original issue discount. The Dutch bank loans, entered into by the Company's wholly owned subsidiary, ARCO Chemie Nederland, Ltd. (ACNL), consist of two borrowings, both due in 1997. At December 31, 1995, ACNL had outstanding interest rate swaps on both of its bank loans, totalling 300 million Dutch guilders, or approximately $187 million. Both swaps mature in 1997 when the related debt becomes due. The swaps effectively changed both loans' floating rates, which are based on the Amsterdam Interbank Offer Rate ("AIBOR"), to fixed rates of 5.7 percent and 6.7 percent. The Company intends to hold the swaps until maturity. See Note 19. The French bank loans, entered into by the Company's wholly owned affiliate, ARCO Chimie France, SNC, mature at various dates through 2006. The weighted average effective interest rate for these borrowings was approximately 7.4 percent and 7.9 percent in 1995 and 1994, respectively. Aggregate maturities of all long-term debt during the next five years are $25 million in 1996, $214 million in 1997, $26 million in 1998, $20 million in 1999, $201 million in 2000, and $426 million thereafter. 11.OTHER COMMITMENTS AND CONTINGENCIES COMMITMENTS In January 1995, the Company entered into a long-term supply arrangement for toluene diisocyanate (TDI). Initial payments of $80 million were made at closing for capacity reservation fees, related inventory and other rights and costs. Effective January 1, 1995, the Company was entitled to all of the TDI output of the supplier's two plants in France, which have a combined rated capacity of approximately 264 million pounds per year. Under the arrangement, the Company is required to purchase a minimum of 216 million pounds of TDI per year for up to 15 years. The aggregate purchase price is a combination of plant cost and market price. The Company is further obligated to pay additional capacity reservation fees based upon plant output factors. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11.OTHER COMMITMENTS AND CONTINGENCIES--(CONTINUED) To assure itself of reliable, long-term supplies of utilities at favorable rates for its Rotterdam plant, the Company entered into a 15-year utility cogeneration joint venture as a limited partner. The joint venture operates a cogeneration plant, primarily funded through nonrecourse debt. The Company is obligated to take or pay for minimum quantities of steam and electricity in support of the joint venture's financing arrangement. The Company pays for actual quantities of steam and electricity taken based on the joint venture's actual cost plus a specified return on the partners' investment. The Company also has a long-term purchase agreement for ethylene which requires the Company to take or pay for 143 million pounds annually at prevailing market prices for a remaining term of four years. Purchases under the cogeneration and the ethylene agreements during 1995, 1994 and 1993 were $50 million, $30 million and $27 million, respectively. The Company has commitments, including those related to capital expenditures, all made in the normal course of business. At December 31, 1995, there were commitments associated with various capital projects which were not significant either individually or in the aggregate. CONTINGENCIES The Company and its subsidiaries are involved in a number of lawsuits, all of which have arisen in the ordinary course of the Company's business. The Company is unable to predict the outcome of these matters, but does not believe, based upon currently available facts, that the ultimate resolution of such matters will have a material adverse effect on the consolidated financial statements of the Company. The Company is subject to other loss contingencies pursuant to federal, state, local, and foreign environmental laws and regulations. These contingencies include possible obligations to remove or mitigate the effects on the environment of the past disposal or release of certain chemical substances at various sites (remediation costs). The Company continues to evaluate the amount of these remediation costs and periodically adjusts its reserve for remediation costs and its estimate of additional environmental loss contingencies based on progress made in determining the magnitude, method and timing of the remedial actions that may be required by government authorities and an evaluation of the Company's potential liability in relation to the liability and financial resources of any other potentially responsible parties. At December 31, 1995, the Company's environmental reserve totaled $59 million, which reflected the Company's latest assessment of potential future remediation costs associated with existing sites. A significant portion of the reserve is related to the Company's Beaver Valley (Pennsylvania) facility. The reserve gives recognition to a work plan, between the Company and the Pennsylvania Department of Environmental Resources, for testing, risk assessment, remedial process design and remediation of conditions at the Beaver Valley plant. The reserve also reflects an agreement between the Company and another responsible party whereby that party has agreed to pay for approximately 50 percent of the costs associated with the Beaver Valley plant work plan. The remainder of the reserve is related to four other plant sites and two federal Superfund sites for amounts ranging from $1 million to $15 million per site. The Company is involved in administrative proceedings or lawsuits relating to seven other Superfund sites. However, it estimates, based on currently available information, that potential loss contingencies associated with these sites, individually and in the aggregate, are not significant. Substantially all amounts reserved are expected to be paid out over the next five to ten years. The Company relies upon remedial investigation/feasibility studies (RI/FS) at each site as a basis for estimating remediation costs at the site. The Company has substantially completed RI/FS at most 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11.OTHER COMMITMENTS AND CONTINGENCIES--(CONTINUED) of its sites; however, two plant facilities are currently undergoing either RI/FS or preliminary assessments. In addition, selection of the remediation method and the cleanup standard to be applied are, in most cases, subject to approval by the appropriate government authority. Accordingly, the Company may have possible loss contingencies in excess of the amounts reserved to the extent the scope of remediation required, the final remediation method selected and the cleanup standard applied vary from the assumptions used in estimating the reserve. The Company estimates that the upper range of these possible loss contingencies should not exceed the amount accrued by more than $65 million. The extent of loss related to environmental matters ultimately depends upon a number of factors, including technological developments, changes in environmental laws, the number and ability to pay of other parties involved at a particular site and the Company's potential involvement in additional environmental assessments and cleanups. Based upon currently known facts, management believes that any remediation costs the Company may incur in excess of the amounts reserved or disclosed above would not have a material adverse impact on the Company's consolidated financial statements. The Company and ARCO are parties to an agreement whereby the Company has indemnified ARCO against certain claims or liabilities that ARCO may incur relating to ARCO's former ownership and operation of the oxygenates and polystyrenics businesses of the Company, including liabilities under laws relating to the protection of the environment and the workplace and liabilities arising out of certain litigation. ARCO has indemnified the Company with respect to claims or liabilities and other matters of litigation not related to the assets or businesses reflected in the consolidated financial statements. ARCO has also indemnified the Company for certain federal, foreign, state, and local taxes that might be assessed upon audit of the operations of the Company included in its consolidated financial statements for periods prior to the July 1, 1987 formation of the Company. 12.RETIREMENT PLANS Substantially all employees are covered by various pension plans. The ARCO Chemical Retirement Plan (ACRP), a defined benefit plan, provides pension benefits to all of the Company's employees in the United States and certain employees in foreign countries. In addition to the ACRP, the Company also maintains defined benefit pension plans for hourly employees at the Beaver Valley plant in Monaca, Pennsylvania, as well as several plans covering certain employees throughout its European and Asia Pacific operations. Retirement benefits under the ACRP are based on years of participation service and the employee's compensation primarily during the last three years of service. Retirement benefits for the Beaver Valley Hourly Retirement Plan are primarily based on years of service and on the employee's career average earnings after January 1, 1989, plus a prior benefit accrued through December 31, 1988. European and Asia Pacific plans vary by country, but are primarily based on years of service and compensation during the last year of service. The funding policy for these plans consists of annual contributions as required by applicable regulations. In 1995, 1994, and 1993, the Company charged pension costs as accrued, based on an actuarial valuation, and funded the plans through contributions to separate trust funds that are kept apart from Company funds. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 12.RETIREMENT PLANS--(CONTINUED) The following tables set forth the plans' funded status and amounts recognized in the Company's balance sheets at December 31, 1995 and 1994:
1995 --------------------------- ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS BENEFITS EXCEED ASSETS ------------- ------------- (MILLIONS OF DOLLARS) Actuarial present value of benefit obligations: Vested benefit obligation........................ $171 $ 20 ==== ==== Accumulated benefit obligation................... $194 $ 20 ==== ==== Projected benefit obligation..................... $261 $ 32 Plan assets at fair value, primarily stocks and bonds............................................. 258 -- ---- ---- Projected benefit obligation in excess of plan as- sets.............................................. (3) (32) Unrecognized net loss.............................. 32 15 Prior service cost not yet recognized in net peri- odic pension cost................................. 6 2 Unrecognized net liability at January 1, 1995...... 4 -- Adjustment required to recognize minimum liability. -- (6) ---- ---- Prepaid pension cost (liability) recognized in the balance sheet..................................... $ 39 $(21) ==== ====
1994 --------------------------- ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS BENEFITS EXCEED ASSETS ------------- ------------- (MILLIONS OF DOLLARS) Actuarial present value of benefit obligations: Vested benefit obligation........................ $125 $ 16 ==== ==== Accumulated benefit obligation................... $144 $ 17 ==== ==== Projected benefit obligation..................... $200 $ 23 Plan assets at fair value, primarily stocks and bonds............................................. 205 -- ---- ---- Projected benefit obligation less than (in excess of) plan assets................................... 5 (23) Unrecognized net loss.............................. 8 9 Prior service cost not yet recognized in net peri- odic pension cost................................. 6 2 Unrecognized net liability at January 1, 1994...... 3 -- Adjustment required to recognize minimum liability. -- (5) ---- ---- Prepaid pension cost (liability) recognized in the balance sheet..................................... $ 22 $(17) ==== ====
The above tables for plans with assets exceeding accumulated benefits include foreign pension plans. These foreign plans constitute approximately 21 percent and 25 percent of the projected benefit obligation and 24 percent and 26 percent of the plan assets in the table at December 31, 1995 and 1994, respectively. The plans for which accumulated benefits exceed assets represent supplemental retirement benefits for executives and expatriated employees. 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 12.RETIREMENT PLANS--(CONTINUED) Components of net pension cost related to Company-sponsored plans for the years ended December 31, 1995, 1994, and 1993 were as follows:
1995 1994 1993 ------- ------- ------- (MILLIONS OF DOLLARS) Service cost......................................... $ 13 $ 15 $ 10 Interest cost........................................ 19 15 12 Actual return on plan assets......................... (44) 1 (27) Net amortization and deferral........................ 25 (18) 13 ------- ------- ------- Net periodic pension cost.......................... $ 13 $ 13 $ 8 ======= ======= =======
In addition to the pension cost above, in 1994 the Company recorded $13 million pretax of additional pension expense in connection with work force reductions resulting from the corporate restructuring program. Foreign pension plans comprised $3 million, $5 million and $3 million of net periodic pension cost for the years 1995, 1994 and 1993, respectively. The assumptions used as of December 31, 1995, 1994, and 1993 in determining the domestic net pension cost and net pension liability were as follows:
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......................... 10.25 10.25 10.25
The assumptions used in determining the net pension cost and pension liability for foreign pension plans were based on the economic environment of each applicable country. The range of assumptions used as of December 31, 1995 was as follows: discount rates, 7.0 to 7.95 percent; rate of salary progression, 5.0 percent; long-term rate of return on assets, 7.0 to 9.0 percent. 13.OTHER POSTRETIREMENT BENEFITS The Company provides medical and life insurance benefits for retired employees and covered dependents. Substantially all U.S. employees of the Company may become eligible for these benefits if they remain employed until normal retirement age or fulfill other eligibility requirements. Retiree contribution levels to the medical benefit plan are determined annually by the Company; the life insurance plan is noncontributory. The underlying plans are not funded. The following reconciles the unfunded accumulated obligation to the Company's balance sheet as of December 31, 1995 and 1994:
1995 1994 ---- ---- (MILLIONS OF DOLLARS) Accumulated postretirement benefit obligation: Retirees.......................................................... $20 $14 Fully eligible active plan participants........................... 8 9 Other active plan participants.................................... 31 33 Unrecognized net loss............................................. (1) (2) --- --- Accrued postretirement benefit liability............................ $58 $54 === ===
35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 13.OTHER POSTRETIREMENT BENEFITS--(CONTINUED) Net periodic postretirement benefit cost for the years ended December 31, 1995, 1994 and 1993 included the following components:
1995 1994 1993 ---- ---- ---- (MILLIONS OF DOLLARS) Service cost..................................................... $2 $4 $3 Interest cost.................................................... 3 4 4 --- --- --- Net periodic postretirement benefit cost......................... $5 $8 $7 === === ===
The medical cost trend inflation rate assumption was changed during 1995, based on cumulative experience, from 10 percent to 9 percent annually for the period 1993 to 1996, from 8 percent to 7 percent annually for the period 1997 to 2001, and from 6 percent to 5 percent annually thereafter. Increasing the health care cost trend rate by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995 by $9 million and increase net periodic postretirement benefit cost for 1995 by $1 million. The discount rate used was 7.0 percent. 14.STOCK OPTION AND EMPLOYEE BENEFIT PLANS In November 1989, the Board of Directors adopted the 1990 Long-Term Incentive Plan (the 1990 Plan). The 1990 Plan, which became effective January 1, 1990, provides, among other things, for the granting to officers and other key management employees of nonqualified stock options for the purchase of up to two million shares of the Company's common stock. The option price per share is fixed by the Long-Term Incentive Plan Administration Subcommittee (the subcommittee) of the Board of Directors, which administers the 1990 Plan, but may not be less than the fair market value of the Company's common stock on the date the option is granted. The maximum option period is ten years. Options granted may be exercised after one year of continuous service with ARCO, the Company, or any of their subsidiaries immediately following the date of the grant unless the subcommittee establishes a longer waiting period. In July 1987, ARCO, the Company's sole stockholder at the time, approved the 1987 Executive Long-Term Incentive Plan (the 1987 Plan). The 1987 Plan, which became effective September 1, 1987, provided, among other things, for the granting to officers and other key management employees of non-qualified stock options for the purchase of up to 290,000 shares of the Company's common stock at $32 per share. The options are currently exercisable through October 1997. No additional options will be granted under the 1987 Plan. The following table summarizes the activity relating to the Company's stock option plans:
1995 1994 1993 ----------- ------------ --------- (NUMBER OF SHARES, EXCEPT PER SHARE DATA) Outstanding at beginning of year....... 1,443,106 1,280,806 1,126,556 Granted................................ 339,200 250,000 225,900 Exercised.............................. (100,133) (86,500) (71,650) Cancelled/forfeited.................... (800) (1,200) -- Outstanding at end of year............. 1,681,373 1,443,106 1,280,806 Exercisable at end of year............. 1,342,973 1,193,106 1,054,906 Available for grant at end of year..... 273,910 613,110 863,110 Option exercise price per share: Shares under option.................. $32-48 9/16 $32-48 9/16 $32-41 15/16 Shares exercised..................... 32-48 9/16 32-41 15/16 32-39
36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 14.STOCK OPTION AND EMPLOYEE BENEFIT PLANS--(CONTINUED) The Company issues treasury shares upon exercise of stock options. Effective January 1, 1995, the Company began issuing treasury shares in connection with purchases of the Company's common stock made by the ARCO Chemical Company Capital Accumulation Plan (the CAP Plan), a defined contribution plan for current and former employees of the Company. Participants' contributions to the CAP Plan through payroll deductions may be used to purchase the Company's common stock, among other investment alternatives. The Company makes matching contributions which are used solely to purchase the Company's common stock. Prior to January 1, 1995, purchases of the Company's common stock by the CAP Plan were made on the open market. 15.EARNINGS PER COMMON SHARE Earnings per common share are computed based on the weighted average number of shares outstanding during the year. For 1995, 1994 and 1993, the weighted average number of shares was 96,294,810; 96,059,348 and 95,956,777 shares, respectively. The effect of stock options issued under the 1987 Executive Long-Term Incentive Plan and the 1990 Long-Term Incentive Plan (see Note 14) on the computation of primary and fully diluted earnings per common share was not material and had no effect on the reported earnings per common share. 16.SUPPLEMENTAL CASH FLOW INFORMATION Following is supplemental cash flow information provided for the years ended December 31, 1995, 1994, and 1993:
1995 1994 1993 -------- ------- ------- (MILLIONS OF DOLLARS) Short-term investments: Gross proceeds from sales........................... $ 30 $ -- $ 43 Gross purchases..................................... (55) -- (34) -------- ------ ------ Net (purchases) proceeds............................ $ (25) $ -- $ 9 ======== ====== ====== Notes payable: Gross proceeds from issuances....................... $ 1,484 $ 724 $ 601 Gross repayments.................................... (1,508) (757) (580) -------- ------ ------ Net (repayments) proceeds........................... $ (24) $ (33) $ 21 ======== ====== ====== Cash paid during the year for: Interest (net of amount capitalized)................ $ 87 $ 82 $ 105 Income taxes........................................ 213 93 51
17.LEASE COMMITMENTS The Company leases various facilities and equipment under noncancelable lease arrangements for varying periods. At December 31, 1995, future minimum lease payments for all noncancelable operating leases with lease terms in excess of one year were as follows:
(MILLIONS OF DOLLARS) 1996.......................................................... $ 50 1997.......................................................... 36 1998.......................................................... 27 1999.......................................................... 15 2000.......................................................... 13 Later years................................................... 93 ---- Total minimum lease payments................................ $234 ====
37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 17.LEASE COMMITMENTS--(CONTINUED) Rental expense for the years ended December 31, 1995, 1994, and 1993 was $100 million, $88 million and $81 million, respectively. 18.FOREIGN CURRENCY TRANSACTIONS For the years ended December 31, 1995, 1994, and 1993, losses on foreign exchange transactions, including foreign currency derivative instruments, were $13 million, $2 million, and $1 million, respectively. See Note 19. 19.FINANCIAL INSTRUMENTS The Company does not hold or issue financial instruments for speculative trading purposes. Various types of foreign currency forward, option and swap contracts are used to minimize foreign exchange exposures. Foreign exchange exposures result from cash flows between U.S. and international operations and transactions denominated in currencies other than the local currency of an operating entity. Swap contracts are used predominantly to minimize intercompany debt exposures with maturities exceeding one year, while forward and option contracts are used for other types of foreign exchange exposures. During 1995, the Company announced plans to commence engineering studies for the construction of a new world scale PO/SM plant in Rotterdam, the Netherlands. In connection with this project, the Company anticipates that it will make capital commitments denominated in a foreign currency beginning in 1996 and extending through 2000. During 1995, the Company entered into foreign currency forward and purchased option contracts to minimize the foreign exchange exposures associated with these anticipated commitments. The notional amounts of foreign currency contracts outstanding, principally involving European currencies, were $442 million at December 31, 1995, with various maturity dates ranging from 1996 to 2000. At December 31, 1994, the notional amounts of foreign currency contracts outstanding were $120 million. Interest rate swap contracts are used to minimize interest rate exposures on foreign bank loans due in 1997. The maturities of the interest rate swap contracts correspond to the maturities of the related debt. Gains and losses, realized and unrealized, on foreign currency forward contracts covering anticipatory cash flows are recognized currently as other income or expense in the results of operations. Gains and losses on foreign currency swaps are recognized currently in income and offset foreign exchange gains and losses on the underlying intercompany loans. Gains and losses on interest rate swap contracts are accrued for each annual period to yield an effective fixed rate of interest on the related debt. Net gains and losses associated with derivative contracts for 1995 and 1994 were not material. Gains on the purchased options related to the new PO/SM plant project are deferred and will be used in the measurement of the plant construction costs. There were no deferred hedging gains as of December 31, 1995. 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 19.FINANCIAL INSTRUMENTS--(CONTINUED) The carrying value and the estimated fair value of the Company's derivative instruments as of December 31, 1995 and 1994 are shown as assets (liabilities) in the table below. The carrying value of the purchased options represents the unamortized balance of the option premium.
1995 1994 --------------- -------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE -------- ------ -------- ----- (MILLIONS OF DOLLARS) Nonderivatives: Short-term investments....................... $ 25 $ 25 $ -- $ -- Investments and long-term receivables........ 90 90 97 97 Notes payable................................ -- -- 23 23 Long-term debt (including current maturi- ties)....................................... 912 1,095 913 968 Derivatives: Foreign currency forwards.................... (5) (5) -- -- Foreign currency options..................... 7 7 -- -- Foreign currency swaps ...................... (6) (6) (4) (4) Interest rate swaps.......................... (1) (5) -- (5)
The carrying amounts of nonderivative financial instruments are reported on the balance sheet under the indicated captions. 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 consist of highly liquid investments, such as time deposits, certificates of deposit and marketable securities other than equity securities, maturing in more than three months from the date of purchase. Short-term investments are carried at cost, which approximates fair value. Investments and long-term receivables, which consist primarily of equity investments in affiliated companies, were valued using current financial and other available information. The fair value of notes payable approximates carrying value due to the relatively short-term maturities of such instruments. Long-term debt was valued based on quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The fair value of derivative financial instruments represents the amount to be exchanged if the existing contracts were settled at year end and are based on market quotes. The Company is exposed to credit risk related to its financial instruments in the event of nonperformance by the counterparties. The Company does not generally require collateral or other security to support these financial instruments. However, the counterparties to these transactions are major institutions deemed creditworthy by the Company; the Company does not anticipate nonperformance by the counterparties. 20.CORPORATE RESTRUCTURING PROGRAM In November 1994, the Company announced a worldwide corporate restructuring program to reorganize its workforce on a global basis. In connection with the restructuring, approximately 130 positions in the Company were eliminated. The Company accrued $30 million before tax in the fourth quarter of 1994, consisting primarily of personnel costs (pension enhancements, severance and other ancillary costs) associated with personnel reductions. Of the total accrued, approximately $15 million was primarily related to enhanced pension benefits, the majority of which will be paid from the assets of qualified pension plans. An additional $15 million was related to severance and other ancillary costs to be paid from Company funds. Through the end of 1995, the program was substantially completed. The accrual balance at December 31, 1995 was $6 million, which primarily consisted of severance payments that were deferred by employees and which will be paid in 1996. 39 21.SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
MARCH JUNE SEPTEMBER DECEMBER 31 30 30 31 ----------- ----------- ------------- ------------ (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA) 1995 ---- Net sales.................... $ 1,141 $ 1,149 $ 999 $ 993 Gross profit................. 297 327 270 286 Net income................... 126 150 117 115 Earnings per common share (2)......................... 1.31 1.56 1.21 1.19 1994 ---- Net sales.................... $ 757 $ 824 $ 895 $ 947 Gross profit................. 170 216 223 228 Net income (1)............... 45 68 81 75 Earnings per common share (2)......................... .47 .71 .84 .78
- -------- (1) The fourth quarter 1994 includes a charge of $19 million ($.20 per share) for corporate restructuring costs and a benefit of $12 million ($.12 per share) from insurance proceeds. (2) Earnings per common share calculations for each of the quarters are based on the weighted average number of shares outstanding for each period. The sum of the quarters may not necessarily be equal to the full year earnings per share amount. 40 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 Company's definitive proxy statement for its Annual Meeting of Stockholders, to be held on May 10, 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. PART IV ITEM 14.EXHIBITS AND REPORTS ON FORM 8-K (A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT: 1. and 2. Financial Statements: These documents are listed in the Index to Consolidated Financial Statements. See Item 8. 3. Exhibits: 3.1 Certificate of Amendment and Restated Certificate of Incorporation of ARCO Chemical Company, filed as an Exhibit bearing the same number to the Company's Registration Statement on Form S-1 (No. 33-15930), filed on July 28, 1987, and incorporated herein by reference. 3.2 By-Laws of ARCO Chemical Company, filed as an Exhibit bearing the same number to the Company's Registration Statement on Form S-1 (No. 33-15930), filed on July 28, 1987, and incorporated herein by reference. 4.1 Indenture, dated as of June 15, 1988, between ARCO Chemical Company and The Bank of New York as Trustee, filed as Exhibit 4.2 to the Company's Registra- tion Statement on Form S-3 (No. 33-23340), filed on July 27, 1988, and incor- porated herein by reference. 4.2 Forms of Debt Securities issuable under the Indenture referred to in Exhibit 4.1, filed as Exhibit 4.1 to the Company's Registration Statement on Form S-3 (No. 33-23340), filed on July 27, 1988, and incorporated herein by reference. 4.3 Form of Debt Security issuable under the Indenture referred to in Exhibit 4.1, filed as Exhibit 4 to the Company's Current Report on Form 8-K dated January 30, 1990, and incorporated herein by reference. 4.4 Forms of Debt Securities issuable under the Indenture referred to in Exhibit 4.1, filed as Exhibits 4.1 and 4.2 to the Company's Current Report on Form 8- K dated October 31, 1990, and incorporated herein by reference.
41 4.5 Form of Debt Security issuable under the Indenture referred to in Exhibit 4.1, filed as Exhibit 4 to the Company's Current Report on Form 8-K dated De- cember 7, 1990, and incorporated herein by reference. 4.6 Credit Agreement, dated as of November 19, 1993, between ARCO Chemical Com- pany and The First National Bank of Chicago, as Agent for the banks listed therein, filed as an Exhibit bearing the same number to the Company's Annual Report on Form 10-K for 1993, and incorporated herein by reference. 4.7 Credit Agreement, dated as of November 19, 1993, between ARCO Chemical Com- pany and The First National Bank of Chicago, as Agent for the banks listed therein, filed as an Exhibit bearing the same number to the Company's Annual Report on Form 10-K for 1993, and incorporated herein by reference. 4.8 Amendment No. 1 to the Credit Agreement, dated as of October 14, 1994, be- tween ARCO Chemical Company and The First National Bank of Chicago, as Agent for the banks listed therein, filed as an Exhibit bearing the same number to the Company's Annual Report on Form 10-K for 1994, and incorporated herein by reference. 4.9 Instruments defining the rights of holders of long-term debt not registered under the Securities Exchange Act of 1934 (other than long-term debt issued pursuant to the Credit Agreement) are not filed because the total amount of securities authorized under any such instrument does not exceed 10 percent of the consolidated total assets of the company. The Company agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request. 10.1 ARCO Chemical Company Annual Incentive Plan, effective January 1, 1988, filed as an Exhibit bearing the same number to the Company's Annual Report on Form 10-K for 1993, and incorporated herein by reference. 10.2 Resolutions relating to Amendment No. 1 to ARCO Chemical Company Annual In- centive Plan, as adopted February 15, 1989, filed as an Exhibit bearing the same number to the Company's Annual Report on Form 10-K for 1990, and incor- porated herein by reference. 10.3 Resolutions relating to Amendment No. 2 to ARCO Chemical Company Annual In- centive Plan, as adopted July 17, 1990, effective September 1, 1990, filed as an Exhibit bearing the same number to the Company's Annual Report on Form 10- K for 1990, and incorporated herein by reference. 10.4 Amendment and Restatement of ARCO Chemical Company Executive Supplementary Savings Plan, effective January 1, 1989, filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for 1990, and incorporated herein by reference. 10.5 Resolutions relating to Amendment No. 2 to ARCO Chemical Company Executive Supplementary Savings Plan, as adopted July 17, 1990, effective September 1, 1990, filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for 1990, and incorporated herein by reference. 10.6 ARCO Chemical Company 1987 Executive Long-Term Incentive Plan, filed as Ex- hibit 10.12 to the Company's Registration Statement on Form S-1 (No. 33- 15930), filed on July 28, 1987, and incorporated herein by reference. 10.7 ARCO Chemical Company 1990 Long-Term Incentive Plan, restated as amended through July 20, 1995. 10.8 ARCO Chemical Company Retirement Benefit Restoration Plan, effective January 1, 1988, filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for 1993, and incorporated herein by reference. 10.9 Resolutions relating to Amendment No. 1 to ARCO Chemical Company Retirement Benefit Restoration Plan, as adopted July 17, 1990, effective September 1, 1990, filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for 1990, and incorporated herein by reference.
42 10.10 ARCO Chemical Company Supplementary Executive Retirement Plan, effective October 1, 1990, filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for 1992, and incorporated herein by reference. 10.11 ARCO Chemical Company Financial Counseling Policy, effective January 1, 1988, filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for 1993, and incorporated herein by reference. 10.12 ARCO Chemical Company Executive Medical Insurance Plan (Summary Plan Descrip- tion), effective January 1, 1988, filed as Exhibit 10.14 to the Company's An- nual Report on Form 10-K for 1993, and incorporated herein by reference. 10.13 ARCO Chemical Company Key Management Deferral Plan, effective October 1, 1990, filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K for 1990, and incorporated herein by reference. 10.14 Amendment No. 1 to the Key Management Deferral Plan, effective as of October 22, 1992. 10.15 ARCO Chemical Company Key Management Long-Term Disability Plan, effective Oc- tober 1, 1990, filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K for 1992, and incorporated herein by reference. 10.16 Resolutions relating to ARCO Chemical Company Key Management Life Insurance Plan, as adopted July 17, 1990, effective August 1, 1990, filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for 1990, and incorporated herein by reference. 10.17 ARCO Chemical Company Retirement Plan for Outside Directors, as amended and restated effective October 1, 1990, filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for 1992, and incorporated herein by reference. 10.18 ARCO Chemical Company Deferral Plan for Outside Directors, effective October 1, 1990, filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K for 1992, and incorporated herein by reference. 10.19 Cross-Indemnification Agreement, dated as of June 1, 1987, between ARCO Chem- ical Company and Atlantic Richfield Company, filed as Exhibit 10.2(a) to the Company's Registration Statement on Form S-1 (No. 33-15930), filed on July 28, 1987, and incorporated herein by reference. 10.20 Amendment No. 1 to Cross-Indemnification Agreement, dated as of June 30, 1987, between ARCO Chemical Company and Atlantic Richfield Company, filed as Exhibit 10.2(b) to the Company's Registration Statement on Form S-1 (No. 33- 15930), filed on July 28, 1987, and incorporated herein by reference. 10.21 Amendment No. 2 to Cross-Indemnification Agreement, dated as of July 1, 1987, between ARCO Chemical Company and Atlantic Richfield Company, filed as Ex- hibit 10.2(c) to Amendment No. 1 to the Company's Registration Statement on Form S-1 (No. 33-15930), filed on August 21, 1987, and incorporated herein by refer- ence. 10.22 Amended and Restated Tax Sharing Agreement, effective as of January 1, 1995, between ARCO Chemical Company and Atlantic Richfield Company, filed as Ex- hibit 10 to the Company's Quarterly Report on Form 10-Q for the quarterly pe- riod ended June 30, 1995, and incorporated herein by reference. 10.23 LPC/ACC Services Agreement, dated as of June 30, 1987, between ARCO Chemical Company and Lyondell Petrochemical Company, filed as Exhibit 10.4 to the Company's Registration Statement on Form S-1 (No. 33-15930), filed on July 28, 1987, and incorporated herein by reference. 10.24 Services Agreement, dated as of July 18, 1987, between ARCO Chemical Company and Atlantic Richfield Company, filed as Exhibit 10.5 to the Company's Regis- tration Statement on Form S-1 (No. 33-15930), filed on July 28, 1987, and in- corporated herein by reference.
43 10.25 Amendment No. 1 to Services Agreement, dated as of March 30, 1990, between ARCO Chemical Company and Atlantic Richfield Company, filed as Exhibit 10.29 to the Company's Annual Report on Form 10-K for 1990, and incorporated herein by reference. 10.26 Shareholder Agreement, dated as of June 30, 1987, between ARCO Chemical Com- pany and Atlantic Richfield Company, filed as Exhibit 10.6 to the Company's Registration Statement on Form S-1 (No. 33-15930), filed on July 28, 1987, and incorporated herein by reference. 10.27 Form of ARCO Chemical Company Indemnity Agreement with officers and direc- tors, filed as Exhibit 10.8 to the Company's Registration Statement on Form S-1 (No. 33-15930), filed on July 28, 1987, and incorporated herein by refer- ence. 12 Statement re computation of the ratio of earnings to fixed charges. 21 Subsidiaries of ARCO Chemical Company. 23 Consent of Independent Accountants. 24 Power of Attorney. 27 Financial Data Schedule.
All documents incorporated herein by reference to any Annual Report on Form 10-K, Quarterly Report on Form 10-Q or Current Report on Form 8-K previously filed by the Company relate to Commission File No. 1-9678. Copies of exhibits will be furnished upon prepayment of 25 cents per page. Requests should be addressed to the Corporate Secretary. (B) REPORTS ON FORM 8-K: None. 44 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, in Newtown Square, Commonwealth of Pennsylvania, on February 29, 1996. ARCO Chemical Company By: ALAN R. HIRSIG --------------------------------- Alan R. Hirsig President and Chief Executive Officer ---------------- 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 date indicated.
SIGNATURE TITLE DATE --------- ----- ---- MIKE R. BOWLIN* Chairman of the - ------------------------------------- Board and Director Mike R. Bowlin ALAN R. HIRSIG President, Chief - ------------------------------------- Executive Officer Alan R. Hirsig and Director MARVIN O. SCHLANGER* Executive Vice - ------------------------------------- President, Chief Marvin O. Schlanger Operating Officer and Director WALTER J. TUSINSKI* Senior Vice - ------------------------------------- President, Chief Walter J. Tusinski Financial Officer February 29, 1996 and Director RONALD J. ARNAULT* Director - ------------------------------------- Ronald J. Arnault WALTER F. BERAN* Director - ------------------------------------- Walter F. Beran E. KENT DAMON, JR.* Director - ------------------------------------- E. Kent Damon, Jr. MARIE L. KNOWLES* Director - ------------------------------------- Marie L. Knowles
45
SIGNATURE TITLE DATE --------- ----- ---- JAMES A. MIDDLETON* Director - ------------------------------------- James A. Middleton FRANK SAVAGE* Director - ------------------------------------- Frank Savage ROBERT H. STEWART, III* Director - ------------------------------------- February 29, 1996 Robert H. Stewart, III JOHN A. SHAW Vice President and - ------------------------------------- Controller (principal John A. Shaw accounting officer)
*By: JOHN A. SHAW --------------------------------- John A. Shaw (Attorney in fact) 46 EXHIBITS TO FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 1-9678 ARCO CHEMICAL COMPANY EXHIBIT INDEX
EXHIBIT NO. ------- 3.1 Certificate of Amendment and Restated Certificate of Incorpora- tion of ARCO Chemical Company, filed as an Exhibit bearing the same number to the Company's Registration Statement on Form S-1 (No. 33-15930), filed on July 28, 1987, and incorporated herein by reference................................................... 3.2 By-Laws of ARCO Chemical Company, filed as an Exhibit bearing the same number to the Company's Registration Statement on Form S-1 (No. 33-15930), filed on July 28, 1987, and incorporated herein by reference............................................ 4.1 Indenture, dated as of June 15, 1988, between ARCO Chemical Company and The Bank of New York as Trustee, filed as Exhibit 4.2 to the Company's Registration Statement on Form S-3 (No. 33-23340), filed on July 27, 1988, and incorporated herein by reference...................................................... 4.2 Forms of Debt Securities issuable under the Indenture referred to in Exhibit 4.1, filed as Exhibit 4.1 to the Company's Regis- tration Statement on Form S-3 (No. 33-23340), filed on July 27, 1988, and incorporated herein by reference..................... 4.3 Form of Debt Security issuable under the Indenture referred to in Exhibit 4.1, filed as Exhibit 4 to the Company's Current Re- port on Form 8-K dated January 30, 1990, and incorporated herein by reference............................................ 4.4 Forms of Debt Securities issuable under the Indenture referred to in Exhibit 4.1, filed as Exhibits 4.1 and 4.2 to the Company's Current Report on Form 8-K dated October 31, 1990, and incorporated herein by reference........................... 4.5 Form of Debt Security issuable under the Indenture referred to in Exhibit 4.1, filed as Exhibit 4 to the Company's Current Re- port on Form 8-K dated December 7, 1990, and incorporated herein by reference............................................ 4.6 Credit Agreement, dated as of November 19, 1993, between ARCO Chemical Company and The First National Bank of Chicago, as Agent for the banks listed therein, filed as an Exhibit bearing the same number to the Company's Annual Report on Form 10-K for 1993, and incorporated herein by reference..................... 4.7 Credit Agreement, dated as of November 19, 1993, between ARCO Chemical Company and The First National Bank of Chicago, as Agent for the banks listed therein, filed as an Exhibit bearing the same number to the Company's Annual Report on Form 10-K for 1993, and incorporated herein by reference..................... 4.8 Amendment No. 1 to the Credit Agreement, dated as of October 14, 1994, between ARCO Chemical Company and The First National Bank of Chicago, as Agent for the banks listed therein, filed as an Exhibit bearing the same number to the Company's Annual Report on Form 10-K for 1994, and incorporated herein by refer- ence...........................................................
1
EXHIBIT NO. ------- 4.9 Instruments defining the rights of holders of long-term debt not registered under the Securities Exchange Act of 1934 (other than long-term debt issued pursuant to the Credit Agreement) are not filed because the total amount of securities authorized under any such instrument does not exceed 10 percent of the consolidated total assets of the Company. The Company agrees to furnish a copy of any such instrument to the Securities and Ex- change Commission upon request................................. 10.1 ARCO Chemical Company Annual Incentive Plan, effective January 1, 1988, filed as an Exhibit bearing the same number to the Company's Annual Report on Form 10-K for 1993, and incorporated herein by reference ........................................... 10.2 Resolutions relating to Amendment No. 1 to ARCO Chemical Com- pany Annual Incentive Plan, as adopted February 15, 1989, filed as an Exhibit bearing the same number to the Company's Annual Report on Form 10-K for 1990, and incorporated herein by refer- ence........................................................... 10.3 Resolutions relating to Amendment No. 2 to ARCO Chemical Com- pany Annual Incentive Plan, as adopted July 17, 1990, effective September 1, 1990, filed as an Exhibit bearing the same number to the Company's Annual Report on Form 10-K for 1990, and in- corporated herein by reference ................................ 10.4 Amendment and Restatement of ARCO Chemical Company Executive Supplementary Savings Plan, effective January 1, 1989, filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for 1990, and incorporated herein by reference..................... 10.5 Resolutions relating to Amendment No. 2 to ARCO Chemical Com- pany Executive Supplementary Savings Plan, as adopted July 17, 1990, effective September 1, 1990, filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for 1990, and incorporated herein by reference............................................ 10.6 ARCO Chemical Company 1987 Executive Long-Term Incentive Plan, filed as Exhibit 10.12 to the Company's Registration Statement on Form S-1 (No. 33-15930), filed on July 28, 1987, and incor- porated herein by reference.................................... 10.7 ARCO Chemical Company 1990 Long-Term Incentive Plan, restated as amended through July 20, 1995............................... 10.8 ARCO Chemical Company Retirement Benefit Restoration Plan, ef- fective January 1, 1988, filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for 1993, and incorporated herein by refer- ence........................................................... 10.9 Resolutions relating to Amendment No. 1 to ARCO Chemical Com- pany Retirement Benefit Restoration Plan, as adopted July 17, 1990, effective September 1, 1990, filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for 1990, and incorpo- rated herein by reference...................................... 10.10 ARCO Chemical Company Supplementary Executive Retirement Plan, effective October 1, 1990, filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for 1992, and incorporated herein by reference............................................ 10.11 ARCO Chemical Company Financial Counseling Policy, effective January 1, 1988, filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for 1993, and incorporated herein by refer- ence........................................................... 10.12 ARCO Chemical Company Executive Medical Insurance Plan (Summary Plan Description), effective January 1, 1988, filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for 1993, and incorporated herein by reference............................... 10.13 ARCO Chemical Company Key Management Deferral Plan, effective October 1, 1990, filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K for 1990, and incorporated herein by refer- ence...........................................................
2
EXHIBIT NO. ------- 10.14 Amendment No. 1 to the Key Management Deferral Plan, effective as of October 22, 1992......................................... 10.15 ARCO Chemical Company Key Management Long-Term Disability Plan, effective October 1, 1990, filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K for 1992, and incorporated herein by reference ........................................... 10.16 Resolutions relating to ARCO Chemical Company Key Management Life Insurance Plan, as adopted July 17, 1990, effective August 1, 1990, filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for 1990, and incorporated herein by reference.... 10.17 ARCO Chemical Company Retirement Plan for Outside Directors, as amended and restated effective October 1,1990, filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for 1992, and incorporated herein by reference. ............................. 10.18 ARCO Chemical Company Deferral Plan for Outside Directors, ef- fective October 1, 1990, filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K for 1992, and incorporated herein by reference............................................ 10.19 Cross-Indemnification Agreement, dated as of June 1, 1987, be- tween ARCO Chemical Company and Atlantic Richfield Company, filed as Exhibit 10.2(a) to the Company's Registration State- ment on Form S-1 (No. 33-15930), filed on July 28, 1987, and incorporated herein by reference............................... 10.20 Amendment No. 1 to Cross-Indemnification Agreement, dated as of June 30, 1987, between ARCO Chemical Company and Atlantic Rich- field Company, filed as Exhibit 10.2(b) to the Company's Regis- tration Statement on Form S-1 (No. 33-15930), filed on July 28, 1987, and incorporated herein by reference..................... 10.21 Amendment No. 2 to Cross-Indemnification Agreement, dated as of July 1, 1987, between ARCO Chemical Company and Atlantic Rich- field Company, filed as Exhibit 10.2(c) to Amendment No. 1 to the Company's Registration Statement on Form S-1 (No. 33- 15930), filed on August 21, 1987, and incorporated herein by reference...................................................... 10.22 Amended and Restated Tax Sharing Agreement, effective as of January 1, 1995, between ARCO Chemical Company and Atlantic Richfield Company, filed as Exhibit 10 to the Company's Quar- terly Report on Form 10-Q for the quarterly period ended June 30, 1995, and incorporated herein by reference................. 10.23 LPC/ACC Services Agreement, dated as of June 30, 1987, between ARCO Chemical Company and Lyondell Petrochemical Company, filed as Exhibit 10.4 to the Company's Registration Statement on Form S-1 (No. 33-15930), filed on July 28, 1987, and incorporated herein by reference............................................ 10.24 Services Agreement, dated as of July 18, 1987, between ARCO Chemical Company and Atlantic Richfield Company, filed as Ex- hibit 10.5 to the Company's Registration Statement on Form S-1 (No. 33-15930), filed on July 28, 1987, and incorporated herein by reference................................................... 10.25 Amendment No. 1 to Services Agreement, dated as of March 30, 1990, between ARCO Chemical Company and Atlantic Richfield Com- pany, filed as Exhibit 10.29 to the Company's Annual Report on Form 10-K for 1990, and incorporated herein by reference....... 10.26 Shareholder Agreement, dated as of June 30, 1987, between ARCO Chemical Company and Atlantic Richfield Company, filed as Ex- hibit 10.6 to the Company's Registration Statement on Form S-1 (No. 33-15930), filed on July 28, 1987, and incorporated herein by reference...................................................
3
EXHIBIT NO. ------- 10.27 Form of ARCO Chemical Company Indemnity Agreement with officers and directors, filed as Exhibit 10.8 to the Company's Registra- tion Statement on Form S-1 (No. 33-15930), filed on July 28, 1987, and incorporated herein by reference...................... 12 Statement re computation of the ratio of earnings to fixed charges......................................................... 21 Subsidiaries of ARCO Chemical Company........................... 23 Consent of Independent Accountants.............................. 24 Power of Attorney............................................... 27 Financial Data Schedule.........................................
4 EX-10.7 2 1990 ARCO CHEMICAL LONG TERM INCENTIVE PLAN Exhibit 10.7 1990 ARCO CHEMICAL COMPANY LONG-TERM INCENTIVE PLAN Article I GENERAL PROVISIONS ------------------ Section 1. PURPOSES OF THE PLAN -------------------- The purposes of this Plan are to encourage management and other key employees to focus on the long-range growth and profitability of the Company; to reward them for success in achieving specific long-range goals; and to facilitate the attraction and retention of employees of superior capability. Section 2. EFFECTIVE DATE AND DURATION OF PLAN ----------------------------------- The effective date of the Plan is January 1, 1990, subject to approval by the holders of a majority of the shares which are represented in person or by proxy and entitled to vote on the subject at a meeting of the stockholders of the Company at which a quorum is present, except that awards under the Plan may be made subject to such stockholder approval. No awards may be made under the plan after December 31, 1996. Section 3. DEFINITIONS ----------- As used herein, the following terms shall have the following meanings: (a) "Common Stock" shall mean the common stock of the Company having a par value of $1.00 per share. (b) "Company" shall mean ARCO Chemical Company. (c) "Dividend Share Credits" (DSC's) shall mean the number of credits, expressed as an equivalent number of shares of Common Stock, to be recorded as credited to an Eligible Employee as of the record date established by the Board of Directors of the Company for each cash dividend declared and issued on outstanding shares of Common Stock, with respect to the Stock Rights held by an Eligible Employee on such record date. The number of DSCs to be credited shall be the aggregate number derived by (i) multiplying the declared dividend rate per share of Common Stock by the number of Stock Rights held by an Eligible Employee as of the dividend record date, and (ii) dividing the resulting figure by the Fair Market Value of a share of Common Stock on such record date. The DSCs will be calculated to the nearest 0.0001 of a unit. 1990 ARCO Chemical Company Long-Term Incentive Plan Page 2 (d) "Eligible Employees" shall mean management and other key employees of the Company or of any Subsidiary or Affiliate who, in the opinion of the Subcommittee, are in a position to contribute significantly to the Company's long-term profit and growth objectives; provided, however, that no member of the Subcommittee nor any person owning stock processing more than 10 percent of the total combined voting power of all classes of stock of the Company shall be an Eligible Employee. "Eligible Employee" shall mean the singular of Eligible Employees. (e) "Employer" shall mean, with respect to any Eligible Employee, the Company, Lyondell Petrochemical Company, and any Subsidiary or Affiliate of either, that is the employer of the Eligible Employee. (f) "Fair Market Value" (FMV) of a share of Common Stock shall be the mean of the highest and lowest sale prices, or the closing sale price of a share of Common Stock, whichever is higher, on the date in question as reported on the composite tape for issues listed on the New York Stock Exchange. If no transactions were reported on the composite tape for the Common Stock on such date, the FMV shall be computed using the prices reported on the nearest day preceding the date in question. If the Common Stock should not then be listed or admitted to trading on such Exchange, FMV shall be the mean of the closing bid and asked prices on the date in question as furnished by any member firm of the New York Stock Exchange selected from time to time by the Subcommittee for that purpose. (g) "Plan" shall mean this 1990 Long-Term Incentive Plan including any amendments hereof and rules and regulations hereunder. (h) "Pyramiding" shall mean the process whereby an optionee surrenders shares received from the exercise of a portion of the optionee's total stock options to satisfy the exercise price for additional option shares. The additional shares thus obtained may in turn be surrendered at their Fair Market Value to satisfy the exercise price for yet additional option shares. The process may be repeated as often as the optionee directs to satisfy the total exercise price for the options exercised. (i) "Sale Price" of any share of Common Stock shall mean the actual price for which such share of Common Stock shall have been sold by an Eligible Employee on the date in question as reported on a confirmation form prepared and furnished to the Company by the broker effecting the transaction on behalf of such Eligible Employee. 1990 ARCO Chemical Company Long-Term Incentive Plan Page 3 (j) "Stock Options" shall mean Non-qualified Stock Options, and shall consist of options to purchase the Common Stock of the Company under the terms and conditions set forth in Article II. (k) "Stock Rights" shall mean, as of any date, (i) the total number of shares of Common Stock underlying all outstanding and unexercised Stock Options held by an Eligible Employee pursuant to the Plan, plus (ii) the number of DSCs credited to an Eligible Employee on such date. (l) "Subcommittee" shall mean the Long-Term Incentive Plan Administration Subcommittee of the Board of Directors of the Company. (m) "Subsidiary" or "Affiliate" shall mean (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 1563(a) of the Internal Revenue Code of 1986 (the "Code") [determined without regard to Section 1563(a)(4) and Section 1563(e)(3)(c) of the Code] and of which the Company is then a member, and (ii) all trades or businesses, whether or not incorporated, which, under regulations prescribed by the Secretary of the Treasury pursuant to Section 210(d) of the Employee Retirement Income Security Act of 1974, are then under common control with the Company. Section 4. ADMINISTRATION OF THE PLAN -------------------------- The plan shall be administered by the Subcommittee, which is authorized to interpret the Plan, to adopt such rules and regulations as it may from time to time deem necessary for the effective operation of the Plan, and to act upon all matters relating to the granting of awards under the Plan. Any determination, interpretation, construction or other action made or taken pursuant to the provisions of the Plan by or on behalf of the Subcommittee shall be final, binding and conclusive for all purposes and upon all persons including, without limitation, the Company, its subsidiaries and Affiliates, their respective stockholders, Eligible Employees and their respective successors in interest. 1990 ARCO Chemical Company Long-Term Incentive Plan Page 4 Article II STOCK OPTIONS ------------- Section 1. GRANTS OF STOCK OPTIONS ----------------------- The Subcommittee may grant Stock Options to Eligible Employees on the terms and conditions set forth in this Plan and on other terms and conditions consistent with the purposes and provisions of the Plan and within the appropriate regulations governing such grants. Section 2. TERMS AND CONDITIONS FOR STOCK OPTION GRANTS -------------------------------------------- All Stock Options granted under the Plan shall be subject to the following terms and conditions: (a) Option Price The Option Price per share with respect to ------------ each Stock Option shall be fixed by the Subcommittee, but shall not be less than the Fair Market Value of the Common Stock on the date the Stock Option is granted. (b) Period of Option A Stock Option shall expire and all ---------------- rights thereunder shall end at the expiration of such period (not exceeding 10 years) after the date the Stock Option is granted as shall be fixed by the Subcommittee at the time it grants the Stock Option. (c) Exercise of Option A Stock Option may be exercised at ------------------ such time or times, either as to all shares or in installments, as the Subcommittee shall prescribe when it grants the Stock option and in compliance with pertinent government regulations. In no event, however, may a Stock Option be exercised until the expiration of one (1) year following the date of grant. (d) Payment for Shares Every share purchased through the ------------------ exercise of a Stock Option shall be paid for in full in cash within ten business days following the time of exercise, or, unless the Stock Option expressly provides otherwise, in shares of Common Stock valued at their Fair Market Value on the date of exercise, or, with respect to options granted prior to January 1, 1992 as to which an optionee has not relinquished the right to pyramid, by Pyramiding, or a combination thereof. (e) Dividend Share Credits DSCs shall be credited as ---------------------- provided in Article I, Section 3(c). DSCs attributable to exercised, expired or surrendered Stock 1990 ARCO Chemical Company Long-Term Incentive Plan Page 5 Options shall be canceled upon such exercise, expiration or surrender as provided in Article III. (f) Termination of Employment If an optionee's employment is ------------------------- terminated prior to the expiration of one year from the date of grant of Stock Options, such Stock Options, and accumulated DSCs pertaining thereto, shall be cancelled unless the optionee's termination is due to (i) death, (ii) total and permanent disability, (iii) termination of employment with a right to an immediate allowance under a retirement plan of the Employer, or (iv) any other termination of employment in connection with which the Subcommittee, in its sole discretion, has determined that the optionee's Stock Options shall not be cancelled. If an optionee's employment is terminated following the expiration of one year from the date of grant of Stock Options, such Stock Options and accumulated DSCs pertaining thereto, shall be cancelled if the termination is due to (i) discharge for cause, (ii) resignation without approval of the Employer (except in conjunction with a right to an immediate allowance under a retirement plan of the Employer) or (iii) resignation at the initiation of the Employer (except in conjunction with a right to an immediate allowance under a retirement plan of the Employer, an economic layoff or a reduction in force). (g) Expiration Date Extensions In the event of the death of -------------------------- an optionee, the expiration dates of any Stock Options which occur on and after the date of death and prior to the date on which a fiduciary is qualified, duly appointed, or otherwise legally empowered to exercise the Stock Options, shall be extended for 60 days immediately succeeding the date of such qualification, appointment or empowerment. In the event an optionee is unable to exercise any Stock Options because of mental or physical disability, or for other reasons beyond the optionee's control, the Subcommittee may, in its sole discretion, extend the expiration date(s) to such date(s) as it deems reasonable under the circumstances. (h) Maximum Grant No individual may receive a grant or ------------- grants of Stock Options in any single calendar year the aggregate number of which exceeds 25% of the total number of Stock Options granted in that calendar year. 1990 ARCO Chemical Company Long-Term Incentive Plan Page 6 Article III PERFORMANCE-BASED DIVIDEND SHARE CREDITS ---------------------------------------- Section 1. CANCELLATION OF CREDITS UPON EXERCISE, EXPIRATION OR SURRENDER OF ----------------------------------------------------------------- STOCK OPTION ------------ Upon exercise of any Stock Option, in whole or in part, the credited DSCs attributable to the exercised Stock Option shall be canceled. Upon expiration of any Stock Option at the end of its original maximum term, the credited DSCs attributable to the expired Stock Option shall be canceled. An optionee may elect to surrender for cancellation exercisable Stock Options in whole or in part. Upon surrender and cancellation of any such Stock Options, the DSCs attributable to the surrendered Stock Options shall also be canceled. The Shares of Common Stock underlying Stock Options exercised, surrendered or expired pursuant to this Section shall be referred to as the "affected shares" for purposes of the application of the performance criterion set forth in Section 2 below. For purposes of the application of such criterion, the date of exercise, surrender or expiration shall be referred to as the "determination date." Section 2. PERFORMANCE-BASED CRITERION FOR DIVIDEND SHARE CREDITS ------------------------------------------------------ Upon the exercise, expiration or surrender of any Stock Option, the Subcommittee shall apply the following performance-based criterion to the DSCs allocable to the affected shares: In order for the performance criterion to be attained, the aggregate Fair Market Value of the canceled DSCs must exceed the aggregate Option Price of the affected shares less their Fair Market Value on the determination date. The criterion shall be applied independently to each grant in the event of the exercise, cancellation or surrender of Stock Options attributable to multiple grants on the same date. Section 3. CALCULATION FOR CASH PAYMENT ---------------------------- If the performance criterion set forth in Section 2 above is attained, a cash payment in respect of canceled DSCs shall be made to the optionee in an amount calculated pursuant to: X, as stated below, in the case of the exercise of any Stock Option and sale of the affected shares in a broker-assisted transaction involving the 1990 ARCO Chemical Company Long-Term Incentive Plan Page 7 withholding of a portion of the proceeds from the sale of the affected shares in payment of the Option Price (a "cashless exercise"); or Y, as stated below, in any other case, including, but not limited to, the exercise of any Stock Option involving the delivery of cash (other than pursuant to a cashless exercise) or surrender of shares of Common Stock to the Company in payment of the Option Price, or the expiration or surrender to the Company of any Stock Option. Where: X = Sale Price of a share of Common Stock multiplied by the total number of canceled DSCs. Y = Fair Market Value of a share of Common Stock multiplied by the total number of canceled DSCs, less the amount by which the aggregate Option Price of the affected shares exceeds the aggregate Fair Market Value of such shares on the determination date. No payment may be made to any covered employee (as defined in proposed Treasury Regulations Section 1.162(m)) unless the Subcommittee has certified in writing that the performance criterion set forth in Section 2 above has been attained. Article IV MISCELLANEOUS PROVISIONS ------------------------ Section 1. OPTION LIMITS ------------- Subject to adjustment as provided in Section 2 of this Article IV, the number of shares of Common Stock that may be issued upon exercise of Stock Options shall not exceed 2,000,000 in the aggregate over the life of the Plan. The shares shall be made available from authorized but unissued Common Stock or from Common Stock issued and held in the treasury of the Company as shall be determined by the Subcommittee. Section 2. ADJUSTMENT IN TERMS OF AWARD ---------------------------- In the event of a reorganization, recapitalization, stock split, stock dividend, distribution of assets other than pursuant to a normal cash dividend, combination of shares, merger, consolidation, rights offering, split- up, split-off, spin-off 1990 ARCO Chemical Company Long-Term Incentive Plan Page 8 or any other change in the corporate structure or shares of the Company, the Subcommittee may, in its discretion, after consultation with the Chairman of the Board and the President, make appropriate adjustments to reflect such event in the limitation in Section 1 of this Article IV, the number of shares of Common Stock covered by, and the exercise price per share applicable to, outstanding Stock Options, and in the number of DSCs. In the event that the Subcommittee, after consultation with the Chairman of the Board and the President, determines that, because of the change in the Company's business, operations, corporate structure, capital structure, assets or manner in which it conducts business, which it deems to be extraordinary and material, the terms of awards theretofore made are no longer suitable to the objectives which the Subcommittee sought to achieve when it made such awards, it may modify the terms of any or all such awards in such manner as it may decide is advisable; provided, however, that no award may be modified in a manner which would be inconsistent with the intent of Section 8 of this Article IV. Section 3. GOVERNMENTAL REGULATIONS ------------------------ The Plan and the grant of Stock Options, the exercise of Stock Options, and the crediting and payment of DSCs hereunder, and the issuance of stock, shall be subject to all applicable rules and regulations of governmental and other authorities. Section 4. NO GUARANTEE OF EMPLOYMENT -------------------------- The grant of a Stock Option, or credit of a DSC under the Plan, shall not constitute assurance of continued employment. Section 5. ASSIGNMENT OR TRANSFER ---------------------- No Stock Option or DSC shall be assignable or transferable by an Eligible Employee otherwise than by will or the laws of descent and distribution. Section 6. RIGHTS AS STOCKHOLDER --------------------- An Eligible Employee under the Plan shall have no rights of a holder of Common Stock by virtue of a Stock Option award hereunder, unless and until 1990 ARCO Chemical Company Long-Term Incentive Plan Page 9 certificates for shares of Common Stock are issued to him pursuant to the Plan. DSCs shall not be considered as dividends on Common Stock for any purpose. Section 7. WITHHOLDING TAXES ----------------- The Employer shall have the right to withhold from salary or other remuneration or to otherwise cause the employee (or the executor or administrator of his estate or his distributee) to make payment of any Federal, state, local or foreign taxes required to be withheld with respect to the exercise of any Stock Options or cash settlement of any DSCs. Section 8. AMENDMENT AND DISCONTINUANCE OF THE PLAN ---------------------------------------- The Subcommittee may amend or discontinue the Plan as it shall from time to time consider desirable, provided that: (a) no amendment shall, without further approval by the holders of a majority of shares represented in person or by proxy and entitled to vote on the subject at a meeting of stockholders of the Company, change the terms of the Plan so as to increase the maximum number of shares that may be issued upon exercise of Stock Options granted under the Plan or credited as DSCs under the plan (other than as contemplated by Section 2 of this Article IV) reduce the minimum option price, or extend the maximum option period; and (b) no amendment, discontinuance or termination shall deprive persons entitled to exercise Stock Options, or to receive a cash settlement of any DSCs, pursuant to the terms and provisions of the Plan, of their rights with respect thereto. Section 9. GENDER ------ As used herein, masculine pronouns shall refer to men or women or both as the context may require. Document date: July 20, 1995 ------------- Fourth restatement of Plan to include amendments 1, 2, 3 and 4. EX-10.14 3 AMEND. NO.1 KEY MANAGEMENT DEFERRAL PLAN Exhibit 10.14 AMENDMENT NO. 1 TO THE ARCO CHEMICAL COMPANY KEY MANAGEMENT DEFERRAL PLAN ----------------------------------- Pursuant to the power of amendment reserved therein, the following amendment is hereby made to the ARCO Chemical Company Key Management Deferral Plan (the "Plan") effective as of October 22, 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 made by the Deferral Commitment contained in the applicable 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. Such approval may be granted (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 the Adminstrative 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 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 Participation Agreement at the time the Deferral Commitment was made; 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 shall be canceled and distribution shall be made pursuant to Section 3 of this Article, and provided, further, that if the Participant terminates employment with a right to commence a retirement allowance, the In- Service 2 Distribution election shall be canceled and distribution will be made pursuant to Section 2 of this Article." 3. Article IV, Section 6 of the Plan is amended 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, without any reduction in, or imposition of any penalty on, the Participant's Account, consistent with the finding of Financial Hardship but in no event exceeding the amount of the Participant's request. The distribution shall be made as soon as administratively practicable 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 practicable 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 Committee in writing in advance of any change in its most 3 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. Section 11.1(b) of the Plan is deleted. Executed this 22nd day of March, 1993. Attest ARCO CHEMICAL COMPANY By: /s/ Robert J. Millstone By: /s/ Frank W. Welsh ------------------------ ------------------- Frank W. Welsh Vice President Human Resources 4 EX-12 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES ARCO CHEMICAL COMPANY AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES (MILLIONS OF DOLLARS)
YEARS ENDED DECEMBER 31, ------------------------ 1991 1992 1993 1994 1995 ---- ---- ---- ---- ---- Pretax income from continuing operations.............. $319 $322 $311 $416 $756 Add: Interest expense.................................... 101 91 105 85 89 Rental expense factor............................... 22 26 20 22 25 ---- ---- ---- ---- ---- Earnings available for fixed charges.................. $442 $439 $436 $523 $870 ==== ==== ==== ==== ==== Interest expense...................................... $101 $ 91 $105 $ 85 $ 89 Add capitalized interest.............................. 39 37 -- 3 1 Rental expense factor................................. 22 26 20 22 25 ---- ---- ---- ---- ---- Fixed charges......................................... $162 $154 $125 $110 $115 ==== ==== ==== ==== ==== Ratio of earnings to fixed charges.................... 2.7 2.9 3.5 4.8 7.6 ==== ==== ==== ==== ====
EXHIBIT 12 EX-21 5 ARCO CHEMICAL COMPANY SUBSIDIARIES ARCO CHEMICAL COMPANY SUBSIDIARIES
JURISDICTION NAME ENTITY OF FORMATION ---- ------------------- ------------ ARCO Chemie Nederland, Ltd. corporation Delaware ARCO Chimie France SNC partnership France POSM II Limited Partnership, L.P. limited partnership Delaware ARCO Chemical Delaware Company corporation Delaware ARCO Chemical Technology, L.P. limited partnership Delaware The Meadows Corporation corporation Delaware
The subsidiaries whose names are not listed above, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary of the Company. EXHIBIT 21 EX-23 6 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the following registration statements of ARCO Chemical Company and Subsidiaries: Registration Statement on Form S-8 (No. 33-17707), Registration Statement on Form S-8 (No. 33-23867), Registration Statement on Form S-8 (No. 33-38062), and Registration Statement on Form S-8 (No. 33-23241) of our report dated February 12, 1996 on our audits of the consolidated financial statements of ARCO Chemical Company and Subsidiaries 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. Philadelphia, Pennsylvania February 29, 1996 EXHIBIT 23 EX-24 7 POWER OF ATTORNEY ARCO CHEMICAL COMPANY POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Alan R. Hirsig, Robert J. Millstone, John A. Shaw, and Walter J. Tusinski, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to effect the following acts as necessary or appropriate for the conduct of the business and affairs of ARCO Chemical Company (the "Company"): I. In connection with any outstanding security of the Company registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (1) to execute any singular or periodic report required or permitted to be filed under the Securities Exchange Act of 1934, as amended, including SPECIFICALLY the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995; and (2) to file or cause to be filed such report with the Commission, any national or foreign securities exchange, any securities industry self- regulatory organization, any state or other jurisdiction of the United States, and any jurisdiction outside the United States, in each case as required or permitted by applicable law; II. In connection with the issuance, offering, or sale of any securities authorized by the Board of Directors of the Company or by the Executive Committee thereof pursuant to due authorization by such Board, or in connection with the issuance, offering or sale of any security, participation or interest in any employee or executive compensation or benefit plan authorized and approved by the Board of Directors of the Company or by the Executive or Compensation Committees thereof pursuant to due authorization by such Board (1) to execute and file, or cause to be filed, with the Securities and Exchange Commission (the "Commission"), (A) Registration Statements and any and all amendments (including post-effective amendments) thereto, and to file, or cause to be filed, all exhibits thereto and other documents in connection therewith as required or permitted by the Commission in connection with such registration under the Securities Act of 1933, as amended, and (B) any singular or periodic report or other document required or permitted to be filed by the Company with the Commission pursuant to the Securities Exchange Act of 1934, as amended; (2) to execute and file, or cause to be filed, any application for registration or exemption therefrom, or any report or any other document required or permitted to be filed by the Company under the Blue Sky or securities laws of any state or other jurisdiction of the United States, and to furnish any other information required in connection therewith, including any reports or other documents required or permitted to be filed subsequent to the issuance of such securities; (3) to execute and file, or cause to be filed, any application for registration or exemption therefrom under the securities laws of any jurisdiction outside the United States, including any reports or other documents required or permitted to be filed subsequent to the issuance of such securities; and (4) to execute and file, or cause to be filed, any application for listing such securities on any national or foreign securities exchange; granting to such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act required to be done as he or she might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents, and each of them, may lawfully do or cause to be done by virtue of this Power of Attorney. EXHIBIT 24 Each such attorney-in-fact and agent shall have the right to indemnification for any action taken or omitted pursuant to this Power of Attorney provided in the By-Laws of the Company to officers and directors for service as such, including, but not limited to, the non-exclusivity provisions of such By-Laws. Each person whose signature appears below may at any time revoke this Power of Attorney, as to himself or herself only, by an instrument in writing specifying that this Power of Attorney is revoked as to him or her as of the date of delivery of such revocation to the Secretary of the Company or at a subsequent specified date. This Power of Attorney shall be revoked automatically with respect to any person whose signature appears below effective on the date he or she ceases to be a member of the Board of Directors, or in the case of Mr. Shaw, on the date he ceases to be principal accounting officer of the Company. Any revocation shall not void or otherwise affect any acts performed by any attorney-in-fact and agent named herein pursuant to this Power of Attorney prior to the effective date of such revocation. This instrument may be executed in multiple counterparts each of which shall be deemed an original and all of which together shall be deemed one instrument.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Mike R. Bowlin Chairman of the - ------------------------------------- Board and Director Mike R. Bowlin /s/ Alan R. Hirsig President, Chief - ------------------------------------- Executive Officer Alan R. Hirsig and Director /s/ Marvin O. Schlanger Executive Vice - ------------------------------------- President, Chief Marvin O. Schlanger Operating Officer and Director /s/ Walter J. Tusinski Senior Vice - ------------------------------------- President, Chief Walter J. Tusinski Financial Officer and Director February 15, 1996 /s/ Ronald J. Arnault Director - ------------------------------------- Ronald J. Arnault /s/ Walter F. Beran Director - ------------------------------------- Walter F. Beran /s/ E. Kent Damon, Jr. Director - ------------------------------------- E. Kent Damon, Jr. /s/ Marie L. Knowles - ------------------------------------- Director Marie L. Knowles
SIGNATURE TITLE DATE --------- ----- ---- /s/ James A. Middleton Director - ------------------------------------- James A. Middleton February 15, 1996 /s/ Frank Savage Director - ------------------------------------- Frank Savage /s/ Robert H. Stewart, III Director - ------------------------------------- Robert H. Stewart, III
EX-27 8 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 235 25 631 0 472 1,382 3,812 1,519 4,135 589 887 100 0 0 1,869 4,135 4,282 4,282 3,102 3,102 0 0 89 756 248 508 0 0 0 508 5.28 5.28
-----END PRIVACY-ENHANCED MESSAGE-----