SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994 or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8888
AMOCO COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 36-3353184
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 EAST RANDOLPH DRIVE, CHICAGO, ILLINOIS 60601
(Address of principal executive offices) (Zip Code)
312-856-6111
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address, and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Number of shares outstanding as of June 30, 1994--100.
Registrant meets the conditions set forth in General Instructions H(1)(a)
and (b) of Form 10-Q and is therefore filing this form with reduced
disclosure format.
1.
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Income
(millions of dollars)
Three Months Six Months
Ended Ended
June 30, June 30,
1994 1993 1994 1993
Revenues:
Sales and other operating
revenues..................... $ 6,050 $ 5,863 $11,301 $11,486
Consumer excise taxes.......... 871 680 1,670 1,322
Other income................... 476 35 562 66
Total revenues............... 7,397 6,578 13,533 12,874
Costs and Expenses:
Purchased crude oil, petroleum
products and merchandise..... 3,221 3,049 5,804 6,011
Operating expenses............. 1,092 1,016 2,098 2,112
Petroleum exploration expenses,
including exploratory dry
holes........................ 151 97 256 181
Selling and administrative
expenses..................... 502 390 947 814
Taxes other than income taxes.. 1,059 864 2,031 1,706
Depreciation, depletion,
amortization, and retirements
and abandonments............. 469 422 928 876
Interest expense............... 28 42 62 97
Total costs and expenses..... 6,522 5,880 12,126 11,797
Income before income taxes....... 875 698 1,407 1,077
Income taxes..................... 314 189 469 291
Net income....................... $ 561 $ 509 $ 938 $ 786
2.
Condensed Consolidated Statement of Financial Position
(millions of dollars)
June 30, Dec. 31,
1994 1993
ASSETS
Current Assets:
Cash and marketable securities--at cost,
which approximates fair value........... $ 415 $ 582
Accounts and notes receivable (less
allowances of $62 at June 30, 1994, and
$62 at December 31, 1993)............... 3,124 2,443
Inventories............................... 883 947
Prepaid expenses and income taxes......... 543 411
Total current assets.................... 4,965 4,383
Investments and Other Assets................ 1,189 1,027
Properties--at cost, less accumulated
depreciation, depletion and amortization
of $21,224 at June 30, 1994, and $20,589
at December 31, 1993 (The successful
efforts method of accounting is followed
for costs incurred in oil and gas
producing activities)..................... 18,025 18,103
Total assets............................ $24,179 $23,513
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Current portion of long-term obligations.. $ 48 $ 51
Short-term obligations.................... 324 652
Accounts payable.......................... 1,996 2,056
Accrued liabilities....................... 1,096 722
Taxes payable (including income taxes).... 446 495
Total current liabilities............... 3,910 3,976
Long-Term Debt.............................. 2,055 1,967
Deferred Credits and Other Non-Current
Liabilities:
Income taxes.............................. 2,427 2,372
Other..................................... 2,042 2,069
4,469 4,441
Shareholder's Equity........................ 13,745 13,129
Total liabilities and shareholder's
equity................................ $24,179 $23,513
3.
Condensed Consolidated Statement of Cash Flows
(millions of dollars)
Six Months Ended
June 30,
1994 1993
Cash Flows From Operating Activities:
Net income.................................... $ 938 $ 786
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion, amortization, and
retirements and abandonments............. 928 876
Other...................................... (670) (504)
Net cash provided by operating activities 1,196 1,158
Cash Flows From Investing Activities:
Capital expenditures.......................... (919) (1,109)
Proceeds from dispositions of property and
other assets................................ 109 148
Other......................................... 7 32
Net cash used in investing activities..... (803) (929)
Cash Flows From Financing Activities:
New long-term obligations..................... 144 252
Repayment of long-term obligations............ (38) (658)
Distributions to Amoco Corporation............ (338) (663)
Increase (decrease) in short-term obligations. (328) 257
Net cash used in financing activities..... (560) (812)
Decrease in Cash and Marketable Securities...... (167) (583)
Cash and Marketable Securities-Beginning of
Period........................................ 582 975
Cash and Marketable Securities-End of Period.... $ 415 $ 392
4.
Basis of Financial Statement Preparation
Amoco Company (the "Company") is a wholly owned subsidiary of Amoco
Corporation, an Indiana corporation ("Amoco"), and is the holding company
for all petroleum and chemical operations except Amoco Canada Petroleum
Company Ltd. ("Amoco Canada"). Amoco guarantees the outstanding public
debt obligations of the Company.
The condensed financial statements contained herein are unaudited and have
been prepared from the books and records of the Company. In the opinion of
management, the financial statements reflect all adjustments, consisting of
only normal recurring adjustments, necessary for a fair statement of the
results for the interim periods. The condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and,
therefore, do not include all information and notes necessary for a
complete presentation of results of operations, financial position and cash
flows in conformity with generally accepted accounting principles.
Item 2. Management's Narrative Analysis of Results of Operations
Results of Operations
The Company earned $938 million for the first six months of 1994, compared
with $786 million for the first six months of 1993. Included in current-
year results were second-quarter restructuring charges of $149 million
after tax. Of this amount, $51 million related to costs directly
associated with severances of employees expected to occur over the next 12
months. The remaining $98 million was attributable to various facility
closings and asset dispositions. The 1994 results also included second-
quarter after-tax benefits of $270 million relating to final settlements
with the Internal Revenue Service involving crude oil excise taxes ("COET")
in the 1980s. Results for 1993 included after-tax charges of $170 million
associated with the writedown of Congo exploration and production
operations to current recoverable value, and tax benefits of $56 million
related to the disposition of certain operations.
Adjusting both periods for these items, six-month 1994 net income of $817
million was $83 million below 1993's earnings of $900 million. The 1994
earnings decline mainly resulted from decreased exploration and production
earnings due to lower crude oil prices, which averaged about $3 per barrel
below last year's level. Also contributing to the decline were lower
refining, marketing and transportation earnings attributable to lower
refined product margins. Partly offsetting were improved chemical
earnings, resulting from higher volumes and margins in major product lines.
Earnings for the second quarter of 1994 were $561 million compared with
$509 million for the second quarter of 1993. Results for the current
quarter included the previously mentioned $149 million restructuring
charges and the $270 million favorable COET settlement. Adjusting for
these items, second-quarter 1994 earnings of $440 million were $69 million
lower than last year's second quarter. Exploration and production earnings
declined reflecting lower crude oil prices worldwide, lower U.S. natural
5.
gas prices and increased exploration expenses overseas. Refining,
marketing and transportation earnings decreased due to lower refined
product margins. Partly offsetting were improved chemical earnings on the
strength of higher volumes and margins in major product lines.
Sales and other operating revenues totaled $11.3 billion for the first six
months of 1994, slightly below the $11.5 billion reported in the
corresponding 1993 period. Crude oil revenues decreased 17 percent and
refined product revenues declined 7 percent mainly due to lower prices.
Partly offsetting were a 24 percent increase in natural gas revenues
reflecting higher volumes worldwide, and a 16 percent improvement in
chemical revenues resulting from higher volumes and prices for major
product lines. Second-quarter 1994 sales and other operating revenues of
$6.1 billion were slightly higher than the $5.9 billion reported in 1993's
second quarter. Chemical revenues improved 22 percent due to increased
volumes and prices while natural gas revenues increased 17 percent
primarily reflecting higher volumes. Partly offsetting was a 6 percent
decline in refined product revenues resulting from lower prices.
Consumer excise taxes increased 26 percent and 28 percent for the first six
months and second quarter of 1994, respectively, compared with last year's
levels, reflecting the effect of a tax increase on transportation fuels
resulting from the enactment of Omnibus Budget Reconciliation Act of 1993.
Higher other income for both the first six months and second quarter of
1994 compared with the corresponding 1993 periods, primarily reflected the
second-quarter 1994 COET settlement.
Purchases of crude oil, petroleum products and merchandise totaled $5.8
billion for the first six months of 1994, 3 percent lower than 1993's first
six months, primarily attributable to lower U.S. crude oil prices,
partially offset by higher natural gas and refined product volumes.
Second-quarter 1994 purchases of $3.2 billion were 6 percent higher than
the comparable prior-year quarter. Higher crude oil, refined products and
U.S. natural gas purchase volumes were partly offset by lower crude oil and
refined product prices.
Operating expenses totaled $2.1 billion for the first six months of 1994,
essentially level with the corresponding 1993 period. Second-quarter 1994
included restructuring charges of $150 million related to various facility
closings and asset dispositions. First-quarter 1993 included charges
associated with the writedown of Congo exploration and production
operations. Second-quarter 1994 operating expenses were 7 percent above
1993's second quarter mainly reflecting the second-quarter 1994
restructuring charges.
Petroleum exploration expenses of $256 million in the first six months of
1994 and $151 million in the second quarter of 1994 increased 41 percent
and 55 percent, respectively, compared with prior-year periods. The
increase in both periods was mainly attributable to higher dry hole costs
overseas.
Selling and administrative expenses for the first six months and second
6.
quarter of 1994 were up 16 percent and 29 percent, respectively, primarily
resulting from second-quarter 1994 restructuring charges of $79 million
related to severance costs, and unfavorable currency effects.
Taxes other than income taxes increased in both the first six months and
current quarter of 1994 by 19 percent and 23 percent, respectively,
compared with the prior-year periods principally due to increased consumer
excise taxes. Higher depreciation, depletion, amortization, and
retirements and abandonments in the first six months and second quarter of
1994 compared with 1993 resulted in part from increased production in the
North Sea. Interest expense decreased 36 percent for the first six months
of 1994 and 34 percent for the current quarter compared with the like 1993
periods, primarily due to the effects of 1993 debt refinancing and revised
estimates of future tax obligations.
Outlook
The Company and the oil industry will continue to be affected by the price
volatility of crude oil and natural gas. Also affecting chemical and
refining, marketing and transportation activities are crude oil prices and
the overall industry product supply and demand balance. The Company's
future performance is expected to be impacted by ongoing cost reduction
programs, the divestment of marginal properties and underperforming assets,
application of new technologies and new governmental regulation.
In July 1994, Amoco Corporation announced that its organizational structure
was being changed to improve profitability, increase operating flexibility
and position Amoco for long-term growth. Amoco's strategies now will be
carried out by 17 business groups. The three major subsidiaries have been
effectively eliminated as operating entities. A newly created shared
services organization will provide support service to the business units.
As a result of the restructuring, an after-tax charge of $256 million was
taken in the second quarter of 1994 by Amoco. Approximately 3,800
positions will be eliminated by July 1995. An additional 700 positions
will be eliminated by the end of 1996 as a result of ongoing process
redesign to improve efficiencies in support functions. Additional
restructuring costs of approximately $200 million (after-tax) are expected
to be incurred by Amoco through 1996 to reflect costs for system redesign,
relocations, work consolidation and development of new processes in support
of the restructuring.
Liquidity and Capital Resources
Cash flows from operating activities amounted to $1,196 million in the
first six months of 1994 compared with $1,158 million in the comparable
1993 period. Working capital totaled $1,055 million at June 30, 1994, up
from $407 million at year-end 1993. Consequently, the Company's current
ratio increased to 1.27 to 1 at June 30, 1994, from 1.10 to 1 at year-end
1993. As a matter of policy, the Company practices asset and liability
management techniques that are designed to minimize its investment in non-
cash working capital. This does not impair operating capability or
flexibility since the Company has ready access to both short-term and long-
7.
term debt markets.
The Company's ratio of debt to debt-plus-equity was 15 percent at June 30,
1994, compared with 16.8 percent at year-end 1993. The ratio of earnings
to fixed charges was 19.1 to 1 for 1994's first six months compared with
13.2 to 1 for the year ended December 31, 1993.
The Company believes that its strong financial position will permit it to
finance business needs and opportunities in an orderly manner. To maintain
flexibility, a shelf registration statement for $500 million in debt
securities remains on file with the Securities and Exchange Commission to
permit ready access to capital markets.
Amoco Oil Company, an indirect wholly owned subsidiary of the Company,
announced in April 1994 that it had signed a letter of intent to negotiate
a contract with subsidiaries of Associates Corporation of North America
("Associates") whereby Associates would issue and process Amoco Oil's
consumer credit cards. Associates would become the grantor of credit,
owner of the receivables and manager of credit risks. In connection with
the transaction, Amoco Oil Company plans to sell certain of its assets
related to consumer credit cards to Associates. The transaction is
expected to close in the last half of 1994.
Capital and exploration expenditures totaled $1,175 million for the first
six months of 1994 compared to the $1,290 million spent during the same
period of 1993.
The Company has provided in its accounts for the reasonably estimable
future costs of probable environmental remediation obligations relating to
various oil and gas operations, refineries, marketing sites and chemical
locations, including multiparty sites at which the Company and certain of
its subsidiaries have been identified as potentially responsible parties by
the U.S. Environmental Protection Agency. Such estimated costs will be
refined over time as remedial requirements and regulations become better
defined. However, any additional costs cannot be reasonably estimated at
this time due to uncertainty of timing, the magnitude of contamination,
future technology, regulatory changes and other factors. Although future
costs could have a significant on the results of operations in any one
period, they are not expected to be material in relation to the Company's
liquidity or consolidated financial position. In total, the accrued
liability represents a reasonable best estimate of the Company's
remediation liability.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the description of legal proceedings in Part I, Item 3
of the Company's 1993 Annual Report on Form 10-K and the description of
legal proceedings in Part II, Item 1 of the Company's Report on Form 10-Q
for the quarter ended March 31, 1994.
8.
With respect to the Rubicon/Amoco Production matter, the case was dismissed
by the court on April 27, 1994.
See Item 6(b). The defendants in the Amoco Chemical/Amoco Reinforced
Plastics case have filed an appeal.
Ten proceedings instituted by governmental authorities are pending or known
to be contemplated against the Company and certain of its subsidiaries
under federal, state and local environmental laws, each of which could
result in monetary sanctions in excess of $100,000. No individual
proceeding is, nor are the proceedings as a group, expected to have a
material adverse effect on the Company's consolidated cash flows, financial
position or results of operations. The Company estimates that in the
aggregate the monetary sanctions reasonably likely to be imposed from these
proceedings amount to approximately $3.7 million.
The Company has various other suits and claims pending against it among
which are several class actions for substantial monetary damages which in
the Company's opinion are not meritorious. While it is impossible to
estimate with certainty the ultimate legal and financial liability in
respect to these other suits and claims, the Company believes that the
aggregate amount will not be material in relation to its consolidated
financial position.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Sequentially
Exhibit Numbered
Number Page
12 Statement Setting Forth Computation of Ratio
of Earnings to Fixed Charges.
(b) Current reports on Form 8-K dated February 8, 1994 and April 25, 1994
were filed. The filing of February 8, 1994 announced that a judgment
was entered on January 21, 1994 for approximately $413 million in
favor of Amoco Chemical Company and Amoco Reinforced Plastics
Company, subsidiaries of the Company and Amoco, against certain
underwriters and insurance carriers relating to wrongful refusal to
9.
pay for defense and settlement of product liability lawsuits.
The current report on Form 8-K dated April 25, 1994 announced that a
new judgment was entered on April 15, 1994 which revised the January
21, 1994 judgment to approximately $108 million.
10.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Amoco Company
(Registrant)
Date: August 12, 1994
J. R. Reid
J. R. Reid
Vice President and Controller
(Duly Authorized and Chief
Accounting Officer)
11.