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 March 31, 1998 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 March 31, 1998--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.
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Income
(millions of dollars)
Three Months
Ended
March 31,
1998 1997
Revenues:
Sales and other operating revenues.......... $ 5,951 $ 7,153
Consumer excise taxes....................... 845 815
Equity income of affiliates and other income 140 106
Total revenues............................ 6,936 8,074
Costs and Expenses:
Purchased crude oil, natural gas,
petroleum products and merchandise........ 3,232 4,035
Operating expenses.......................... 1,031 1,045
Petroleum exploration expenses,
including exploratory dry holes........... 126 149
Selling and administrative expenses......... 528 409
Taxes other than income taxes............... 973 1,023
Depreciation, depletion, amortization,
and retirements and abandonments.......... 472 484
Interest expense:
Affiliates................................ 127 124
Other..................................... 57 36
Total costs and expenses................ 6,546 7,305
Income before income taxes.................... 390 769
Income taxes.................................. 93 213
Net income.................................... $ 297 $ 556
Condensed Consolidated Statement of Financial Position
(millions of dollars)
March 31, Dec. 31,
ASSETS 1998 1997
Current Assets:
Cash ......................................... $ 66 $ 78
Marketable securities--at cost................ 342 768
Accounts and notes receivable:
Trade (less allowances of $7 at March 31,
1998 and at December 31, 1997)............ 2,648 2,873
Affiliates.................................. 1,652 803
4,300 3,676
Inventories................................... 954 876
Prepaid expenses, income taxes and other...... 858 1,044
Total current assets........................ 6,520 6,442
Investments and Other Assets:
Affiliates.................................... 1,394 1,391
Other......................................... 3,085 2,957
4,479 4,348
Properties--at cost, less accumulated depre-
ciation, depletion and amortization of $24,240
at March 31, 1998, and $23,798 at December 31,
1997 (The successful efforts method of
accounting is followed for costs incurred
in oil and gas producing activities.)......... 19,381 19,272
Total assets................................ $30,380 $30,062
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Current portion of long-term obligations...... $ 86 $ 146
Short-term obligations........................ 1,079 576
Accounts payable.............................. 2,126 2,497
Accrued liabilities........................... 716 872
Taxes payable (including income taxes)........ 810 1,074
Total current liabilities................... 4,817 5,165
Long-Term Obligations:
Affiliates.................................... 4,880 4,739
Other debt.................................... 2,953 2,791
Capitalized Leases............................ 81 80
7,914 7,610
Deferred Credits and Other Non-Current Liabilities:
Income taxes.................................. 2,837 2,781
Other......................................... 1,872 1,882
4,709 4,663
Minority Interest............................... 123 119
Shareholder's Equity
Common stock and earnings retained and
invested in the business.................... 12,887 12,571
Accumulated other comprehensive income:
Foreign currency translation adjustment..... (70) (66)
12,817 12,505
Total liabilities and shareholder's equity.. $30,380 $30,062
Condensed Consolidated Statement of Cash Flows
(millions of dollars)
Three Months Ended
March 31,
1998 1997
Cash Flows from Operating Activities:
Net income................................... $ 297 $ 556
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion, amortization,
and retirement and abandonments.......... 472 484
Decrease in trade receivables.............. 209 315
Increase in affiliate receivables.......... (849) (654)
Decrease in payables and accrued
liabilities.............................. (463) (333)
(Decrease) increase in taxes payable....... (264) 16
Deferred taxes and other items............. 65 (127)
Net cash provided by operating activities.. (533) 257
Cash Flows from Investing Activities:
Capital expenditures......................... (618) (544)
Proceeds from dispositions of property and
other assets............................... 255 74
Net investments, advances and business
acquisitions............................... (82) (128)
Other........................................ (202) 44
Net cash used in investing activities...... (647) (554)
Cash Flows from Financing Activities:
New long-term obligations.................... 322 130
Repayment of long-term obligations........... (83) (102)
Increase in short-term obligations........... 503 277
Net cash used in financing activities...... 742 305
(Decrease) increase in Cash and Marketable
Securities................................... (438) 8
Cash and Marketable Securities-Beginning of
Period....................................... 846 989
Cash and Marketable Securities-End of Period... $ 408 $ 997
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 substantially all petroleum and chemical
operations except Amoco Canada Petroleum Company Ltd. ("Amoco
Canada") and selected other activities. Amoco guarantees the
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. Certain information in the Consolidated Statement of
Cash Flows has been reclassified to conform to the new
presentation.
The Company adopted Statement of Position ("SOP") 98-1,
"Accounting For the Costs of Computer Software Developed or
Obtained for Internal Use" in the first quarter of 1998. The SOP
requires costs of computer software developed for internal use to
be capitalized as a long-lived asset. The capitalized costs are
amortized over the estimated useful life of the software. For the
first quarter of 1998 the amount capitalized, which would had
been expensed previously, was approximately $20 million after
tax.
The Company has determined that the U.S. dollar is the
appropriate functional currency for substantially all of its
operations. Accordingly, the U.S. dollar was adopted as the
functional currency for the Company's European chemical
operations as well as all Fabrics operations in the first quarter
of 1998. The change in functional currency did not have a
significant impact on the Company's exposure to changes in
currency rates or on the results of operations.
The Company also adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." The
Company's comprehensive income is as follows:
Three Months Ended
1998 1997
Net income.............................. $ 297 $ 556
Other comprehensive income, after tax... 4 (55)
Comprehensive income.................... $ 301 $ 501
Item 2. Management's Narrative Analysis of Results of Operations
Results of Operations
Net income for the first quarter of 1998 amounted to $297 million
compared with $556 million for the first quarter of 1997. The
decrease in earnings for the first quarter of 1998 reflected
significantly lower energy prices compared with a year ago.
Chemical margins were also lower in some product lines. Petroleum
products results were higher than a year ago reflecting improved
sales margins and volumes. First-quarter 1998 earnings also
benefited from an after-tax gain of $43 million associated with
ongoing divestitures of exploration and production ("E&P")
properties in the United States.
Sales and other operating revenues totaled $6 billion for the
first quarter of 1998, 17 percent lower than the $7.2 billion
reported in the corresponding 1997 period. Refined products,
crude oil and natural gas revenues decreased 18 percent, 28
percent and 22 percent, respectively, primarily reflecting lower
prices.
Purchases of crude oil, natural gas, petroleum products and
merchandise totaled $3.2 billion for the first three months of
1998, 20 percent lower than the comparable 1997 quarter. The
decrease was primarily attributable to lower crude oil and
natural gas purchase prices.
Exploration expenses of $126 million decreased 16 percent over
the first-quarter of 1997, mainly due to lower dry hole costs
overseas. Selling and administrative expense of $528 million
increased over the first quarter of 1997 in part reflecting
unfavorable before-tax currency effects of $11 million in the
1998 first quarter compared with favorable before-tax currency
effects of $27 million for the comparable 1997 period.
Outlook
The Company and the oil industry will continue to be affected by
the volatility of crude oil, natural gas and refined product
prices, and the overall supply/demand balance of the
petrochemical industry. Uncertainty in world markets, new
governmental regulation and technical advances add to the
significant challenges to be addressed and managed by the
Company.
The Company believes it has the structure and resources to allow
it to achieve improvements in profitability and growth of its
businesses through intensive portfolio management. The Company
also expects to continue to benefit from ongoing cost reduction
programs. Efficiency gains are expected through development of
new work processes, alliances, joint ventures, strategic
acquisitions and divestments and volume growth in its operations.
Amoco's worldwide barrel-oil-equivalent production is expected to
increase from 1996 levels by 25 percent by the year 2001, with
the largest increases expected to occur in the later years.
Significant contributions are anticipated from the deepwater Gulf
of Mexico, Trinidad, Venezuela, Argentina, Bolivia, Egypt, and
the Caspian Basin.
In the petroleum products sector, the Company's refining
performance is expected to improve by using a new approach and
organization which should increase revenues and improve refining
utilization simultaneously. Amoco's marketing strategy will
continue to emphasize brand product quality and growth in its
position as a convenience retailer, with an objective of
increasing gasoline volumes an average of four percent per year
over the long term. The new convenience store format, called
Split Second, and a renewed commitment to the service bay, called
Certicare, are both strategies designed to increase growth in
marketing operations. Strategic alliances with such companies as
McDonald's Corporation and Fomento Economico Mexicano S.A. de C.
V. in Mexico are expected to expand.
In the chemical sector, Amoco's overall strategy is to manage its
portfolio to maximize existing business value by stronger
functional excellence, increased market focus and more efficient
management of opportunities. Amoco is in the process of
selectively increasing capacities within its chemical portfolio.
While current industry excess purified terephthalic acid ("PTA")
capacity is putting downside pressure on margins, long-term
worldwide growth is expected to be eight percent. Paraxylene
("PX") long-term annual growth is expected to be seven percent.
In order to meet expected growth in PTA an PX, Amoco is expanding
its wholly owned and joint-venture operations.
Liquidity and Capital Resources
Cash flows from operating activities was a negative $533 million
in the first three months of 1998 compared with $257 million in
the comparable 1997 period. Working capital totaled $1.7 billion
at March 31, 1998, compared with $1.3 billion at year-end 1997.
The Company's current ratio was 1.35 to 1 at March 31, 1998 and
1.25 to 1 at year-end 1997. 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 operational flexibility since the Company
has ready access to both short- and long-term debt markets.
The Company's ratio of debt to debt-plus-equity on public
obligations was 24.1 percent at March 31, 1998, compared with
21.7 percent at year-end 1997. Including debt with affiliates,
the ratio was 41 percent at March 31, 1998, and 39.5 percent at
year-end 1997. The ratio of earnings to fixed charges on public
obligations was 5.4 to 1 for the first three months of 1998
compared with 11.8 to 1 at year ended December 31, 1997.
Amoco is a 50 percent owner of a recently constructed power
generation plant in Colombia. Currently, it is not clear whether
an adequate fuel supply will be available to the plant on an
efficient basis. Amoco is exploring alternatives for plant fuel
supply, and evaluating its commercial options. If an alternative
fuel supply cannot be identified, recovery of Amoco's investment
of approximately $110 million would be uncertain.
The Company believes its strong financial position will permit
the financing of business needs and opportunities as they arise.
It is anticipated that ongoing operations will be financed
primarily by internally generated funds. Short-term obligations,
such as commercial paper borrowings, give the Company the
flexibility to meet short-term working capital and other
temporary requirements. At March 31, 1998, bank lines of credit
available to support commercial paper borrowings amounted to $500
million, all of which were supported by commitment fees.
The Company also may utilize its favorable access to long-term
debt markets to finance profitable growth opportunities and
ongoing operations. A $500 million shelf registration statement
remains on file with the Securities and Exchange Commission to
permit ready access to capital markets.
Amoco Corporation and Amoco Company guarantee the notes, bonds
and debentures of Amoco Canada Petroleum Company Ltd. Contingent
liabilities of the Company include guarantees of $200 million of
outstanding loans of an equity affiliate.
Capital and exploration expenditures for the first three months
of 1998 totaled $744 million compared with $693 million for the
similar 1997 period. Approximately 64 percent of the spending is
in the E&P sector.
Investments in affiliates totaled $1,394 million at March 31,
1998. The investments reflect the Company's remaining interest in
certain European chemical operations, of which 95 percent
ownership was transferred to Amoco Corporation in 1994.
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 environmental 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 effect 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.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995.
Statements in this report that are not historical facts,
including statements under the heading of "Outlook" and other
statements about industry and company growth, estimates of
expenditures and savings, and other trend projections are forward
looking statements. These statements are based on current
expectations and involve risk and uncertainties. Actual future
results or trends may differ materially depending on a variety of
factors. These include specific factors identified in the
discussion accompanying such forward looking statements, industry
product supply, demand and pricing, political stability and
economic growth in relevant areas of the world, Amoco's
successful execution of its internal performance plans,
development and use of new technology, successful partnering,
actions of competitors, natural disasters, and other changes to
business conditions.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Nine proceedings instituted by governmental authorities are
pending or known to be contemplated against Amoco and certain of
its subsidiaries under federal, state or 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 Amoco's
liquidity, consolidated financial position or results of
operations. Amoco estimates that in the aggregate the monetary
sanctions reasonably likely to be imposed from these proceedings
amount to approximately $4.1 million.
The Internal Revenue Service ("IRS") challenged the application
of certain foreign income taxes as credits against Amoco's U.S.
taxes that otherwise would have been payable for the years 1980
through 1992. On June 18, 1992, the IRS issued a statutory Notice
of Deficiency for additional taxes in the amount of $466 million,
plus interest, relating to 1980 through 1982. Amoco contested the
IRS statutory Notice of Deficiency. Trial on the matter was held
in April 1995, and a decision was rendered by the U.S. Tax Court
in March 1996, in Amoco's favor. The IRS appealed the Tax Court's
decision to the U.S. Court of Appeals for the Seventh Circuit,
and on March 11, 1998, the Seventh Circuit affirmed the Tax
Court's prior decision. A proposal for a comparable adjustment of
foreign tax credits is pending for the years 1983 through 1992
based upon subsequent IRS audits. Amoco believes that the foreign
income taxes have been reflected properly in its U.S. federal tax
returns. Consequently, this dispute is not expected to have a
material effect on liquidity, results of operations, or the
consolidated financial position of Amoco.
Amoco has various other suits and claims pending against it among
which are several class actions for substantial monetary damages
which in Amoco'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,
Amoco believes that, while the aggregate amount could be
significant, it will not be material in relation to its liquidity
or 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
Exhibit
Number
12 Statement Setting Forth Computation of Ratio
of Earnings to Fixed Charges.
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter
ended March 31, 1998.
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: May 14, 1998 A. J. NOCCHIERO
A. J. Nocchiero
Vice President and Controller
(Duly Authorized and Chief
Accounting Officer)