SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
________________
For the quarterly period ended September 30, 1995
Commission file number 1-1196
________________
ATLANTIC RICHFIELD COMPANY
(Exact name of registrant as specified in its charter)
_________________
Delaware 23-0371610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
515 South Flower Street
Los Angeles, California 90071
(Address of principal executive offices) (Zip code)
__________________
(213) 486-3511
(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 of Common Stock, $2.50 par value, outstanding as of
September 30, 1995: 160,804,187.
PART I. FINANCIAL INFORMATION
ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
(Millions except 1995 1994 1995 1994
per share amounts) ---- ---- ---- ----
Revenues
Sales and other operating
revenues, including excise
taxes . . . . . . . . . . . . . $4,277 $4,271 $12,944 $12,245
Income from equity investments. . 68 45 223 86
Interest. . . . . . . . . . . . . 48 51 162 142
Other revenues. . . . . . . . . . 121 49 327 205
----- ----- ------ ------
4,514 4,416 13,656 12,678
----- ----- ------ ------
Expenses
Trade purchases . . . . . . . . . 1,494 1,519 4,616 4,414
Operating expenses. . . . . . . . 783 772 2,252 2,280
Selling, general and
administrative expenses . . . . 448 432 1,286 1,256
Depreciation, depletion and
amortization . . . . . . . . . 386 405 1,205 1,240
Exploration expenses (including
undeveloped leasehold
amortization) . . . . . . . . . 138 167 333 362
Excise taxes. . . . . . . . . . . 405 407 1,132 1,149
Taxes other than excise
and income taxes . . . . . . . 168 175 557 543
Interest. . . . . . . . . . . . . 181 194 581 565
Unusual items . . . . . . . . . . - 68 - 317
----- ----- ------ ------
4,003 4,139 11,962 12,126
----- ----- ------ ------
Income before gain on issuance
of stock by subsidiary. . . . . 511 277 1,694 552
Gain on issuance of stock
by subsidiary . . . . . . . . . - 459 - 459
----- ----- ------ ------
Income before income taxes and
minority interest . . . . . . . 511 736 1,694 1,011
Provision for taxes on income . . 172 281 584 361
Minority interest in earnings
of subsidiaries . . . . . . . . 24 20 82 42
----- ----- ------ ------
Net Income. . . . . . . . . . . . . $ 315 $ 435 $ 1,028 $ 608
===== ===== ====== ======
Earned per Share . . . . . . . . . $ 1.93 $ 2.67 $ 6.29 $ 3.73
===== ===== ====== ======
Cash Dividends Paid per Share
of Common Stock . . . . . . . . . $1.375 $1.375 $ 4.125 $ 4.125
===== ===== ====== ======
The accompanying notes are an integral part of these statements.
- 1 -
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED BALANCE SHEET
September 30, December 31,
1995 1994
---- ----
(Millions)
(S)
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 848 $ 1,394
Short-term investments. . . . . . . . . . . . . 1,941 2,991
Accounts receivable . . . . . . . . . . . . . . 1,453 1,446
Inventories . . . . . . . . . . . . . . . . . . 860 797
Prepaid expenses and other current assets . . . 285 185
------ ------
Total current assets. . . . . . . . . . . . . . 5,387 6,813
------ ------
Investments and long-term receivables:
Investments accounted for on the equity method. 517 348
Other investments and long-term receivables . . 563 297
------ ------
1,080 645
------ ------
Fixed assets:
Property, plant and equipment . . . . . . . . . 32,538 32,248
Less accumulated depreciation, depletion
and amortization . . . . . . . . . . . . . . . 16,898 16,526
------ ------
15,640 15,722
------ ------
Deferred charges and other assets . . . . . . . . 1,507 1,383
------ ------
Total assets. . . . . . . . . . . . . . . . . . . $23,614 $24,563
====== ======
The accompanying notes are an integral part of these statements.
- 2 -
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED BALANCE SHEET
September 30, December 31,
1995 1994
---- ----
(Millions)
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable . . . . . . . . . . . . . . . . . $ 1,110 $ 1,478
Accounts payable. . . . . . . . . . . . . . . . 974 986
Long-term debt due within one year. . . . . . . 195 630
Taxes payable, including excise taxes . . . . . 313 253
Accrued interest. . . . . . . . . . . . . . . . 122 183
Other . . . . . . . . . . . . . . . . . . . . . 860 958
------ ------
Total current liabilities . . . . . . . . . . . 3,574 4,488
------ ------
Long-term debt. . . . . . . . . . . . . . . . . . 6,724 7,198
Deferred income taxes . . . . . . . . . . . . . . 2,699 2,721
Other deferred liabilities and credits. . . . . . 3,458 3,471
Minority interest . . . . . . . . . . . . . . . . 469 407
Stockholders' equity:
Preference stocks . . . . . . . . . . . . . . . 1 1
Common stock. . . . . . . . . . . . . . . . . . 402 402
Capital in excess of par value of stock . . . . 632 647
Retained earnings . . . . . . . . . . . . . . . 5,689 5,342
Pension liability adjustment. . . . . . . . . . (20) (20)
Net unrealized loss on investments. . . . . . . (10) (38)
Foreign currency translation. . . . . . . . . . 5 (51)
Treasury stock, at cost . . . . . . . . . . . . (9) (5)
------ ------
Total stockholders' equity. . . . . . . . . . . 6,690 6,278
------ ------
Total liabilities and stockholders' equity. . . . $23,614 $24,563
====== ======
The accompanying notes are an integral part of these statements.
- 3 -
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
September 30,
-----------------
1995 1994
---- ----
(Millions)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . $1,028 $ 608
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization . . . . . 1,205 1,240
Dry hole expense and undeveloped leasehold
amortization. . . . . . . . . . . . . . . . . . 185 213
Gain on issuance of stock by subsidiary. . . . . . - (459)
Net (gain) loss on asset sales . . . . . . . . . . (12) 7
Income from equity investments . . . . . . . . . . (223) (86)
Dividends from equity investments. . . . . . . . . 67 48
Noncash provisions greater (less) than cash
payments. . . . . . . . . . . . . . . . . . . . (171) 260
Deferred income taxes. . . . . . . . . . . . . . . 51 112
Changes in accounts receivable, inventories
and accounts payable. . . . . . . . . . . . . . . (76) (301)
Changes in other working capital accounts. . . . . (164) (203)
Other. . . . . . . . . . . . . . . . . . . . . . . (21) (40)
----- -----
Net cash provided by operating activities. . . . 1,869 1,399
----- -----
Cash flows from investing activities:
Additions to fixed assets (including dry
hole costs) . . . . . . . . . . . . . . . . . . (1,233) (1,224)
Net cash provided (used) by short-term investments 1,113 (734)
Investment in LUKoil convertible bonds . . . . . . (250) -
Proceeds from asset sales. . . . . . . . . . . . . 61 85
Payments received on notes for sales of property . - 48
Other. . . . . . . . . . . . . . . . . . . . . . . (67) 138
----- -----
Net cash used by investing activities. . . . . . (376) (1,687)
----- -----
Cash flows from financing activities:
Repayments of long-term debt . . . . . . . . . . . (1,085) (562)
Proceeds from issuance of long-term debt . . . . . 150 1,230
Proceeds from issuance of common stock by
subsidiary. . . . . . . . . . . . . . . . . . . - 453
Net cash used by notes payable . . . . . . . . . . (372) (143)
Dividends paid . . . . . . . . . . . . . . . . . . (681) (664)
Treasury stock purchases . . . . . . . . . . . . . (36) -
Treasury stock contributed to benefit plans. . . . - 56
Other. . . . . . . . . . . . . . . . . . . . . . . (17) (26)
----- -----
Net cash provided (used) by financing activities (2,041) 344
----- -----
Effect of exchange rate changes on cash. . . . . . . 2 23
----- -----
Net increase (decrease) in cash and cash equivalents (546) 79
Cash and cash equivalents at beginning of period . . 1,394 1,458
----- -----
Cash and cash equivalents at end of period . . . . . $ 848 $1,537
===== =====
The accompanying notes are an integral part of these statements.
- 4 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE A. Basis of Presentation.
The foregoing financial information is unaudited and has been prepared
from the books and records of the Company. Certain previously reported
amounts have been restated to conform to classifications adopted in 1995.
In the opinion of the Company, the financial information reflects all
adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations in
conformity with generally accepted accounting principles.
NOTE B. Restructuring Program.
During 1994, ARCO announced a restructuring program under which
approximately 2,400 positions were eliminated. The program covered all
operating units, excluding Lower 48 oil and gas operations, along with the
corporate headquarters. The Company accrued $347 million before tax
consisting primarily of personnel costs (pension enhancements, severance
and other ancillary costs) associated with the terminations. Approximately
$155 million of the $347 million related to severance and other ancillary
costs which will be paid from Company funds through 1996.
In 1993, ARCO announced a reorganization of its Lower 48 oil and gas
operations under which approximately 1,300 positions were eliminated. The
Company accrued $105 million before tax of personnel costs, of which $65
million related to severance and other ancillary costs which will be paid
from Company funds.
Through September 30, 1995, approximately 3,200 employees have been
terminated under the two programs and approximately $153 million of
severance and ancillary benefits have been paid and charged against the
accrual. Payments made do not necessarily correlate to the number of
terminations due to the ability of terminees to defer receipt of certain
payments.
NOTE C. Investments.
At September 30, 1995, investments were composed principally of U.S.
Treasury securities, corporate debt instruments, and municipal securities
and were principally included in cash equivalents or short-term investments
depending on their maturities, which generally ranged from one day to 25
months. Investments in debt securities classified as held-to-maturity
("HTM") were recorded at amortized cost while investments in debt
securities classified as available-for-sale ("AFS") are reported at fair
value, with unrealized holding gains and losses, net of tax, reported as a
separate component of stockholders' equity.
The following summarizes investments in securities, principally debt
securities, at September 30, 1995 and 1994:
1995 1994
-------------- ---------------
Millions AFS HTM AFS HTM
--- --- --- ---
Aggregate fair value . . . . . . . . . . $1,953 $215 $1,600 $1,700
Gross unrealized holding losses. . . . . 22 - - -
Gross unrealized holding gains . . . . . 15 - - -
Amortized cost . . . . . . . . . . . . . 1,960 215 1,600 1,700
- 5 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
For the three- and nine-month periods ended September 30, 1995 and 1994,
gross realized gains and losses on sales of AFS securities were
insignificant. For the three-month periods ended September 30, 1995 and
1994 proceeds from sales of AFS securities were $450 million and $700
million, respectively. For the nine-month periods ended September 30, 1995
and 1994, proceeds from sales of AFS securities were $1.9 billion and
$3.7 billion, respectively. For the nine months ended September 30, 1995
and 1994, gross purchases, sales and maturities were as follows:
1995 1994
---------------- ---------------
Millions AFS HTM AFS HTM
--- --- --- ---
Gross purchases . . . . . . . . . . . $2,600 $1,300 $4,500 $7,300
Gross sales . . . . . . . . . . . . . 1,900 - 3,700 -
Gross maturities. . . . . . . . . . . 750 2,300 40 7,300
NOTE D. Inventories.
Inventories at September 30, 1995 and December 31, 1994 comprised the
following:
September 30, December 31,
1995 1994
---- ----
(Millions)
Crude oil and petroleum products. . . . . . . . $ 140 $ 172
Chemical products . . . . . . . . . . . . . . . 441 351
Other products. . . . . . . . . . . . . . . . . 37 46
Materials and supplies. . . . . . . . . . . . . 242 228
------- -------
Total. . . . . . . . . . . . . . . . . . . . $ 860 $ 797
======= =======
NOTE E. Capital Stock.
Detail of the Company's capital stock was as follows:
September 30, December 31,
1995 1994
---- ----
(Thousands)
$3.00 Cumulative convertible preference
stock, par $1. . . . . . . . . . . . . . . . $ 67 $ 74
$2.80 Cumulative convertible preference
stock, par $1. . . . . . . . . . . . . . . . 744 795
Common stock, par $2.50 . . . . . . . . . . . . 402,199 402,000
------- -------
Total. . . . . . . . . . . . . . . . . . . . $403,010 $402,869
======= =======
- 6 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE F. Capitalization of Interest.
Interest expense excluded capitalized interest of $14 million and $11
million, respectively, for the three-month periods ended September 30, 1995
and 1994, and $39 million and $28 million, respectively, for the nine-month
periods ended September 30, 1995 and 1994.
NOTE G. Income Taxes.
Provision for taxes on income:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
(Millions)
Federal:
Current . . . . . . . . . . . . . . . $ 114 $ 25 $ 387 $ 182
Deferred. . . . . . . . . . . . . . . 14 200 37 97
---- ---- ---- ----
128 225 424 279
---- ---- ---- ----
Foreign:
Current . . . . . . . . . . . . . . . 27 15 83 45
Deferred. . . . . . . . . . . . . . . (3) 9 6 -
---- ---- ---- ----
24 24 89 45
---- ---- ---- ----
State:
Current . . . . . . . . . . . . . . . 17 (6) 63 22
Deferred. . . . . . . . . . . . . . . 3 38 8 15
---- ---- ---- ----
20 32 71 37
---- ---- ---- ----
Total . . . . . . . . . . . . . . . $ 172 $ 281 $ 584 $ 361
==== ==== ==== ====
- 7 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
Note G. Income Taxes (Continued).
Reconciliation of provision for taxes on income with tax at federal
statutory rate:
Three Months Ended September 30,
--------------------------------
1995 1994
---- ----
Percent Percent
of of
Pretax Pretax
Amount Income Amount Income
------ ------- ------ -------
(Millions)
Income before income taxes and
minority interest . . . . . . . . . . $ 511 100.0 $ 736 100.0
===== ===== ==== =====
Tax at federal statutory rate . . . . . $ 179 35.0 $ 258 35.0
Increase (reduction) in taxes
resulting from:
Dividend exclusion. . . . . . . . . (14) (2.7) (12) (1.6)
Taxes on foreign income in excess
of statutory rate . . . . . . . . 23 4.5 32 4.3
Foreign deferred tax asset
recognition . . . . . . . . . . . - - (3) (0.4)
State income taxes (net of
federal effect) . . . . . . . . . 13 2.5 21 2.9
Tax credits . . . . . . . . . . . . (19) (3.7) (16) (2.2)
Other . . . . . . . . . . . . . . . (10) (1.9) 1 0.2
----- ----- ---- -----
Provision for taxes on income . . . . . $ 172 33.7 $ 281 38.2
===== ===== ==== =====
Nine Months Ended September 30,
-------------------------------
1995 1994
---- ----
Percent Percent
of of
Pretax Pretax
Amount Income Amount Income
------ ------ ------ ------
(Millions)
Income before income taxes and
minority interest . . . . . . . . . . $ 1,694 100.0 $1,011 100.0
====== ===== ===== =====
Tax at federal statutory rate . . . . . $ 593 35.0 $ 354 35.0
Increase (reduction) in taxes
resulting from:
Dividend exclusion. . . . . . . . . (51) (3.0) (17) (1.7)
Taxes on foreign income in excess
of statutory rate . . . . . . . . 62 3.7 78 7.7
Foreign deferred tax asset
recognition . . . . . . . . . . . - - (29) (2.9)
State income taxes (net of
federal effect) . . . . . . . . . 46 2.7 24 2.4
Tax credits . . . . . . . . . . . . (54) (3.2) (44) (4.3)
Other . . . . . . . . . . . . . . . (12) (0.7) (5) (0.5)
------ ----- ----- -----
Provision for taxes on income . . . . . $ 584 34.5 $ 361 35.7
====== ===== ===== =====
- 8 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE H. Earned Per Share.
Earned per share is based on the average number of common shares
outstanding during each period, including common stock equivalents that
consist of certain outstanding options and all outstanding convertible
securities.
The information necessary for the calculation of earned per share is as
follows:
Three Months Ended
September 30,
------------------
1995 1994
---- ----
(Millions of Shares)
Average number of common shares outstanding. . . 160.8 160.6
Common stock equivalents . . . . . . . . . . . . 2.6 2.7
----- -----
Total. . . . . . . . . . . . . . . . . . . . . 163.4 163.3
===== =====
Nine Months Ended
September 30,
-----------------
1995 1994
---- ----
(Millions of Shares)
Average number of common shares outstanding. . . . 160.8 160.4
Common stock equivalents . . . . . . . . . . . . . 2.6 2.7
----- -----
Total. . . . . . . . . . . . . . . . . . . . . . 163.4 163.1
===== =====
NOTE I. Supplemental Income Statement Information.
Taxes other than excise and income taxes comprised the following:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
(Millions)
Production/severance . . . . . . . . $ 74 $ 79 $245 $221
Property . . . . . . . . . . . . . . 45 46 138 142
Other. . . . . . . . . . . . . . . . 49 50 174 180
--- --- --- ---
Total. . . . . . . . . . . . . . . $168 $175 $557 $543
=== === === ===
- 9 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE J. Supplemental Cash Flow Information.
Following is supplemental cash flow information for the nine months
ended September 30, 1995 and 1994:
Nine Months Ended
September 30,
-----------------
1995 1994
---- ----
(Millions)
Gross sales and maturities of short-term investments . $ 3,388 $ 4,827
Gross purchases of short-term investments. . . . . . . (2,275) (5,561)
------ ------
Net cash provided (used) by short-term investments . . $ 1,113 $ (734)
====== ======
Gross proceeds from issuance of notes payable. . . . . $ 6,267 $ 7,139
Gross repayments of notes payable. . . . . . . . . . . (6,639) (7,282)
------ ------
Net cash used by notes payable . . . . . . . . . . . . $ (372) $ (143)
====== ======
Gross noncash provisions charged to income . . . . . . $ 332 $ 687
Cash payments of previously accrued items. . . . . . . (503) (427)
------ ------
Noncash provisions greater (less) than cash payments . $ (171) $ 260
====== ======
Interest paid during the nine-month periods ended September 30, 1995 and
1994 was $642 million and $617 million, respectively.
Income taxes paid during the nine-month periods ended September 30, 1995
and 1994 were $614 million and $227 million, respectively.
- 10 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE K. Summarized Financial Information.
Summarized financial information for Lyondell Petrochemical Company
("Lyondell"), a company of which Atlantic Richfield Company ("ARCO") owned
a 49.9 percent interest at September 30, 1995, was as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
(Millions)
Revenues (including sales to ARCO
and ARCO Chemical Company). . . . . $1,249 $1,037 $3,793 $2,761
Sales to ARCO and ARCO Chemical
Company . . . . . . . . . . . . . . 81 89 270 240
Operating income. . . . . . . . . . . 183 124 642 249
Income before income taxes. . . . . . 159 105 576 190
Net income. . . . . . . . . . . . . . 100 66 362 120
______________________________
ARCO's equity in net income of
Lyondell. . . . . . . . . . . . . . 49 33 180 60
Cash dividends received from Lyondell 9 9 27 27
________________________
September 30, December 31,
1995 1994
---- ----
(Millions)
Current assets. . . . . . . . . . . . . . . . . $ 784 $ 697
Noncurrent assets . . . . . . . . . . . . . . . 1,717 966
Current liabilities . . . . . . . . . . . . . . 757 433
Long-term debt. . . . . . . . . . . . . . . . . 732 707
Other liabilities . . . . . . . . . . . . . . . 215 192
Minority interest . . . . . . . . . . . . . . . 427 268
Stockholders' equity. . . . . . . . . . . . . . 370 63
- 11 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE L. Other Commitments and Contingencies.
ARCO has commitments, including those related to the acquisition,
construction and development of facilities, all made in the normal course
of business.
At September 30, 1995 and December 31, 1994, there were contingent
liabilities primarily with respect to guarantees of securities of other
issuers of approximately $50 million and $75 million, respectively.
Following the March 1989 EXXON VALDEZ oil spill, Alyeska Pipeline
Service Company ("Alyeska") and Alyeska's owner companies were the subject
of numerous lawsuits by the State of Alaska, the United States and private
plaintiffs. ARCO Transportation Alaska, Inc. ("ATA") owns approximately 21
percent of Alyeska. Alyeska and its owner companies have settled the
federal and state claims and the lawsuits by private plaintiffs. Certain
issues relating to the liability for the spill remain unresolved between
the Exxon companies and Alyeska and its owner companies.
ARCO and former producers of lead pigments have been named as defendants
in cases filed by a municipal housing authority, two purported classes and
several individuals seeking damages and injunctive relief as a consequence
of the presence of lead-based paint in certain housing units. ARCO is also
the subject or party to a number of other pending or threatened legal
actions.
In October 1995, the State of Montana presented to ARCO a second revised
demand for damages of $713.3 million based on alleged injuries to natural
resources resulting from ARCO's mining and mineral processing businesses
formerly operated by Anaconda, ARCO's predecessor, in Montana. ARCO is
contesting the amount of this demand.
ARCO is subject to other loss contingencies pursuant to federal, state
and local environmental laws and regulations. These include possible
obligations to remove or mitigate the effects on the environment of the
disposal or release of certain chemical, mineral and petroleum substances
at various sites, including the restoration of natural resources located at
these sites and damages for loss of use and non-use values. ARCO is
currently participating in environmental assessments and cleanups under
these laws at federal Superfund and state-managed sites, as well as other
clean-up sites. ARCO may in the future be involved in additional
environmental assessments and cleanups, including the restoration of
natural resources and damages for loss of use and non-use values. The
amount of such future costs will depend on such factors as the unknown
nature and extent of contamination at many sites, the unknown timing,
extent and method of the remedial actions which may be required and the
determination of ARCO's liability in proportion to other responsible
parties. In addition, environmental loss contingencies include claims for
personal injuries allegedly caused by exposure to toxic materials
manufactured or used by ARCO.
ARCO continues to estimate the amount of these costs in periodically
establishing reserves based on progress made in determining the magnitude
of remediation costs, experience gained from sites on which remediation has
been completed, the timing and extent of remedial actions required by the
applicable governmental authorities and an evaluation of the amount of
ARCO's liability considered in light of the liability and financial where-
withal of the other responsible parties. At September 30, 1995, the
environmental remediation accrual was $676 million. As the scope of ARCO's
obligations becomes more clearly defined, there may be changes in these
estimated costs, which might result in future charges against ARCO's
earnings.
- 12 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE L. Other Commitments and Contingencies (Continued).
ARCO's environmental remediation accrual covers federal Superfund and
state-managed sites as well as other clean-up sites, including service
stations, refineries, terminals, chemical facilities, third-party
landfills, former nuclear processing facilities, sites associated with
discontinued operations and sites formerly owned by ARCO. ARCO has been
named a potentially responsible party (PRP) for 126 sites. The number of
PRP sites in and of itself does not represent a relevant measure of
liability, because the nature and extent of environmental concerns varies
from site to site and ARCO's share of responsibility varies from sole
responsibility to very little responsibility. ARCO reviews all of the PRP
sites, along with other sites as to which no claims have been asserted, in
estimating the amount of the accrual. ARCO's future costs at these sites
could exceed the amount accrued by as much as $1 billion.
Approximately half of the accrual related to sites associated with
ARCO's discontinued operations, primarily mining activities in the states
of Montana, Utah and New Mexico. Another significant component related to
currently and formerly owned chemical, nuclear processing, and refining and
marketing facilities, and other sites which received wastes from these
facilities. The remainder related to other sites with reserves ranging
from $1 million to $10 million per site. No one site represents more than
15 percent of the total accrual. Substantially all amounts accrued are
expected to be paid out over the next five to six years.
Claims for recovery of remediation costs already incurred and to be
incurred in the future have been filed against various insurance companies
and other third parties. All of these claims have not been resolved. Due
to the uncertainty as to ultimate recovery from these parties, ARCO has
neither recorded any asset nor reduced any liability in anticipation of
such recovery.
Although any ultimate liability arising from any of the matters
described herein could result in significant expenses or judgments that, if
aggregated and assumed to occur within a single fiscal period, would be
material to ARCO's results of operations, the likelihood of such occurrence
is considered remote. On the basis of management's best assessment of the
ultimate amount and timing of these events, such expenses or judgments are
not expected to have a material adverse effect on ARCO's consolidated
financial statements.
The operations and consolidated financial position of ARCO continue to
be affected from time to time in varying degrees by domestic and foreign
political developments as well as legislation, regulations and litigation
pertaining to restrictions on production, imports and exports, tax
increases, environmental regulations, cancellation of contract rights and
expropriation of property. Both the likelihood of such occurrences and
their overall effect on ARCO vary greatly and are not predictable.
These uncertainties are part of a number of items that ARCO has taken
and will continue to take into account in periodically establishing
reserves.
- 13 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Third Quarter 1995 v. Third Quarter 1994
Consolidated Earnings
The Company had net income of $315 million, or $1.93 per share in the
third quarter of 1995, compared to net income of $435 million, or $2.67
per share in the 1994 third quarter.
The 1994 third quarter included a net benefit of approximately $200
million after tax which reflected a gain of $459 million before tax ($273
million after tax) from the initial public offering of Vastar Resources,
Inc. ("Vastar"), partially offset by charges for personnel reductions and
other items. Charges for personnel reductions of $68 million before tax
were reported as unusual items.
In the 1995 third quarter, income benefits associated with insurance
litigation settlements were offset by charges for tax issues and future
environmental remediation.
The third quarter results reflected strong margins in ARCO's chemical
interests, higher refined products volumes and the ongoing benefits of
companywide cost reductions, partially offset by lower domestic natural gas
prices and refining and marketing margins as compared to the third quarter
of 1994.
Revenues
Millions 1995 1994
---- ----
Sales and other operating revenues
Resources:
Oil and gas. . . . . . . . . . . . . . . $1,972 $2,049
Coal . . . . . . . . . . . . . . . . . . 185 170
Products:
Refining and marketing . . . . . . . . . 1,835 1,728
Transportation . . . . . . . . . . . . . 207 225
Intermediate chemicals and specialty
products . . . . . . . . . . . . . . . 999 895
Other. . . . . . . . . . . . . . . . . . . 7 17
Elimination of intersegment amounts . . . (928) (813)
----- -----
Total . . . . . . . . . . . . . . . . . . $4,277 $4,271
===== =====
In 1995, higher sales and other operating revenues resulting from higher
chemical products prices and refined products volumes were offset by
decreased crude oil trading activity and lower domestic natural gas prices.
The increase in 1995 income from equity investments primarily reflected
ARCO's higher earnings from its 49.9 percent equity interest in Lyondell
Petrochemical Company ("Lyondell").
The increase in 1995 other revenues primarily resulted from insurance
litigation settlements.
- 14 -
Expenses
Total expenses were $4,003 million in the third quarter of 1995,
compared to $4,139 million in the same period in 1994. Included in the
1994 total expenses were unusual items of $68 million primarily related to
personnel reductions. In the 1995 third quarter the ongoing benefits of
companywide cost reductions were offset by costs associated with sales of
new chemical products and new international oil and gas production, and
increased international dry hole costs.
Upstream Earnings
1995 1994
Millions (after tax) ---- ----
Oil and Gas . . . . . . . . . . . . . . . . $116 $125
Coal. . . . . . . . . . . . . . . . . . . . $ 10 $ 22
ARCO's earnings from worldwide oil and gas exploration and production
operations in 1995 primarily reflected lower domestic natural gas prices,
offset by lower exploration expense. Included in the 1995 third quarter
results was an unfavorable $9 million adjustment for tax-related issues.
Increases in Lower 48 crude oil prices were offset by declines in Alaskan
and International crude oil prices.
Average Oil and Gas Prices
1995 1994
---- ----
U.S.
Crude oil - per bbl
Alaska. . . . . . . . . . . . . . . . $10.70 $10.74
Lower 48, including Vastar. . . . . . $16.18 $15.74
Composite average price . . . . . . . $12.23 $12.04
Natural gas - per mcf . . . . . . . . . $ 1.25 $ 1.64
International
Crude oil - per bbl . . . . . . . . . . $15.43 $16.12
Natural gas - per mcf . . . . . . . . . $ 2.52 $ 2.54
Petroleum Liquids and Natural Gas Production
1995 1994
---- ----
Net Production per day
U.S.
Petroleum liquids - bbl. . . . . . . . . 564,200 570,300
Natural gas - mmcf . . . . . . . . . . . 949 945
Barrels of oil equivalent (BOE). . . . . 722,400 727,800
International
Petroleum liquids - bbl. . . . . . . . . 71,600 70,200
Natural gas - mmcf . . . . . . . . . . . 460 419
BOE . . . . . . . . . . . . . . . . . . 148,200 140,000
The decreased petroleum liquids volumes in the U.S. resulted from
natural field declines at the Prudhoe Bay and Kuparuk River fields in
Alaska, partially offset by production increases at the Point McIntyre
field in Alaska and in the Lower 48, including Vastar. The increase in
international petroleum liquids volumes reflected production from the
Blenheim field in the North Sea which started up in March 1995, partially
offset by decreased Indonesian production sharing contract volumes.
- 15 -
Decreases in Vastar's natural gas production in the 1995 third quarter
were more than offset by increased natural gas production from ARCO's other
Lower 48 properties. ARCO holds an 82.3 percent interest in Vastar.
The higher international natural gas volumes in 1995 reflected increased
production in Indonesia, partially offset by declines in UK North Sea
contract deliveries.
Worldwide exploration expenses totaled $138 million before tax, down
from $167 million in the 1994 third quarter. Lower exploration expenses in
Alaska were partially offset by increased overseas exploration.
Coal Operations
After-tax earnings for ARCO's worldwide coal operations in the 1995
third quarter were $10 million, reflecting the negative impact of $10
million in after-tax charges primarily related to the impact of an
Australian tax rate increase on deferred taxes.
Downstream Earnings
1995 1994
Millions (after tax) ---- ----
Refining and marketing . . . . . . . . . . . . $ 75 $ 26
Transportation . . . . . . . . . . . . . . . . $ 50 $ 36
Intermediate chemicals and
specialty products . . . . . . . . . . . . . $107 $ 77
The refining and marketing results in the 1994 third quarter included
after-tax charges totaling $45 million, primarily related to personnel
reductions. In the 1995 third quarter, increased sales volumes were offset
by reduced product margins, compared to the 1994 third quarter.
The 1994 transportation results included a charge of $9 million after
tax related to the sale of products pipelines.
For the intermediate chemicals and specialty products segment,
reflecting ARCO's 83.0 percent interest in ARCO Chemical Company, the
increased 1995 third quarter earnings primarily reflected improved margins
for styrene monomer, propylene oxide (PO) and various derivatives,
partially offset by lower volumes for PO and derivatives and lower methyl
tertiary butyl ether margins.
Equity Affiliate
ARCO earned $49 million from its 49.9 percent equity interest in
Lyondell in the third quarter of 1995. This compared to $33 million in the
third quarter of 1994. The improvement resulted primarily from higher
olefins margins and the addition of newly acquired polymers production,
both of which more than offset reduced olefins volumes.
Tax Provision
The effective tax rate was 33.7 percent in the 1995 third quarter,
compared to 38.2 percent in the third quarter of 1994. The lower 1995
effective tax rate primarily resulted from an increase in foreign tax
credits. In addition, the higher effective tax rate in the 1994 period
reflected permanent tax differences associated with the Vastar initial
public offering.
- 16 -
Nine Month Period Ended September 30, 1995 v. Same Nine Month Period 1994
Net income for the first nine months of 1995 was $1,028 million, or
$6.29 per share, compared to $608 million, or $3.73 per share for the first
nine months of 1994.
Consolidated Earnings
The earnings increase in the first nine months of 1995 primarily
reflected improved margins in ARCO's chemical interests, higher crude oil
prices, increased coal and refined products volumes and the benefits of
companywide cost reductions, partially offset by lower domestic natural
gas prices and lower refining and marketing margins.
Included in the 1994 results was a net benefit of $35 million after tax
which represented the gain from the Vastar initial public offering
partially offset by charges for personnel reductions and other items which
totaled $238 million.
The 1995 results included a net after-tax benefit of $10 million
associated with insurance litigation settlements after partial offsets for
environmental and other charges.
Revenues
The increased sales and other operating revenues for the first nine
months of 1995 resulted primarily from higher chemical products, crude oil
and refined products prices and higher chemical, coal and refined products
volumes, partially offset by decreased crude oil trading activity and lower
domestic natural gas prices.
The increase in income from equity investments for the first nine months
of 1995 primarily reflected ARCO's higher earnings from its 49.9 percent
equity interest in Lyondell.
Expenses
Total expenses were $11,962 million for the first nine months of 1995,
compared to $12,126 million in the same period in 1994. The first nine
months of 1994 included unusual items of $317 million before tax, $195
million after tax, related to restructuring and personnel reductions.
During the first nine months of 1995 the ongoing benefits of companywide
cost reductions were offset by higher chemical feedstock costs, costs
associated with sales of new chemical products and new international oil
and gas production, and increased international dry hole costs.
Average Oil & Gas Prices
1995 1994
---- ----
U.S.
Crude oil - per bbl
Alaska . . . . . . . . . . . . . . . . $11.13 $ 9.06
Lower 48, including Vastar . . . . . . $16.25 $13.02
Composite average price . . . . . . . $12.49 $10.10
Natural gas - per mcf . . . . . . . . . $ 1.29 $ 1.81
International
Crude oil - per bbl. . . . . . . . . . . $16.31 $15.00
Natural gas - per mcf . . . . . . . . . $ 2.56 $ 2.50
- 17 -
Financial Position and Liquidity
1995
Millions ----
Cash flow provided(used)by:
Operations. . . . . . . . . . . . . . . . . $ 1,869
Investing activities. . . . . . . . . . . . $ (376)
Financing activities. . . . . . . . . . . . $(2,041)
The net cash used by investing activities in the first nine months of
1995 primarily included expenditures for additions to fixed assets of
$1,233 million and an investment of $250 million in convertible bonds
issued by a Russian oil and gas company, LUKoil, partially offset by a
decrease in short-term investments of $1,113 million. The LUKoil bonds
will be converted into approximately 41 million voting shares in April
1996. The 41 million shares would represent a 6.3 percent interest in
LUKoil voting shares.
The net cash used in financing activities in the first nine months of
1995 primarily included repayments of long-term debt of $1,085 million, a
decrease of $372 million in the Company's short-term debt position and
dividend payments of $681 million, partially offset by proceeds of $150
million from the issuance of long-term debt.
Cash and cash equivalents and short-term investments totaled $2.8
billion, and short-term borrowings were $1.1 billion at the end of the
third quarter of 1995.
It is expected that future cash requirements for capital expenditures,
dividends and debt repayments will come from cash generated from operating
activities, existing cash balances, and future financings.
Statements of Financial Accounting Standards Not Yet Adopted
In March 1995, the Financial Accounting Standards Board issued 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 Company will have to implement SFAS No. 121 by the fiscal year
ended December 31, 1996. The provisions will require the Company to review
long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If it is determined that an impairment loss has occurred
based on expected future cash flows, then the loss based on the fair value
of the asset should be recognized in the income statement and certain
disclosures regarding the impairment should be made in the financial
statements. The Company believes that the provisions of SFAS No. 121 when
implemented will not have a material effect on its consolidated financial
statements.
____________________
Management cautions against projecting any future results based on
present earnings levels because of economic uncertainties, the extent and
form of existing or future governmental regulations and other possible
actions by governments.
- 18 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
1. Reference is made to the disclosure on page 16 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1994
(hereinafter the "1994 Form 10-K Report") and on page 19 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 (the
"Second Quarter 10-Q Report") regarding Atlantic Richfield Company v. Aetna
Casualty and Surety Company of America, et al. (Case No. BC 015575). ARCO
expects that a trial will be scheduled for the first half of 1996.
2. Reference is made to the disclosure on page 15 of the Company's 1994
Form 10-K Report regarding the Montana v. ARCO matter. In October 1995,
ARCO received from the State a second revised demand for damages of $713.3
million for alleged injuries to natural resources resulting from mining and
mineral processing operations.
3. On August 29, 1995, a purported class action was filed in the United
States District Court for the Eastern District of Louisiana, Jefferson v.
Lead Industries Association, Inc. (Case No. 95-2885), which seeks
compensatory and punitive damages on behalf of the named plaintiff and all
Louisiana parents of children who attained a blood lead level equal to or
greater than 25 micrograms per deciliter before the age of six. The named
defendants are ARCO (as successor to International Smelting and Refining
Company, a former subsidiary to The Anaconda Company), the Lead Industries
Association, NL Industries, Inc., Sherwin-Williams Co., SCM Corporation,
Glidden Co., and Fuller-O'Brien Corporation. The complaint, which states
as theories of recovery strict liability, negligence, failure to warn,
fraud, and breach of express and implied warranty, asserts that the
manufacturer of the lead pigment in any particular paint cannot be
determined by chemical analysis or any other means, and that plaintiff,
therefore, may rely upon market share and civil conspiracy to establish
defendants' liability.
4. On October 11, 1995, Vastar, on behalf of, and with ARCO's knowledge
and full cooperation, met with the United States Environmental Protection
Agency ("EPA") to apprise the EPA of certain results obtained from Vastar's
internal self-evaluation and audit program. The results conveyed to EPA
concern the Prevention of Significant Deterioration ("PSD") permit program
under the federal Clean Air Act at Vastar's Ignacio Blanco Fruitland
("IBF") coal degasification facilities. Through its self-evaluation and
audit program, Vastar recently determined that a PSD permit may have been
required for construction and operation of certain equipment at the IBF
operations due to unanticipated levels of carbon monoxide emissions.
Under federal law, EPA has the power to seek injunctive relief and civil
penalties for violations of the federal Clean Air Act. Liability for
failure to obtain a PSD permit under the Clean Air Act can be imposed
without regard to willfulness or negligence. Vastar intends to seek the
benefits of EPA's "Voluntary Environmental Self-Policing and Self-
Disclosure Interim Policy Statement" which may allow Vastar to avoid any
punitive penalties, although EPA may seek to recover what it considers to
be the economic benefit of noncompliance.
Vastar has advised ARCO that it believes that any ultimate liability
resulting from the above-described issue will not have a material adverse
effect on Vastar's financial position or results of operations or cash
flows.
5. There have been no other material developments with respect to the
Company's Legal proceedings as previously reported in the Company's Form 10-
K and the Company's First and Second Quarter Forms 10-Q for the quarterly
periods ended March 31, 1995 and June 30, 1995, respectively.
- 19 -
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No Current Report on Form 8-K was filed during the quarter ended
September 30, 1995 and through the date hereof.
- 20 -
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.
ATLANTIC RICHFIELD COMPANY
(Registrant)
/s/ ALLAN L. COMSTOCK
Dated: November 7, 1995 ___________________________
(signature)
Allan L. Comstock
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
- 20 -