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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
COMMISSION FILE NUMBER 1-1196
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ATLANTIC RICHFIELD COMPANY
(Exact name of registrant as specified in its charter)
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DELAWARE 23-0371610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 SOUTH HOPE STREET LOS ANGELES, CALIFORNIA 90071
(Address of principal executive offices) (Zip code)
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(213) 486-3511
(Registrant's telephone number, including area code)
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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, outstanding as of April 18, 2000: 324,711,290.
All of these shares are indirectly owned by BP Amoco p.l.c., and are no longer
listed on the New York Stock Exchange, or any other stock exchange. The only
equity securities currently listed on the New York and Pacific Stock Exchanges,
as of April 18, 2000, are 462,425 shares of $2.80 Preference Shares and 38,668
shares of $3.00 Preference Shares.
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PART I. FINANCIAL INFORMATION
ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2000 1999
--------------- ---------------
(MILLIONS EXCEPT PER SHARE AMOUNTS)
REVENUES
Sales and other operating revenues.......................................... $ 3,993 $ 2,415
Other revenues.............................................................. 201 136
--------------- ---------------
4,194 2,551
--------------- ---------------
EXPENSES
Trade purchases............................................................. 1,685 800
Operating expenses.......................................................... 600 566
Selling, general and administrative expenses................................ 136 152
Depreciation, depletion and amortization.................................... 484 483
Exploration expenses (including undeveloped leasehold amortization)......... 100 74
Taxes other than income taxes............................................... 177 120
Interest.................................................................... 110 95
--------------- ---------------
3,292 2,290
--------------- ---------------
Income before income taxes and minority interest............................... 902 261
Provision for taxes on income.................................................. 271 93
Minority interest in earnings of subsidiaries.................................. 14 3
--------------- ---------------
NET INCOME....................................................................... $ 617 $ 165
=============== ===============
EARNED PER SHARE
BASIC....................................................................... $ 1.91 $ 0.51
=============== ===============
DILUTED..................................................................... $ 1.87 $ 0.51
=============== ===============
CASH DIVIDENDS PAID PER SHARE OF COMMON STOCK.................................... $ .7125 $ .7125
=============== ===============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
1
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED BALANCE SHEET
MARCH 31, DECEMBER 31,
2000 1999
----------- -------------
(MILLIONS)
ASSETS
Current assets:
Cash and cash equivalents........................ $ 1,007 $ 879
Short-term investments........................... 253 264
Accounts receivable.............................. 1,406 1,301
Inventories...................................... 385 430
Prepaid expenses and other current assets........ 199 184
----------- -------------
Total current assets............................. 3,250 3,058
----------- -------------
Investments and long-term receivables:
Investments accounted for on the equity method... 1,579 1,508
Other investments and long-term receivables...... 1,883 1,660
----------- -------------
3,462 3,168
----------- -------------
Net property, plant and equipment................... 18,173 18,466
Net assets of discontinued operations............... 68 67
Deferred charges and other assets................... 1,578 1,513
----------- -------------
Total assets........................................ $ 26,531 $ 26,272
=========== =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
2
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED BALANCE SHEET
MARCH 31, DECEMBER 31,
2000 1999
-------- ----------
(MILLIONS)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable...................................... $ 1,488 $ 1,672
Accounts payable................................... 883 830
Taxes payable...................................... 578 420
Long-term debt due within one year................. 11 11
Other.............................................. 903 1,090
-------- ----------
Total current liabilities.......................... 3,863 4,023
-------- ----------
Long-term debt....................................... 5,599 5,698
Deferred income taxes................................ 3,643 3,644
Dismantlement, restoration and reclamation........... 1,174 1,154
Other deferred liabilities and credits............... 2,711 2,770
Minority interest.................................... 309 297
-------- ----------
Total liabilities.................................. 17,299 17,586
-------- ----------
Stockholders' equity
Preference stocks.................................. 1 1
Common stock....................................... 818 817
Capital in excess of par value of stock............ 918 889
Retained earnings.................................. 7,476 7,091
Treasury stock..................................... (272) (279)
Accumulated other comprehensive income............. 291 167
-------- ----------
Total stockholders' equity......................... 9,232 8,686
-------- ----------
Total liabilities and stockholders' equity........... $26,531 $ 26,272
======== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
--------- ---------
(MILLIONS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 617 $ 165
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization.................. 484 483
Dry hole expense and undeveloped leasehold amortization... 53 21
Net gain on asset sales................................... (71) (14)
Income from equity investments............................ (26) (7)
Dividends from equity investments......................... 24 20
Minority interest in earnings of subsidiaries............. 14 3
Cash payments greater than noncash provisions............. (86) (125)
Deferred income taxes..................................... (47) (5)
Changes in working capital accounts....................... (72) (296)
Other..................................................... (34) (43)
-------- --------
Net cash provided by operating activities............ 856 202
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (including dry hole costs)...... (619) (760)
Net cash provided by short-term investments............... 7 5
Proceeds from asset sales................................. 446 577
Investments and long-term receivables..................... (75) (2)
Other..................................................... (38) 27
-------- --------
Net cash used by investing activities................ (279) (153
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt.............................. (35) (549)
Proceeds from issuance of long-term debt.................. -- 634
Net cash provided (used) by notes payable................. (186) 202
Dividends paid............................................ (232) (229)
Other..................................................... 16 13
-------- ---------
Net cash provided (used) by financing activities..... (437) 71
-------- --------
Cash flows from discontinued operations................... (8) 21
Effect of exchange rate changes on cash................... (4) (8)
-------- --------
Net increase in cash and cash equivalents................. 128 133
Cash and cash equivalents at beginning of period.......... 879 657
-------- --------
Cash and cash equivalents at end of period................ $ 1,007 $ 790
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
NOTE A. ACCOUNTING POLICIES.
Basis of Presentation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Certain previously reported amounts
have been restated to conform to classifications adopted in 2000. Unless
otherwise stated, the Notes to Consolidated Financial Statements exclude
discontinued operations. In the opinion of the Company, the consolidated
financial statements reflect all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the annual report on Form 10-K for the year ended
December 31, 1999.
NOTE B. COMPREHENSIVE INCOME.
Comprehensive income comprises net income plus all other changes in equity
from nonowner sources. ARCO's comprehensive income for the three-month periods
ended March 31, 2000 and 1999 was as follows:
THREE MONTHS
ENDED
MARCH 31,
--------------
(MILLIONS) 2000 1999
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Net income................................................... $ 617 $ 165
Other comprehensive income:
Net unrealized gain on investments (a).................. 129 111
Foreign currency translation adjustment...................... (5) 193
---- ----
Comprehensive income......................................... $ 741 $ 469
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- --------------
(a) Primarily consists of changes in the fair value of ARCO's investment in
LUKOIL, which had a fair value of approximately $928 million at March 31, 2000,
compared to a fair value of approximately $714 million at December 31, 1999. The
unrealized pretax gain in the LUKOIL investment at March 31, 2000, was $586
million.
Accumulated nonowner changes in equity (accumulated other comprehensive
income) at March 31, 2000 and December 31, 1999 were as follows:
MARCH 31 DECEMBER 31
(MILLIONS) 2000 1999
-------- -----------
Net unrealized gain on investments....................... $ 357 $ 228
Foreign currency translation adjustment.................. (35) (30)
Minimum pension liability................................ (31) (31)
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Accumulated other comprehensive income................... $ 291 $ 167
======== ===========
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED--(CONTINUED)
NOTE C. INTERIM SEGMENT INFORMATION.
(MILLIONS)
---------
EXPLORATION REFINING
& & ALL
MARCH 31, 2000 PRODUCTION MARKETING OTHER UNALLOCATED TOTAL
- -------------- --------- -------- ---- --------- -------
Sales and other
operating revenues........ $ 2,391 $ 2,249 $ 8 $ 2 $ 4,650
Intersegment revenues....... (655) -- (1) (1) (657)
--------- ------- ---- --------- -------
Total....................... $ 1,736 $ 2,249 $ 7 $ 1 $ 3,993
========= ======== ==== ========= =======
Net income.................. $ 601 $ 70 $ 14 $ (68) $ 617
========= ======== ==== ========= =======
Segment assets.............. $ 18,941 $ 4,680 $935 $ 1,975 $26,531
========= ======== ==== ========= =======
DECEMBER 31, 1999
- -----------------
Segment assets.............. $ 18,752 $ 4,695 $916 $ 1,909 $26,272
========= ======== ==== ========= =======
MARCH 31, 1999
- --------------
Sales and other
operating revenues........ $ 1,304 $ 1,306 $ 17 $ 1 $ 2,628
Intersegment revenues....... (211) -- (1) (1) (213)
--------- -------- ---- --------- -------
Total....................... $ 1,093 $ 1,306 $ 16 $ -- $ 2,415
========= ======== ==== ========= =======
Net income.................. $ 89 $ 129 $ 24 $ (77) 165
========= ======== ==== ========= =======
For first quarter ended March 31, 2000 discontinued operations consisted of
one remaining unsold coal mine in Australia. For the first quarter ended March
31, 1999 discontinued operations consisted of the Company's Australian coal
operations and the operations of Union Texas Petrochemicals. At December 31,
1999 and March 31, 2000, the net assets of discontinued operations are included
with unallocated items in the segment presentation above.
The amortization associated with a gain deferred in conjunction with the
sale of the chemicals operations had a favorable impact of approximately $12
million and $10 million after tax on Refining and Marketing earnings in the
first quarter 2000 and 1999, respectively.
NOTE D. INVESTMENTS.
At March 31, 2000 and 1999, investments in debt securities were primarily
composed of U.S. Treasury securities and corporate debt instruments. Maturities
generally ranged from three days to 10 years. These investments were classified
as short or long term depending on maturity. ARCO's investments in LUKOIL common
stock and Zhenhai Refining and Chemical Company convertible bonds were included
in other investments and long-term receivables. At March 31, 2000 and 1999, all
investments were classified as available-for-sale and were reported at fair
value, with unrealized holding gains and losses, net of tax, reported in
accumulated other comprehensive income.
The following summarizes investments in securities at March 31:
(MILLIONS) 2000 1999
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Aggregate fair value.................... $ 1,808 $ 869
Gross unrealized holding losses......... 11 14
Gross unrealized holding gains.......... (592) (73)
------- ------
Amortized cost.......................... $ 1,227 $ 810
======= ======
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED--(CONTINUED)
NOTE D. INVESTMENTS (CONTINUED)
Investment activity for the three months ended March 31 was as follows:
(MILLIONS) 2000 1999
------ ------
Gross purchases..........................................$4,736 $2,285
Gross sales.............................................. 13 445
Gross maturities......................................... 4,628 2,078
Gross realized gains and losses were insignificant and were determined by the
specific identification method.
NOTE E. INVENTORIES.
Inventories at March 31, 2000 and December 31, 1999 comprised the
following:
MARCH 31, DECEMBER 31,
(MILLIONS) 2000 1999
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Crude oil and petroleum products........................ $ 159 $ 199
Other products.......................................... 25 26
Materials and supplies.................................. 201 205
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Total................................................. $ 385 $ 430
========== ============
NOTE F. CAPITAL STOCK.
Detail of the Company's capital stock was as follows:
MARCH 31, DECEMBER 31,
2000 1999
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(THOUSANDS)
$3.00 Cumulative convertible reference stock,
par $1................................................. $ 39 $ 41
$2.80 Cumulative convertible preference stock,
par $1................................................. 470 493
Common stock, par $2.50................................ 818,070 816,673
--------- ------------
Total................................................ $ 818,579 $ 817,207
========= ============
NOTE G. CAPITALIZATION OF INTEREST.
Interest expense excludes capitalized interest of $36 million and $39
million for the three-month periods ended March 31, 2000 and 1999, respectively.
NOTE H. RESTRUCTURING PROGRAMS.
Through December 31, 1999, the company had established reserves totalling
$251 million for the costs of terminating 1,250 employees. $103 million related
to short-term benefits such as severance payments and ancillary benefits such as
relocation and outplacement; $148 million related to pension and other
postretirement benefits.
Through March 31, 2000, approximately 1,200 employees have been terminated
and approximately $88 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.
UNION TEXAS PETROLEUM HOLDINGS, INC. (UTP) RESTRUCTURE.
Through December 31, 1999, the company established a $90 million provision
for the termination of 357 employees resulting from the integration of UTP into
ARCO's operations. As of March 31, 2000, ARCO had terminated 355 of the
employees and had paid out a total of $83 million in severance benefits.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED--(CONTINUED)
NOTE I. INCOME TAXES.
THREE MONTHS ENDED
Provision for taxes on income: MARCH 31,
--------------
2000 1999
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(MILLIONS)
Federal:
Current.................................................... $ 144 $ 41
Deferred................................................... 14 11
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158 52
------- ------
Foreign:
Current.................................................... 135 45
Deferred................................................... (61) (17)
------- ------
74 28
------- ------
State:
Current.................................................... 39 12
Deferred................................................... -- 1
------- ------
39 13
------- ------
Total..................................................... $ 271 $ 93
======= ======
Reconciliation of provision for taxes on income with tax at federal
statutory rate:
THREE MONTHS ENDED
MARCH 31,
------------------------------------
2000 1999
------------------ -----------------
PERCENT PERCENT
OF OF
PRETAX PRETAX
(MILLIONS) AMOUNT INCOME AMOUNT INCOME
--------- ------- ------- --------
Income before income taxes and
minority interest...................... $ 902 100.0 $ 261 100.0
======== ======= ======= ========
Tax at federal statutory rate.......... $ 316 35.0 $ 91 35.0
Increase (reduction) in taxes
resulting from:
Taxes on foreign income (less)
greater
than statutory rate............... (40) (4.4) 21 8.0
State income taxes (net of federal
effect)............................. 25 2.8 8 3.1
Tax credits.......................... (29) (3.2) (24) (9.2)
Other................................ (1) (0.2) (3) (1.3)
------------------ -------- --------
Provision for taxes on income.......... $ 271 30.0 $ 93 35.6
======== ======= ======= ========
NOTE J. DISCONTINUED OPERATIONS.
In 1999, ARCO disposed of its interests in two Australian coal mines and
its stake in the Clermont coal deposit in Australia. At March 31, 2000, the
carrying value of the remaining Australian assets, consisting of one coal mine,
was $68 million and was included in net assets of discontinued operations on the
balance sheet. Beginning in January 1999, ARCO suspended depreciation on the
Australian coal assets (1998 annual depreciation was $23 million).
As part of the acquisition of UTP, ARCO determined it would sell UTP's
petrochemical business. In March 1999, Arco sold Union Texas Petrochemicals to
Williams Energy Services.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED--(CONTINUED)
NOTE J. DISCONTINUED OPERATIONS (CONTINUED).
Revenues and income from discontinued operations for the three months ended
March 31, 2000 and 1999 were:
THREE MONTHS ENDED
MARCH 31
------------------
2000 1999
-------- --------
(MILLIONS)
Revenues:
Coal operations.................. $ 26 $ 26
UTP petrochemical................ -- 24
-------- -------
Total........................... $ 26 $ 50
======== =======
Net income:
Coal operations.................. $ -- $ --
UTP petrochemical................ -- --
-------- -------
Total........................... $ -- $ --
======== =======
NOTE K. EARNED PER SHARE.
The information necessary for the calculation of earned per share is as
follows:
THREE MONTHS ENDED
MARCH 31, 2000
--------------------------
INCOME SHARES PER SHARE
-------- -------- ---------
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
Net income........................................ $ 617.0
Less: Preference stock dividends................. (.4)
-------
Net income available to common stockholders--basic
EPS............................................... 616.6 323.4 $ 1.91
=======
Effect of dilutive securities:
Contingently issuable shares (primarily options).. 2.9
Convertible preference stock...................... .4 2.8
------- -------
Net income available to common stockholders and
assumed conversions--diluted EPS................ $ 617.0 329.1 $ 1.87
======= ======= =======
THREE MONTHS ENDED
MARCH 31, 1999
--------------------------
INCOME SHARES PER SHARE
------- ------- ---------
Net income........................................ $ 165.4
Less: Preference stock dividends................. (.5)
-------
Net income available to common stockholders--basic
EPS............................................... 164.9 321.6 $ 0.51
=========
Effect of dilutive securities:
Contingently issuable shares (primarily options).. 2.2
Convertible preference stock...................... .5 3.4
-------- -------
Net income available to common stockholders and
assumed conversions--diluted EPS................ $ 165.4 $ 327.2 $ 0.51
======= ======= =========
9
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - UNAUDITED--(CONTINUED)
NOTE L. SUPPLEMENTAL INCOME STATEMENT INFORMATION.
Taxes other than income taxes comprised the following:
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
--------- ---------
(MILLIONS)
Production/severance......................................................................... $ 96 $ 40
Property..................................................................................... 36 35
Other ....................................................................................... 45 45
---------- ---------
Total........................................................................................ $ 177 $ 120
========== =========
NOTE M. SUPPLEMENTAL CASH FLOW INFORMATION.
Following is supplemental cash flow information for the three months
ended March 31, 2000 and 1999:
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
--------- --------
(MILLIONS)
Gross sales and maturities of short-term investments...................................... $ 13 $ 15
Gross purchases of short-term investments................................................. (6) (10)
--------- --------
Net cash provided by short-term investments............................................... $ 7 $ 5
========= ========
Gross proceeds from issuance of notes payable............................................. $ 3,697 $ 3,737
Gross repayments of notes payable......................................................... (3,883) (3,535)
--------- --------
Net cash provided (used) by notes payable................................................. $ (186) $ 202
========= ========
Gross noncash provisions charged to income................................................ $ 38 $ 37
Cash payments of previously accrued items................................................. (124) (162)
--------- --------
Cash payments greater than noncash provisions............................................. $ (86) $ (125)
========= ========
Interest paid............................................................................. $ 84 $ 101
========= ========
Income taxes paid......................................................................... $ 90 $ 98
========= ========
Changes in working capital accounts for the three-month periods ended
March 31, 2000 and 1999 were as follows:
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
--------- ---------
(MILLIONS)
Increase (decrease) to cash
Accounts receivable.................................................................... $ (126) $ (16)
Inventories............................................................................ 35 (16)
Accounts payable....................................................................... 56 (146)
Other working capital.................................................................. (37) (118)
--------- ---------
Total................................................................................ $ (72) $ (296)
========= =========
NOTE N. 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.
ARCO has also guaranteed all of LUKARCO's obligations associated with the
Caspian pipeline project, which amount to 25% of all funding requirements for
this project. The current estimates of total project funding requirements are
between $2.2 to $2.4 billion.
Following the March 1989 EXXON VALDEZ oil spill, numerous federal, state
and private plaintiff lawsuits were brought against Exxon, Alyeska Pipeline
Service Company (Alyeska), and Alyeska's owner companies including ARCO, which
owns approximately 22%. While all of the federal, state and private plaintiff
lawsuits have
10
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - UNAUDITED--(CONTINUED)
NOTE N. OTHER COMMITMENTS AND CONTINGENCIES (CONTINUED)
been settled, certain issues relating to the liability for the spill remain
unresolved between Exxon and Alyeska (including its owner companies).
Lawsuits, including purported class actions and actions by governmental
entities, are pending or threatened against ARCO and others seeking damages,
abatement of the housing units, and compensation for medical problems arising
out of the presence of lead-based paint in certain housing units. ARCO is unable
to predict the scope or amount of any such liability.
The State of Montana, along with the United States and the Salish and
Kootenai Tribes, have been seeking recovery from ARCO of alleged injuries to
natural resources resulting from mining and mineral processing businesses
formerly operated by Anaconda. In April 1998, ARCO entered two consent decrees,
settling all of the natural resources damage claims of the United States and the
tribes and the bulk of such claims of the State of Montana. Remaining for
disposition are the State's claims for $206 million of restoration damages at
three sites.
ARCO is subject to liability pursuant to various federal, state and local
environmental laws and regulations that require ARCO to do some or all of the
following:
o Remove or mitigate the effects on the environment at various sites
from the disposal or release of certain substances;
o Perform restoration work at such sites; and
o Pay damages for loss of use and non-use values.
The federal agencies involved with the sites included the Department of the
Interior, Department of Justice and Environmental Protection Agency.
Environmental liabilities include personal injury claims allegedly caused by
exposure to toxic materials manufactured or used by ARCO.
ARCO is currently involved in assessments and cleanups under these laws at
federal- and state-managed sites as well as other clean-up sites including
service stations, refineries, terminals, third-party landfills, former nuclear
processing facilities, sites associated with discontinued operations and sites
previously owned by ARCO or predecessors. This comprises 130 sites for which
ARCO has been named a potentially responsible party (PRP), along with other
sites for which no claims have been asserted. The number of PRP sites in and of
itself is not a relevant measure of liability because the nature and extent of
environmental concerns varies by site and ARCO's share of responsibility varies
from sole responsibility to very little responsibility.
ARCO may in the future be involved in additional assessments and cleanups.
Future costs depend on unknown factors such as:
o Nature and extent of contamination;
o Timing, extent and method of remedial action;
o ARCO's proportional share of costs; and
o Financial condition of other responsible parties.
The environmental remediation accrual is updated annually, at a minimum,
and at March 31, 2000, was $686 million. As these costs become more clearly
defined, they may require future charges against earnings. Applying Monte Carlo
analysis to estimated site maximums on a portfolio basis, ARCO estimates that
future costs could exceed the amount accrued by as much as $550 million.
Approximately 60% of the reserve related to sites associated with ARCO's
discontinued operations, primarily mining activities in the states of Montana,
Utah and New Mexico. Another significant component related to currently and
formerly owned chemical, nuclear processing, and refining and marketing
facilities, and other sites which received wastes from these facilities. One
site represented 11% of the total accrual. No other site represented more than
7% of the total accrual. The remainder related to other sites with reserves
ranging from $1 million to $10 million per site. Substantially all amounts
accrued are expected to be paid out over the next six years.
Claims for recovery of remediation costs already incurred and to be
incurred in the future have been filed against various third parties. Many of
these claims have been resolved. ARCO has neither recorded any asset nor reduced
any liability in connection with unresolved claims.
11
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - UNAUDITED--(CONTINUED)
NOTE N. OTHER COMMITMENTS AND CONTINGENCIES (CONTINUED)
Although any ultimate liability arising from any of the matters described
herein could result in significant expenses or judgments that, if aggregated and
assumed to occur within a single fiscal year, would be material to ARCO's
results of operations, the likelihood of such occurrence is considered remote.
On the basis of management's best assessment of the ultimate amount and timing
of these events, such expenses or judgments are not expected to have a material
adverse effect on ARCO's consolidated financial statements.
The operations and consolidated financial position of ARCO continue to be
affected by domestic and foreign political developments as well as legislation,
regulations and litigation pertaining to restrictions on production, imports and
exports, tax increases, environmental regulations, cancellation of contract
rights and expropriation of property. Both the likelihood of such occurrences
and their overall effect on ARCO vary greatly and are not predictable.
These uncertainties are part of a number of items that ARCO has taken and
will continue to take into account in periodically establishing reserves.
NOTE O. SUBSEQUENT EVENTS
MERGER OF ARCO INTO BP AMOCO P.L.C. AND CHANGE OF CONTROL OF ARCO
On April 18, 2000, the combination of BP Amoco p.l.c. (BP Amoco) and ARCO
was completed by the merger of Prairie Holdings, Inc. (a subsidiary of BP Amoco)
with and into ARCO, pursuant to the terms of the merger agreement dated March
31, 1999, as amended through March 8, 2000 (Merger Agreement). Pursuant to the
Merger Agreement, each share of outstanding common stock of ARCO (save for any
such shares owned by BP Amoco, ARCO or any subsidiary of BP Amoco or ARCO) was
converted into the right to receive 1.64 BP Amoco American Depositary Receipts
(ADRs) or, subject to the timely receipt of elections therefor, 9.84 BP Amoco
Ordinary Shares. In addition, the outstanding ARCO common stock was delisted
from the New York Stock Exchange and other exchanges on which it had been
listed.
ARCO's outstanding shares of $2.80 and $3.00 Preference Stock remain listed
on the New York Stock Exchange. Pursuant to the Merger Agreement, each share of
$2.80 Preference Stock was converted into the right to receive 7.872 ADRs and
each share of $3.00 Preference Stock was converted into the right to receive
22.304 ADRs. ARCO remains a reporting company within the meaning of the
Securities and Exchange Act of 1934.
In connection with the merger, on April 18, 2000, ARCO issued 324,711,290
shares of common stock to BP Amoco. Later on April 18, 2000, BP Amoco
transferred all such shares to BP America, Inc., a wholly owned subsidiary of BP
Amoco, so that BP Amoco owns indirectly all of the currently outstanding common
stock of ARCO. As the holder of all the outstanding common stock of ARCO, none
of which is publicly traded, BP Amoco is the controlling shareholder of ARCO.
Included in the merger agreement was a provision requiring BP Amoco to keep
in place for two years following the merger ARCO's change of control severance
programs. The benefits associated with those programs will result in ARCO
recording later in the year a potentially significant charge for ARCO employees
who are terminated in the next two years as a result of the merger. In addition,
there will be charges for other merger related costs.
SALE OF ALASKAN BUSINESSES
On March 15, 2000 ARCO entered into an agreement to sell its Alaskan
businesses to Phillips Petroleum Company (Phillips) for approximately $6.5
billion cash subject to purchase price adjustments (plus up to an additional
$500 million based on the prices realized on production subsequent to December
31, 1999). Under the purchase and sale agreement, which was amended on April 6,
2000, ARCO agreed to sell all of the outstanding shares of ARCO Alaska, Inc.,
together with certain other subsidiaries of ARCO engaged principally in the
operation of ARCO's Alaskan businesses, along with certain pipeline and marine
assets associated with the transport of Alaskan crude oil. The major portion
of the sale closed on April 26, 2000. The remainder of the assets are expected
to be transferred upon receipt of governmental approvals.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MERGER OF ARCO INTO BP AMOCO P.L.C. AND CHANGE OF CONTROL OF ARCO
On April 18, 2000, the combination of BP Amoco and ARCO was completed. ARCO
became a wholly owned subsidiary of BP Amoco. As indirect owner of all of the
outstanding shares of common stock of ARCO, BP Amoco is the controlling
shareholder of ARCO. (See Note O. to the financial statements and Item 5
beginning on page 18 of this Report on Form 10-Q).
FIRST QUARTER 2000 VS. FIRST QUARTER 1999
CONSOLIDATED EARNINGS
The $452 million increase in net income in the first quarter of 2000
reflected higher crude oil prices, and to a lesser extent, higher U.S. natural
gas prices. These factors were partially offset by lower crude oil and natural
gas production volumes, as well as higher operating and exploration expense and
lower earnings from the refinery and marketing segment.
A net special items benefit in the first quarter 2000 totaled $34 million
and consisted of net gains on asset sales, partially offset by a provision
associated with a patent lawsuit, BP Amoco merger costs and charges for future
environmental remediation.
For the first quarter of 1999, net special items charges totaled $7 million
and consisted primarily of charges for future environmental remediation.
AFTER-TAX SEGMENT EARNINGS
2000 1999
-------- --------
(MILLIONS)
Exploration and production................................................................... $ 601 $ 89
Refining and marketing....................................................................... 70 129
Other operations............................................................................. 14 24
Interest expense............................................................................. (79) (70)
Other unallocated expenses................................................................... 11 (7)
-------- --------
Net income................................................................................ $ 617 $ 165
======== ========
EXPLORATION AND PRODUCTION
ARCO's earnings from worldwide oil and gas exploration and production
operations in the first quarter 2000 were significantly impacted by higher crude
oil prices and, to a lesser extent, higher U.S. natural gas prices and lower
operating expenses. These factors were partially offset by lower crude oil and
natural gas production volumes and increased exploration expense. Operating
expenses were $17 million lower in the first quarter of 2000, compared to the
same period in 1999. The earnings in the first quarter of 2000 included a
special item benefit of $58 million after tax from assets sales. There were no
special items in the first quarter of 1999.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
AVERAGE OIL & GAS PRICES
2000 1999
--------- --------
U.S.
Petroleum liquids--per barrel (bbl)
Alaska............................................................................... $ 20.32 $ 6.07
Lower 48, including Vastar........................................................... $ 23.34 $ 9.75
Composite average price.............................................................. $ 21.28 $ 7.17
Natural gas--per thousand cubic feet (mcf)............................................. $ 2.18 $ 1.60
International
Petroleum liquids composite average--per bbl............................................ $ 22.08 $ 9.16
Venezuela crude oil--per bbl............................................................ $ 12.00 $ 3.17
Natural gas (excluding LNG)--per mcf.................................................... $ 2.36 $ 2.47
Indonesia LNG........................................................................... $ 4.78 $ 2.31
PETROLEUM LIQUIDS AND NATURAL GAS PRODUCTION
2000 1999
------------ ------------
Net Production
U.S.
Petroleum liquids--bbl/day
Alaska........................................................................ 307,300 345,100
Vastar........................................................................ 66,800 55,900
Other Lower 48................................................................ 75,700 92,200
Total....................................................................... 449,800 493,200
Natural gas--mcf/day............................................................ 1,258,300 1,359,800
Barrels of oil equivalent (BOE)/day*............................................ 659,500 719,800
International
Petroleum liquids--bbl/day...................................................... 138,700 179,100
Natural gas--mcf/day............................................................ 1,261,400 1,228,600
BOE/day......................................................................... 349,000 383,900
Total net production BOE/day....................................................... 1,008,500 1,103,700
- --------------
* Natural gas converted at the ratio of 6 mcf to 1 barrel of liquid.
In 2000, the reduction in U.S. petroleum liquids production primarily
resulted from natural field declines in Alaska and the effect of higher crude
oil prices on the ARCO Long Beach , Inc. production contract. The decreased
international petroleum liquids volumes primarily reflected lower Indonesian,
Tunisian and United Kingdom North Sea production volumes. The Indonesian
decrease resulted from the impact of higher crude oil prices on production
sharing contracts. The decreased Tunisian production reflected the sale of the
Ashtart field, which was effective January 1, 2000. The decrease in United
Kingdom North Sea production resulted from natural field decline.
The increase in international natural gas volumes in 2000 primarily
reflected higher production in Indonesia and the Yacheng 13 field in China
offset by a net decrease in United Kingdom North Sea production of approximately
30 million cubic feet per day due to natural field decline. The first quarter
2000 decrease in U.S. natural gas volumes reflected lower production from Vastar
Resources, Inc. (Vastar), which is 81.9 % owned by ARCO. The lower Vastar
production resulted from natural field declines and asset sales during the last
nine months of 1999.
ARCO's exploration and production earnings and petroleum liquids production
will decline significantly with the sale of Alaskan businesses to Phillips (see
Sale of Alaskan businesses).
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
REFINING AND MARKETING
In the first quarter of 2000, refining and marketing earnings decreased
primarily as a result of the establishment of a reserve for a patent lawsuit and
higher refinery turnaround costs. In addition, higher crude oil costs were
mostly, but not completely, offset by increased retail marketing prices and
volumes.
The amortization associated with the deferral of part of the pre-tax gain
on the sale of the ARCO Chemical interest in 1998 had a net favorable impact of
approximately $12 million and $10 million after tax on refining and marketing
earnings in the first quarter of 2000 and 1999, respectively. See the Company's
Annual Report on Form 10-K for the year ended December 31, 1999 for a further
discussion of the deferred gain.
WEST COAST PETROLEUM PRODUCTS SALES
2000 1999
----------- -----------
VOLUMES (BARRELS/DAY)
Gasoline............................................................................. 341,100 310,000
Jet.................................................................................. 103,900 98,500
Distillate........................................................................... 86,900 87,900
Other................................................................................ 51,700 59,100
----------- -----------
Total............................................................................. 583,600 555,500
=========== ===========
OTHER OPERATIONS
The 2000 and 1999 results from ARCO's other operations included the
earnings from Lower 48 pipeline operations and an aluminum rolling facility. The
lower pipeline earnings reflected a decrease in volumes for the Seaway pipeline
and losses incurred on the Olympic Pipeline.
DISCONTINUED OPERATIONS
In June of 1998, ARCO disposed of its U.S. coal operations. As of March
1999, ARCO sold its interests in three Australian coal mines. ARCO sold its 80%
interest in the Gordonstone coal mine, its 31.4% interest in the Blair Athol
Joint Venture and its stake in the Clermont coal deposit. At March 31, 2000, the
Company's discontinued operations consisted of one remaining coal mine in
Australia.
In March 1999, ARCO sold its wholly owned subsidiary, Union Texas
Petrochemicals obtained during the 1998 acquisition of Union Texas Petroleum
Holdings, Inc.
ARCO had no earnings from discontinued operations in the first quarter of
2000, because income or loss from the remaining Australian coal operation is
being deferred as part of net assets from discontinued operations on the balance
sheet at March 31, 2000.
CONSOLIDATED REVENUES
(MILLIONS) 2000 1999
-------- ---------
SALES AND OTHER OPERATING REVENUES
Exploration and production............................................................... $ 2,391 $ 1,304
Refining and marketing................................................................... 2,249 1,306
Other.................................................................................... 10 18
Intersegment eliminations................................................................ (657) (213)
-------- ---------
Total................................................................................. $ 3,993 $ 2,415
======== =========
The increase in exploration and production sales and other operating
revenues resulted primarily from higher crude oil prices and, to a much lesser
extent, higher domestic natural gas prices. Refining and marketing sales and
other operating revenues increased primarily because of higher refined products
prices, and to a lesser extent, higher gasoline volumes.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
CONSOLIDATED EXPENSES
Trade purchases were higher in the first quarter of 2000 primarily as a
result of higher crude oil prices and, to a lesser extent, higher purchased
volumes of finished refined products.
The increase in operating expenses in the first quarter of 2000 reflected
refining and marketing expenses associated with the establishment of a reserve
for a patent lawsuit and higher refinery turnaround costs. These factors were
partially offset by a decline in exploration and production and Lower 48
pipeline operating expenses related to the Company's cost reduction programs.
The lower selling, general and administrative expenses in 2000 were
primarily in the corporate (unallocated) and refining and marketing segments and
resulted from the Company's cost reduction programs.
The increase in exploration expense in the first quarter 2000 resulted from
higher dry hole expense due to the write-off of two offshore wells (one
deepwater well and one shelf well).
The increase in taxes other than income taxes in 2000 primarily resulted
from the impact of higher crude oil prices on U.S. production taxes, partially
offset by lower production volumes.
INCOME TAXES
The Company's effective tax rate was 30.0% in the first quarter 2000,
compared to 35.6% in the 1999 first quarter. The effective tax rate in the first
quarter of 2000 was lower than the federal statutory rate, primarily as a result
of a lower effective tax rate associated with the sale of certain foreign
properties.
LIQUIDITY AND CAPITAL RESOURCES
--------
(MILLIONS) 2000
--------
Cash flow provided (used) by:
Operations........................................................................................... $ 856
Investing activities................................................................................. $ (279)
Financing activities................................................................................. $ (437)
The net cash used by investing activities in the first quarter 2000
included expenditures for additions to fixed assets of $619 million and proceeds
from asset sales of $446 million (approximately $360 million associated with
asset sales of foreign properties). The Company expects total capital
expenditures for additions to fixed assets to approximate $2.1 billion for the
full year 2000. The budget was revised downward to give effect to the sale of
the Alaskan assets in April 2000.
The net cash used by financing activities in the first quarter of 2000
included repayments of short-term debt of $186 million and dividend payments of
$232 million.
Cash and cash equivalents and short-term investments totaled $1.3 billion,
and short-term borrowings were $1.5 billion at the end of the first quarter of
2000.
Beginning in 1997 and continuing through the first quarter of 1999, the
Company utilized increased short-term borrowing in lieu of increased long-term
borrowing (other than long-term debt assumed in connection with the UTP
acquisition in 1998). As a result the Company is in a working capital deficit
position of $613 million at March 31, 2000.
The Company believes it has adequate resources and liquidity to fund future
cash requirements for working capital, capital expenditures, dividends and debt
repayments with cash from operations, existing cash balances, additional short-
and long-term borrowing, cash infusions from ARCO's parent company BP Amoco and
the sale of assets.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
SALE OF ALASKAN BUSINESSES
On March 15, 2000 ARCO entered into an agreement to sell its Alaskan
businesses to Phillips Petroleum Company (Phillips) for approximately $6.5
billion cash subject to purchase price adjustments (plus up to an additional
$500 million based on the realized prices of production subsequent to December
31, 1999). Proceeds from the sale were advanced to BP Amoco. Under the purchase
and sale agreement, which was amended on April 6, 2000, ARCO agreed to sell all
of the outstanding share of ARCO Alaska, Inc., together with certain other
subsidiaries of ARCO engaged principally in the operation of ARCO's Alaskan
businesses, along with certain pipeline and marine assets associated with the
transport of Alaskan crude oil. The major portion of the sale closed on April
26, 2000. The remainder of the assets are expected to be transferred upon
receipt of governmental approvals.
Included in the merger agreement was a provision requiring BP Amoco to keep
in place for two years following the merger ARCO's change of control severance
programs. The benefits associated with those programs will result in ARCO
recording later in the year a potentially significant charge for ARCO employees
who are terminated in the next two years as a result of the merger. In addition,
there will be charges for other merger related costs.
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires companies to adopt
its provisions for all fiscal quarters of all fiscal years beginning after June
15, 2000 (as deferred by SFAS No. 137). Earlier application of all of the
provisions of SFAS No. 133 is permitted, but the provisions cannot be applied
retroactively to financial statements of prior periods. SFAS No. 133
standardizes the accounting for derivative instruments by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. The Company has not yet
completed evaluating the impact of the provisions of SFAS No. 133.
--------------
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.
17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
1. On March 23, 2000, ARCO (as successor to IS&R and Anaconda Lead
Products Company) was named as a defendant in a purported class action lawsuit,
COUNTY OF SANTA CLARA V. ATLANTIC RICHFIELD COMPANY, ET AL. (Case No. CV788657),
filed in Santa Clara County Superior Court in San Jose, California by the County
of Santa Clara on behalf of itself and seeking to represent a class of all
public entities in California who expend any funds for medical treatment,
educational expenses, abatement or other costs and expenses due to exposure to
or potential exposure to lead paint. The complaint, which also names seven
alleged former manufacturers of lead pigments and the LIA, includes causes of
action for violation of California Business & Professions Code ss. 17200, strict
product liability, failure to warn, market share liability, negligence, fraud
and concealment, and unjust enrichment. The County of Santa Clara and the
purported class seek compensatory and punitive damages as well as indemnity for
past, present, and future costs associated with the medical care of lead
poisoned children and adults, education programs for children injured as a
result of lead exposure, and the abatement of lead hazards.
2. Reference is made to the disclosure regarding a purported class
action filed against ARCO and Babcock & Wilcox Company (B&W) described on page
17 of ARCO's Report on Form 10-K for the year ended December 31, 1999. On
February 22, 2000, B & W filed a voluntary petition for relief under Chapter 11
of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern
District of Louisiana. On April 4, 2000, B &W filed an adversary complaint in
the Bankruptcy Court against the plaintiffs in the Hall v. B & W action, seeing
to confirm that the automatic stay applicable to actions against the debtor
operates to stay the Hall case in its entirety, including any claims against
ARCO. The Bankruptcy Court has not ruled on this complaint.
3. Reference is made to the disclosure regarding the action titled
ARCO, et al. v. UNOCAL described on page 18 of ARCO's Report on Form 10-K for
the year ended December 31, 1999. On September 29, 1998, the court issued a
judgment in favor of UNOCAL for $10.3 million (including prejudgment interest)
against ARCO for infringing gallons during the first five months of production
and for $1.5 million joint and several against ARCO and the other five refiners
for UNOCAL's attorneys fees. On March 29, 2000, the Court of Appeals for the
Federal Circuit affirmed the judgment.
4. On March 17, 2000, six purported class action suits were filed in
New Castle County, Delaware Chancery Court against Vastar Resources, Inc.,
Atlantic Richfield Company, BP Amoco, and Vastar's nine individual directors.
The suits are brought by individual Vastar stockholders on behalf of a
purported class of all Vastar minority stockholders. The suits allege that BP
Amoco's proposed tender offer price for Vastar's minority shares is
inadequate. The suits generally seek class action certification, an
injunction against BP Amoco's tender offer as it is presently proposed,
rescission or rescissory damages, other monetary damages, and attorney fees
and court costs. The first-filed of the suits is Giarraputo v. Callison, et
al. (Case No. 17888-NC). ARCO, Vastar, and Vastar's nine directors have been
officially served in two of the six suits, Giarraputo and Rothe v. Vastar
Resources, Inc., et al. (Case No. 17891-NC).
5. Reference is made to the disclosure regarding the Aguilar action
described on page 18 of ARCO's Report on Form 10-K for the year ended December
31, 1999. On January 31, 2000, the Court of Appeal for the Fourth Appellate
District reversed the order granting a new trial and ordered the Superior Court
to grant summary judgment in favor of each defendant. On March 1, 2000, the
Court of Appeal denied the plaintiffs' petition for rehearing. On March 13,
2000, the plaintiffs filed a petition for review by the California Supreme
Court.
6. Reference is made to the Company's 1999 Form 10-K Report for
information on other legal proceeding matters reported therein.
ITEM 5. OTHER.
A. CHANGE OF CONTROL OF ARCO
On April 18, 2000, the combination of BP Amoco p.l.c. (BP Amoco) and ARCO
was completed by the merger of Prairie Holdings, Inc (a subsidiary of BP Amoco)
with and into ARCO, pursuant to the terms of the merger agreement dated March
31, 1999, as amended through March 27, 2000 (Merger Agreement). Pursuant to the
Merger Agreement, each share of outstanding common stock of ARCO (except for any
such shares owned by BP
18
Amoco, ARCO or any subsidiary of BP Amoco or ARCO) was converted into the right
to receive 1.64 BPAmoco American Depositary Receipts (ADRs) or, subject to the
timely receipt of elections therefor, 9.84 BP Amoco Ordinary Shares. In
addition, the outstanding ARCO common stock was delisted from the New York Stock
Exchange and other exchanges on which it had been listed. In connection with the
merger, on April 18, 2000, ARCO issued 324,711,290 new shares of common stock to
BP Amoco. Later on April 18, 2000, BP Amoco transferred all such shares to BP
America, Inc., a wholly owned subsidiary of BP Amoco, so that BP Amoco owns
indirectly all of the currently outstanding common stock of ARCO. As the holder
of all the outstanding common stock of ARCO, none of which is publically traded,
BP Amoco is the controlling shareholder of ARCO. ARCO's outstanding shares of
$2.80 and $3.00 Preference Stock remain listed on the New York Stock Exchange.
Pursuant to the Merger Agreement, each share of $2.80 Preference Stock became
convertible into 7.872 ADRs and each share of $3.00 Preference Stock became
convertible into 22.304 ADRs. ARCO remains a reporting company within the
meaning of the Securities and Exchange Act of 1934.
Also in connection with the merger, all of ARCO's directors and officers,
including its executive officers listed in ARCO's Report on Form 10-K for the
year ended December 31, 1999, resigned concurrently with the effective date of
the merger, April 18, 2000. Effective April 18, 2000, and pursuant to the Merger
Agreement, as amended, the directors of Prairie Holdings, Inc became the
directors of ARCO. Accordingly the directors of ARCO now are:
Peter B. P. Bevan
John F. Campbell
D. Patrick Chapman
Robert D. Agdern
James G. Nemeth
As of May 11, 2000, the following individuals are officers of ARCO:
President Robert D. Agdern
Chief Financial Officer and Vice President Eileen A. Kamerick
Executive Vice President David H. Welch
Executive Vice President Roger E. Williams
Vice President W. Murray Air
Vice President Larry D. Burton
Vice President-Human Resources John F. Campbell
Vice President Lucy I. Davies
Vice President Mike Hoffman
Vice President William R. Hutchinson
Vice President Chris Noble
Vice President Anthony J. Nocchiero
Vice President Richard Porter
Vice President Edward W. Sturrus
Vice President David R. Watson
Vice President and General Tax Officer James G. Nemeth
Corporate Secretary Daniel B. Pinkert
Treasurer Robert J. Novaria
Tax Officer Dale P. Shrallow
Controller Anthony J. Nocchiero
Assistant Controller Charles L. Hall
All of the above individuals are employees of BP Amoco or of a subsidiary
company of BP Amoco. None of these individuals own any shares of ARCO common or
preference stocks.
On April 18, 2000, in connection with the combination of ARCO and BP Amoco,
PricewaterhouseCoopers LLP resigned as ARCO's independent accountants. Ernst &
Young LLP, who currently act as independent accountants for BP Amoco, have been
appointed as ARCO's independent accountants.
19
B. ANNUAL MEETING OF STOCKHOLDERS SET FOR JULY 11, 2000
The Board of Directors of ARCO have fixed the Annual Meeting of
Shareholders for Tuesday, July 11, 2000. Notice of Meeting and a Proxy
Statement will be mailed to shareholders of record on June 2, 2000. Shareholders
of ARCO include BP Amoco, as holder of all the outstanding shares of Common
Stock, and holders of the $2.80 and $3.00 Preference Stock, all of which vote as
one class with the holder of the Common Stock.
C. SALE OF ALASKAN BUSINESSES AND PRO FORMA FINANCIAL STATEMENTS.
On March 15, 2000, pursuant to an understanding with the Federal Trade
Commission in conjunction with its review of the acquisition of ARCO by BP
Amoco, ARCO entered into an agreement to sell its Alaskan businesses to Phillips
Petroleum Company (Phillips) for approximately $6.5 billion cash, subject to
purchase price adjustments (plus up to an additional $500 million based on
post-closing production). Under the purchase and sale agreement, which was
amended on April 6, 2000, ARCO agreed to sell all of the outstanding shares of
ARCO Alaska, Inc., together with certain other subsidiaries of ARCO engaged
principally in the operation of ARCO's Alaskan businesses, along with certain
pipeline and marine assets associated with the transport of Alaskan crude oil.
The major portion of the sale closed on April 26, 2000. The remainder of the
assets are expected to be transferred upon receipt of governmental approvals.
The following unaudited pro forma financial statements include certain
adjustments to the historical financial statements of the Company. Such
adjustments are made to give effect to the sale of ARCO's Alaskan businesses to
Phillips. These adjustments reflect the elimination of ARCO Alaska, Inc.
balances, as well as those pipeline and marine assets associated with the
transport of Alaskan crude oil from ARCO's consolidated financial statements and
the receipt of $6.1 billion in cash from the sale of ARCO Alaska, Inc. common
stock and the pipeline and marine assets. The adjustments also reflect an
after-tax gain of $1.65 billion and the estimated income taxes payable of $1.36
billion.
The pro forma condensed statements of income have been prepared as if the
sale of the shares and the pipeline and marine assets took place as of January
1, 1999. The pro forma condensed balance sheet has been prepared as if the sale
of the shares took place as of March 31, 2000.
Such pro forma financial statements are not necessarily indicative of the
results of future operations, nor the results of historical operations had the
sale of ARCO Alaska, Inc. shares and the pipeline and marine assets taken place
as of the assumed dates.
20
ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES
(UNAUDITED)
PRO FORMA CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------
PRO FORMA
AFTER GIVING
EFFECT TO
(MILLIONS, EXCEPT PER SHARE AMOUNTS) HISTORICAL ADJUSTMENTS ADJUSTMENTS
---------- ----------- ------------
Revenues
Sales and other operating revenues.............................. $ 12,501 $ (470) $ 10,651
Other revenues.................................................. 554 (15) 539
---------- ----------- ------------
13,055 (485) 11,190
---------- ----------- ------------
Expenses
Trade purchases................................................. 4,893 1,359 4,872
Operating expenses.............................................. 2,386 (298) 2,088
Selling, general and administrative expenses.................... 607 (54) 553
Depreciation, depletion and amortization........................ 1,785 (363) 1,422
Exploration expenses (including undeveloped leasehold
amortization)................................................. 386 (50) 336
Impairment of oil and gas properties............................ 14 -- 14
Taxes other than income taxes................................... 475 (239) 236
Interest........................................................ 398 (9) 389
Loss on disposition of Algeria assets........................... 175 -- 175
Restructuring costs............................................. 20 -- 20
---------- ----------- ------------
11,139 346 10,105
---------- ----------- ------------
Income before income taxes and minority interest................... 1,916 (831) 1,085
Provision for taxes on income...................................... (533) 286 (247)
Minority interest in earnings of subsidiaries...................... (38) -- (38)
---------- ----------- ------------
Income from continuing operations.................................. $ 1,345 $ (545) $ 800
========== =========== ============
Earned per Share
Continuing operations--Basic (322.3 shares)...................... $ 4.17 $ (1.69) $ 2.48
Continuing operations--Diluted (328.8 shares).................... $ 4.09 $ (1.66) $ 2.43
21
ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES
(UNAUDITED)
PRO FORMA CONDENSED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 2000
-------------------------------------
PRO FORMA
AFTER GIVING
EFFECT TO
(MILLIONS, EXCEPT PER SHARE AMOUNTS) HISTORICAL ADJUSTMENTS ADJUSTMENTS
--------- ------------ ------------
Revenues $ 3,993 $ (123) $ 3,300
Sales and other operating revenues................................... 201 (3) 198
--------- ------------ ------------
Other revenues....................................................... 4,194 (126) 3,498
--------- ------------ ------------
Expenses
Trade purchases...................................................... 1,685 562 1,677
Operating expenses................................................... 600 (71) 529
Selling, general and administrative expenses ........................ 136 (11) 125
Exploration expenses (including undeveloped leasehold amortization).. 100 (17) 83
Depreciation, depletion and amortization............................. 484 (87) 397
Taxes other than income taxes........................................ 177 (85) 92
Interest ............................................................ 110 (3) 107
--------- ------------ ------------
3,292 288 3,010
--------- ------------ ------------
Income before income taxes and minority interest........................ 902 (414) 488
Provision for taxes on income........................................... (271) 154 (117)
Minority interest in earnings of subsidiaries........................... (14) -- (14)
--------- ------------ ------------
Income from continuing operations....................................... $ 617 $ (260) $ 357
========= ============ ============
Earned per Share
Continuing operations--Basic (323.4 shares).......................... $ 1.91 $ (.81) $ 1.10
Continuing operations--Diluted (329.1 shares)........................ $ 1.87 $ (.79) $ 1.08
- --------------
22
ATLANTIC RICHFIELD COMPANY
(UNAUDITED)
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 2000
-----------------------------------------------
PRO FORMA
AFTER GIVING
EFFECT TO
(MILLIONS) HISTORICAL ADJUSTMENTS ADJUSTMENTS
---------------- --------------- ------------
ASSETS
Cash, cash equivalents, and short-term investments............ $ 1,260 $ (11) $ 1,249
Receivable from BP Amoco...................................... 6,118 6,118
Other accounts receivable, inventories and
other current assets....................................... 1,990 (251) 1,739
Investments accounted for on the equity method................ 1,579 (2) 1,577
Investments and long-term receivables......................... 1,883 -- 1,883
Net property, plant and equipment............................. 18,173 (4,951) 13,222
Net assets of discontinued operations......................... 68 -- 68
Deferred charges and other assets............................. 1,578 (9) 1,569
---------------- --------------- ------------
Total assets.................................................. $ 26,531 $ 894 $ 27,425
================ =============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities........................................... $ 3,863 $ 1,129 $4,992
Long-term debt................................................ 5,599 (266) 5,333
Deferred income taxes......................................... 3,643 (799) 2,844
Other deferred liabilities and credits........................ 3,885 (820) 3,065
Minority interest............................................. 309 -- 309
Stockholder's equity:
Preference stocks.......................................... 1 -- 1
Common stock............................................... 818 -- 818
Capital in excess of par value of stock.................... 918 -- 918
Retained earnings.......................................... 7,476 1,650 9,126
Treasury stock............................................. (272) -- (272)
Accumulated other comprehensive income..................... 291 -- 291
---------------- --------------- ------------
Total stockholders' equity.................................... 9,232 1,650 10,882
---------------- --------------- ------------
Total liabilities and stockholders' equity.................... $ 26,531 $ 894 $ 27,425
================ =============== ============
23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
2 Master Purchase and Sale Agreement, dated as of March 15,
2000, as amended, by and among ARCO, CH-Twenty, Inc., BP
Amoco p.l.c. and Phillips Petroleum Company.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
The following Current Reports on Form 8-K were filed during the quarter
ended March 31, 2000 and through the date hereof.
DATE OF REPORT ITEM NO. FINANCIAL STATEMENTS
- ------------------ ----------------- ------------------------
May 9, 2000 1 and 4 None
April 25, 2000 1 and 4 None
April 13, 2000 5 None
March 28, 2000 5 None
March 21, 2000 5 None
February 9, 2000 5 None
24
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/ Charles L. Hall
--------------------------------------
Dated: May 11, 2000 Charles L. Hall
Assistant Controller
(Duly Authorized Officer and
Principal Accounting Officer)