<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998 or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8888
AMOCO COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 36-3353184
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 EAST RANDOLPH DRIVE, CHICAGO, ILLINOIS 60601
(Address of principal executive offices) (Zip Code)
312-856-6111
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address, and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Number of shares outstanding as of September 30, 1998--100.
Registrant meets the conditions set forth in General Instructions
H(1)(a) and (b) of Form 10-Q and is therefore filing this form
with reduced disclosure format.
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PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Income
(millions of dollars)
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
Revenues:
Sales and other operating revenues $ 5,587 $ 7,317 $17,716 $21,332
Consumer excise taxes............. 924 894 2,682 2,577
Equity in income of affiliates and
other income ................... 92 88 374 290
Total revenues.................. 6,603 8,299 20,772 24,199
Costs and Expenses:
Purchased crude oil, natural
gas, petroleum products and
merchandise..................... 2,822 4,094 9,250 11,914
Operating expenses................ 1,223 1,141 3,402 3,239
Petroleum exploration expenses,
including exploratory dry holes. 148 120 425 387
Selling and administrative
expenses........................ 499 409 1,504 1,267
Taxes other than income taxes..... 1,025 1,038 3,037 3,099
Depreciation, depletion, amorti-
zation, and retirements
and abandonments................ 453 479 1,602 1,415
Interest expense:
Affiliates...................... 132 128 401 379
Other........................... 62 81 196 172
Total costs and expenses...... 6,364 7,490 19,817 21,872
Income before income taxes.......... 239 809 955 2,327
Income taxes........................ (4) 341 257 757
Net income.......................... $ 243 $ 468 $ 698 $ 1,570
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Condensed Consolidated Statement of Financial Position
(millions of dollars)
Sept. 30, Dec. 31,
ASSETS 1998 1997
Current Assets:
Cash ......................................... $ 92 $ 78
Marketable securities--at cost................ 412 768
Accounts and notes receivable:
Trade (less allowances of $13 at September 30,
1998 and $7 at December 31, 1997)......... 2,332 2,873
Affiliates.................................. 1,238 803
3,570 3,676
Inventories................................... 978 876
Prepaid expenses, income taxes and other...... 505 1,044
Total current assets........................ 5,557 6,442
Investments and Other Assets:
Affiliates.................................... 1,394 1,391
Other......................................... 2,942 2,957
4,336 4,348
Properties--at cost, less accumulated depre-
ciation, depletion and amortization of $25,273
at September 30, 1998, and $23,798 at
December 31, 1997............................. 19,786 19,272
Total assets................................ $29,679 $30,062
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Current portion of long-term obligations...... $ 146 $ 146
Short-term obligations........................ 660 576
Accounts payable.............................. 1,773 2,497
Accrued liabilities........................... 878 872
Taxes payable (including income taxes)........ 943 1,074
Total current liabilities................... 4,400 5,165
Long-Term Obligations:
Affiliates.................................... 5,022 4,739
Other debt.................................... 3,463 2,791
Capitalized leases............................ 82 80
8,567 7,610
Deferred Credits and Other Non-Current Liabilities:
Income taxes.................................. 2,883 2,781
Other......................................... 1,878 1,882
4,761 4,663
Minority Interest............................... 122 119
Shareholder's Equity:
Common stock and earnings retained and
invested in the business.................... 11,897 12,571
Accumulated other comprehensive income:
Foreign currency translation adjustment..... (68) (66)
11,829 12,505
Total liabilities and shareholder's equity.. $29,679 $30,062
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Condensed Consolidated Statement of Cash Flows
(millions of dollars)
Nine Months Ended
September 30,
1998 1997
Cash Flows from Operating Activities:
Net income................................... $ 698 $ 1,570
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion, amortization,
and retirement and abandonments.......... 1,602 1,415
Decrease in trade receivables 545 123
Increase in affiliate receivables (435) (1,647)
Decrease in payables and accrued
liabilities.............................. (677) (545)
(Decrease) increase in taxes payable........ (131) 69
Deferred taxes and other items............. 217 (28)
Net cash provided by operating activities.. 1,819 957
Cash Flows from Investing Activities:
Capital expenditures......................... (1,996) (2,032)
Proceeds from dispositions of property and
other assets............................... 438 244
Net investments, advances and business
acquisitions............................... (223) (587)
Proceeds from sales of investments - 77
Other........................................ (39) 143
Net cash used in investing activities...... (1,820) (2,155)
Cash Flows from Financing Activities:
New long-term obligations.................... 1,050 993
Repayment of long-term obligations........... (103) (273)
Dividends paid............................... (1,372) (136)
Increase in short-term obligations........... 84 344
Net cash used in financing activities...... (341) 928
Decrease in Cash and Marketable
Securities................................... (342) (270)
Cash and Marketable Securities-Beginning of
Period....................................... 846 989
Cash and Marketable Securities-End of Period... $ 504 $ 719
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Basis of Financial Statement Preparation
Amoco Company (the "Company") is a wholly owned subsidiary of
Amoco Corporation, an Indiana corporation ("Amoco"), and is the
holding company for substantially all petroleum and chemical
operations except Amoco Canada Petroleum Company Ltd. ("Amoco
Canada") and selected other activities. Amoco guarantees the
public debt obligations of the Company.
The condensed financial statements contained herein are unaudited
and have been prepared from the books and records of the Company.
In the opinion of management, the financial statements reflect
all adjustments, consisting of only normal recurring adjustments,
necessary for a fair statement of the results for the interim
periods. The condensed financial statements have been prepared in
accordance with the instructions to Form 10-Q and, therefore, do
not include all information and notes necessary for a complete
presentation of results of operations, financial position and
cash flows in conformity with generally accepted accounting
principles.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires
that all derivatives be recognized at fair value as either assets
or liabilities in the statement of financial position. The effect
of the adoption of SFAS No. 133 is not known at this time, but is
not expected to be material to Amoco's financial position or
results of operations. Implementation of SFAS No. 133 is required
no later than the quarter ending March 31, 2000.
The Company adopted Statement of Position ("SOP") 98-1,
"Accounting For the Costs of Computer Software Developed or
Obtained for Internal Use" in the first quarter of 1998. The SOP
requires costs of computer software developed for internal use to
be capitalized as a long-lived asset. The capitalized costs are
amortized over the estimated useful life of the software. The
amount capitalized, which would have been expensed previously,
was approximately $46 million after tax in the first nine months
of 1998 with $7 million after tax capitalized during the third
quarter.
Shown below is the Company's comprehensive income.
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
Net income............................ $ 243 $ 468 $ 698 $1,570
Other comprehensive income, after tax. (1) (20) (2) (96)
Comprehensive income.................. $ 242 $ 448 $ 696 $1,474
Item 2. Management's Narrative Analysis of Results of Operations
Results of Operations
Net income for the third quarter of 1998 amounted to $243 million
compared with $468 million for the third quarter of 1997. The
third-quarter earnings decline primarily resulted from
significantly lower crude oil prices, which have fallen nearly 30
percent in the last year. In addition lower crude oil prices have
not translated into more favorable downstream results, which have
been adversely affected by lower margins.
For the first nine months of 1998, the Company reported earnings
of $869 million, excluding the second quarter impairment charges
of $214 million for Colombian assets and a first-quarter gain of
$43 million on asset divestitures. This compared with $1,570
million earned in the year-earlier period. The decrease in
earnings primarily reflected lower energy prices and chemical
margins.
Sales and other operating revenues totaled $5.6 billion for the
third quarter of 1998, 23 percent lower than the $7.38 billion
reported in the corresponding 1997 period. Crude oil, refined
products, and chemical revenues decreased 35 percent, 23 percent
and 22 percent, respectively, primarily reflecting lower prices.
For the first nine months of 1998, sales and other operating
revenues totaled $17.7 billion, a 17 percent decline from the
comparable 1997 period. Higher sales volumes were more than
offset by lower prices for refined products and crude oil.
The increase in other income for the year-to-date 1998 period
primarily reflected gains associated with the divestitures of
U.S. exploration and production ("E&P") properties. The
divestitures, which began in the third quarter of 1997, were part
of The Company's strategy to upgrade and refocus the portfolio of
E&P assets.
Purchases of crude oil, natural gas, petroleum products and
merchandise totaled $2.8 billion for the third quarter of 1998,
31 percent lower than the comparable 1997 quarter. The decrease
was primarily attributable to lower crude oil purchase prices.
Purchases declined 22 percent in the first nine months of 1998
mainly resulting from lower crude oil purchase prices.
Petroleum exploration expenses of $148 million for the third
quarter of 1998 increased 23 percent from the third quarter of
1997, mainly due to higher dry hole costs. For the first nine
months of 1998, exploration expenses increased ten percent over
the nine-month period in 1997, primarily reflecting higher
exploration costs in the United States.
The increase for year-to-date depreciation, depletion,
amortization, and retirements and abandonments primarily
reflected the previously mentioned impairment charge for
Colombian assets.
The increase in other interest expense for the first nine months
of 1998, compared with the prior-year's periods, reflected
higher long-term debt balances.
Outlook
On August 11, 1998, the British Petroleum Company p.l.c. ("BP")
and Amoco announced their agreement to merge. The merger is
subject to a number of conditions, including shareholder approval
and various regulatory and other consents and confirmations,
which are in process. Assuming all requested consents and
confirmations are obtained, the merger is planned to be
consummated by year-end 1998.
Amoco set a record date of October 19, 1998 for a special meeting
of Amoco shareholders for voting on the merger. Shareholders of
record at the close of business on that date will be entitled to
attend the meeting to be held on December 10, 1998 and vote on
the merger proposal. The proxy statement for the special
shareholders meeting was mailed to shareholders starting October
30, 1998.
Liquidity and Capital Resources
Cash flows from operating activities was $1,819 million in the
first nine months of 1998 compared with $957 million in the
comparable 1997 period. Working capital totaled $1.2 billion at
September 30, 1998, compared with $1.3 billion at year-end 1997.
The Company's current ratio was 1.26 to 1 at September 30, 1998
and 1.25 to 1 at year-end 1997. As a matter of policy, the
Company practices asset and liability management techniques that
are designed to minimize its investment in non-cash working
capital. This does not impair operational flexibility since the
Company has ready access to both short- and long-term debt
markets.
The Company's ratio of debt to debt-plus-equity on third-party
obligations was 26.3 percent at September 30, 1998, compared with
21.7 percent at year-end 1997. Including debt with affiliates,
the ratio was 43.7 percent at September 30, 1998, and 39.5
percent at year-end 1997. The ratio of earnings to fixed charges
on third-party obligations was 4.3 to 1 for the first nine months
of 1998 compared with 11.8 to 1 at year ended December 31, 1997.
The Company believes its strong financial position will permit
the financing of business needs and opportunities as they arise.
Short-term borrowings totaled $660 million as of September 30,
1998, an increase of $84 million from year-end 1997. Short-term
obligations, such as commercial paper borrowings, give the
Company the flexibility to meet short-term working capital and
other temporary requirements. At September 30, 1998, bank lines
of credit available to support outstanding commercial paper
borrowings amounted to $790 million, all of which were supported
by commitment fees.
The Company also may utilize its favorable access to long-term
debt markets to finance profitable growth opportunities and
ongoing operations. Amoco Corporation and Amoco Company guarantee
the notes, bonds and debentures of Amoco Canada Petroleum Company
Ltd. Contingent liabilities of the Company include guarantees of
$200 million of outstanding loans of an equity-basis affiliate.
Capital and exploration expenditures for the first nine months of
1998 totaled $2,421 million compared with $2,419 million for the
similar 1997 period. Approximately 68 percent of the spending is
in E&P operations.
The Company has provided in its accounts for the reasonably
estimable future costs of probable environmental remediation
obligations relating to various oil and gas operations,
refineries, marketing sites and chemical locations, including
multiparty sites at which the Company and certain of its
subsidiaries have been identified as potentially responsible
parties by the U.S. Environmental Protection Agency. Such
estimated costs will be refined over time as remedial
requirements and regulations become better defined. However, any
additional environmental costs cannot be reasonably estimated at
this time due to uncertainty of timing, the magnitude of
contamination, future technology, regulatory changes and other
factors. Although future costs could have a significant effect on
the results of operations in any one period, they are not
expected to be material in relation to the Company's liquidity or
consolidated financial position. In total, the accrued liability
represents a reasonable best estimate of the Company's
remediation liability.
Year 2000 Update
The Company has been addressing the issue of preparing its
computer systems to properly handle date information in the year
2000 and beyond. This has involved the implementation of new
systems and upgrading of business computer information technology
("IT") where needed. In addition the Company has reviewed its
information and process control systems, as well as other
electronic control systems, to identify all critical equipment
and software that will need to be altered or replaced in
preparation for the year 2000. The upgrading and replacement of
these systems is underway and will occur primarily during the
three years ending in December 1999, with the majority of the
work being completed by year end 1998.
The estimated total cost of the Company's year 2000 program is
approximately $155 million with yearly expenditures of $21
million in 1997, $82 million in 1998, $45 million in 1999 and $7
million in the year 2000. The total impact of the year 2000
effort on the Company's before-tax net income is expected to be
$100 million over the three-year period. The total amount
expended on the effort through the end of September, 1998 was $82
million. Of the total amount projected to be spent on the
program, approximately $72 million, or 47 percent is expected to
be spent internally on repair or replacement of business computer
systems that have been identified as susceptible to the year 2000
issue. As a result of the year 2000 efforts, several non-critical
IT projects have been either terminated or deferred.
The Company's year 2000 efforts cover all areas that are known to
be impacted by the issue including IT application systems and
infrastructure, process control systems and embedded
microprocessors in plants, fields and building facilities.
Through September, 1998, in excess of 50 percent of our high
criticality internal systems that have been found to be susceptible
to the year 2000 issue have been either repaired or replaced.
The year 2000 process calls for the ongoing assessment of year
2000 readiness of critical suppliers, customers, joint ventures
and partners. Through September, 1998 over 80 percent of
critical suppliers and customers have been assessed for year
2000 readiness at least once. The Company is in the process of
reviewing and updating its business continuity and contingency
plans to mitigate the impact of possible third party failures.
The failure to correct a material year 2000 problem could result
in an interruption in, or a failure of, certain normal business
activities or operations. Such potential interruptions and
failures could materially and adversely affect the Company.
However, due to the general uncertainty inherent in the year
2000 problem, the Company is unable to determine at this
time whether the consequences of such failures will have a
material impact on the Company's results of operations, but they
are not expected to have a material effect on the Company's
liquidity or financial condition. The Company's year 2000
program is expected to significantly reduce the Company's level
of uncertainty about the year 2000 problem and about the year 2000
compliance and readiness of its material external parties. The
Company believes that with the implementation of new business
systems and completion of the program as scheduled, the
possibility of significant interruptions of normal operations
should be reduced.
Each business entity is accountable for identifying,
categorizing, and prioritizing risks associated with the year
2000 transition and developing, exercising, and implementing
appropriate contingency plans to mitigate those risks. The
Company intends to leverage existing Crisis Management, Emergency
Response, and Business Continuity organizations and plans to
assist in contingency planning and to supplement these
organizations and plans as needed. The Company is attempting to
minimize the uncertainties expected to be caused by the proposed
BP - Amoco merger. To this end the Company is currently focusing
contingency planning efforts on the most stable parts of the
existing organizations such as individual plant sites. Higher
level plans that call for cross-organization coordination are
being deferred until completion of the merger and definition of
the resulting organizational structures.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995.
Statements in this report that are not historical facts,
including statements about industry and company growth, estimates
of expenditures and savings, completion of the merger with BP and
other trend projections are forward looking statements. These
statements are based on current expectations and involve risk and
uncertainties. Actual future results or trends may differ
materially depending on a variety of factors. These include
specific factors identified in the discussion accompanying such
forward looking statements, industry product supply, demand and
pricing, political stability and economic growth in relevant
areas of the world, the Company's successful execution of its
internal performance plans, development and use of new
technology, successful partnering, actions of competitors,
natural disasters, other changes to business conditions and, 1)
in the case of the merger with BP, attainment of the approval of
the shareholders of BP and Amoco and the required regulatory
consents and confirmations and other unforeseen circumstances in
connection with the merger, and 2) in the case of the year 2000
issue, external parties year 2000 readiness, availability and
costs of personnel trained in relevant areas, the ability to
locate and correct all relevant computer code, complications and
unforeseen circumstances resulting from the proposed BP and Amoco
merger and other uncertainties.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the description of the challenge by the
Internal Revenue Service of certain foreign income taxes as
credits against Amoco's U.S. taxes that otherwise would have been
payable for the years 1980 through 1992 in Part II, Item 1 of the
Company's Form 10-Q for the quarter ending March 31, 1998.
Six proceedings instituted by governmental authorities are
pending or known to be contemplated against Amoco and certain of
its subsidiaries under federal, state or local environmental
laws, each of which could result in monetary sanctions in excess
of $100,000. No individual proceeding is, nor are the proceedings
as a group, expected to have a material adverse effect on Amoco's
liquidity, consolidated financial position or results of
operations. Amoco estimates that in the aggregate the monetary
sanctions reasonably likely to be imposed from these proceedings
amount to approximately $3 million.
Amoco has various other suits and claims pending against it among
which are several class actions for substantial monetary damages
which in Amoco's opinion are not meritorious. While it is
impossible to estimate with certainty the ultimate legal and
financial liability in respect to these other suits and claims,
Amoco believes that, while the aggregate amount could be
significant, it will not be material in relation to its liquidity
or its consolidated financial position.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number
12 Statement Setting Forth Computation of
Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
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Signature
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Amoco Company
(Registrant)
Date: November 13, 1998 A. J. NOCCHIERO
A. J. Nocchiero
Vice President and Controller
(Duly Authorized and Chief
Accounting Officer)
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EXHIBIT 12
AMOCO COMPANY
______________________
STATEMENT SETTING FORTH COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
(millions of dollars, except ratios)
Nine
Months
Ended Year Ended December 31,
Sept. 30,
1998 1997 1996 1995 1994 1993
Determination of Income:
Consolidated earnings
before income taxes
and minority interest... $ 959 $3,235 $3,351 $2,425 $2,688 $2,427
Fixed charges expensed by
consolidated companies.. 259 282 251 233 140 193
Adjustments for certain
companies accounted for
by the equity method... 97 50 76 10 7 9
Adjusted earnings plus
fixed charges........... $1,315 $3,567 $3,678 $2,668 $2,835 $2,629
Determination of Fixed Charges:
Consolidated interest on
indebtedness (including
interest capitalized)... $ 200 $ 212 $ 164 $ 152 $ 127 $ 162
Consolidated rental
expense representative
of an interest factor... 62 84 88 71 7 31
Adjustments for certain
companies accounted for
by the equity method.... 45 7 8 6 5 6
Total fixed charges...... $ 307 $ 303 $ 260 $ 229 $ 139 $ 199
Ratio of earnings to
fixed charges........... 4.3* 11.8* 14.2* 11.6 20.4 13.2
*Based on third-party debt obligations. Including debt with affiliates,
the ratio would have been 2.4 as of September 30, 1998, 5.0 as of
December 31, 1997 and 5.5 as of December 31, 1996.
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Condensed Statement of Income and the Condensed Statement of Financial
Position and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000766916
<NAME> AMOCO COMPANY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> SEP-30-1998
<CASH> 92
<SECURITIES> 412
<RECEIVABLES> 3583
<ALLOWANCES> 13
<INVENTORY> 978
<CURRENT-ASSETS> 5557
<PP&E> 45059
<DEPRECIATION> 25273
<TOTAL-ASSETS> 29679
<CURRENT-LIABILITIES> 4400
<BONDS> 3463
0
0
<COMMON> 0
<OTHER-SE> 11829
<TOTAL-LIABILITY-AND-EQUITY> 29679
<SALES> 17716
<TOTAL-REVENUES> 20772
<CGS> 13077
<TOTAL-COSTS> 13077
<OTHER-EXPENSES> 4639
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196
<INCOME-PRETAX> 955
<INCOME-TAX> 257
<INCOME-CONTINUING> 698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 698
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
