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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 June 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 Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
Revenues:
Sales and other operating revenues $ 6,178 $ 6,862 $12,129 $14,015
Consumer excise taxes............. 913 868 1,758 1,683
Equity in income of affiliates and
other income ................... 142 96 282 202
Total revenues.................. 7,233 7,826 14,169 15,900
Costs and Expenses:
Purchased crude oil, natural
gas, petroleum products and
merchandise..................... 3,196 3,785 6,428 7,820
Operating expenses................ 1,148 1,053 2,179 2,098
Petroleum exploration expenses,
including exploratory dry holes. 151 118 277 267
Selling and administrative
expenses........................ 477 449 1,005 858
Taxes other than income taxes..... 1,039 1,038 2,012 2,061
Depreciation, depletion, amorti-
zation, and retirements
and abandonments................ 677 452 1,149 936
Interest expense:
Affiliates...................... 142 127 269 251
Other........................... 77 55 134 91
Total costs and expenses...... 6,907 7,077 13,453 14,382
Income before income taxes.......... 326 749 716 1,518
Income taxes........................ 168 203 261 416
Net income.......................... $ 158 $ 546 $ 455 $ 1,102
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Condensed Consolidated Statement of Financial Position
(millions of dollars)
June 30, Dec. 31,
ASSETS 1998 1997
Current Assets:
Cash ......................................... $ 82 $ 78
Marketable securities--at cost................ 645 768
Accounts and notes receivable:
Trade (less allowances of $6 at June 30,
1998, and $7 at December 31, 1997)........ 2,754 2,873
Affiliates.................................. 793 803
3,547 3,676
Inventories................................... 958 876
Prepaid expenses, income taxes and other...... 800 1,044
Total current assets........................ 6,032 6,442
Investments and Other Assets:
Affiliates.................................... 1,391 1,391
Other......................................... 3,104 2,957
4,495 4,348
Properties--at cost, less accumulated depre-
ciation, depletion and amortization of $24,892
at June 30, 1998, and $23,798 at December 31,
1997.......................................... 19,400 19,272
Total assets................................ $29,927 $30,062
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Current portion of long-term obligations...... $ 82 $ 146
Short-term obligations........................ 1,281 576
Accounts payable.............................. 2,037 2,497
Accrued liabilities........................... 691 872
Taxes payable (including income taxes)........ 774 1,074
Total current liabilities................... 4,865 5,165
Long-Term Obligations:
Affiliates.................................... 5,022 4,739
Other debt.................................... 3,505 2,791
Capitalized leases............................ 81 80
8,608 7,610
Deferred Credits and Other Non-Current Liabilities:
Income taxes.................................. 2,856 2,781
Other......................................... 1,869 1,882
4,725 4,663
Minority Interest............................... 120 119
Shareholder's Equity:
Common stock and earnings retained and
invested in the business.................... 11,676 12,571
Accumulated other comprehensive income:
Foreign currency translation adjustment..... (67) (66)
11,609 12,505
Total liabilities and shareholder's equity.. $29,927 $30,062
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Condensed Consolidated Statement of Cash Flows
(millions of dollars)
Six Months Ended
June 30,
1998 1997
Cash Flows from Operating Activities:
Net income................................... $ 455 $ 1,102
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion, amortization,
and retirement and abandonments.......... 1,149 936
Decrease in trade receivables.............. 958 350
Increase in affiliate receivables.......... (849) (994)
Decrease in payables and accrued
liabilities.............................. (636) (323)
Decrease in taxes payable.................. (300) (183)
Deferred taxes and other items............. (12) (303)
Net cash provided by operating activities.. 765 585
Cash Flows from Investing Activities:
Capital expenditures......................... (1,291) (1,319)
Proceeds from dispositions of property and
other assets............................... 346 113
Net investments, advances and business
acquisitions............................... (151) (516)
Other........................................ (55) 47
Net cash used in investing activities...... (1,151) (1,675)
Cash Flows from Financing Activities:
New long-term obligations.................... 1,027 555
Repayment of long-term obligations........... (94) (190)
Dividends paid............................... (1,371) (133)
Increase in short-term obligations........... 705 457
Net cash used in financing activities...... 267 689
Decrease in Cash and Marketable
Securities................................... (119) (401)
Cash and Marketable Securities-Beginning of
Period....................................... 846 989
Cash and Marketable Securities-End of Period... $ 727 $ 588
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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. Certain information in the Condensed Consolidated
Statement of Cash Flows has been reclassified to conform to the
new presentation.
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 $39 million after tax in the first six months
of 1998 with $19 million capitalized during the second quarter.
Shown below is the Company's comprehensive income.
Three Months Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
Net income............................ $ 158 $ 546 $ 455 $1,102
Other comprehensive income, after tax. 3 (21) (1) (76)
Comprehensive income.................. $ 161 $ 525 $ 454 $1,026
Item 2. Management's Narrative Analysis of Results of Operations
Results of Operations
Net income for the second quarter of 1998 amounted to $158
million compared with $546 million for the second quarter of
1997. Second-quarter 1998 results included a charge of $214
million for impairment of the value of operations in Colombia.
The impairment of the Opon field in Colombia reflected lower than
anticipated natural gas production and related reserve estimates.
The charge also reflected impairment of the adjacent Termo
Santander power plant because of the unavailability of an
economic fuel supply.
Excluding the impairment charge, the second-quarter earnings
decline primarily resulted from significantly lower crude oil
prices reflecting an oversupply of crude oil on world markets,
and lower worldwide demand in part resulting in part from the
economic crisis in Asia. For the Company, crude oil prices in the
United States dropped over $5.00 per barrel compared with year-
earlier levels.
For the first six months of 1998, the Company reported earnings
of $626 million, excluding the impairment charge and a first-
quarter gain on asset divestitures of $43 million. This compared
with $1,102 million earned in the year-earlier period. The
decrease in earnings primarily reflected lower crude oil prices
and chemical margins. Partly offsetting were higher petroleum
products earnings due to improved refining margins and sales
volumes.
Sales and other operating revenues totaled $6.2 billion for the
second quarter of 1998, 10 percent lower than the $6.98 billion
reported in the corresponding 1997 period. Crude oil, refined
products and chemical revenues decreased 25 percent, 14 percent
and 7 percent, respectively, primarily reflecting lower prices.
For the first half of 1998, sales and other operating revenues
totaled $12.1 billion, a 13 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 in equity in income of affiliates and other
income for the second quarter and year-to-date 1998 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 Amoco's strategy to
upgrade and refocus the portfolio of E&P assets.
Purchases of crude oil, natural gas, petroleum products and
merchandise totaled $3.2 billion for the second quarter of 1998,
16 percent lower than the comparable 1997 quarter. The decrease
was primarily attributable to lower crude oil purchase prices.
Purchases declined 18 percent in the first half of 1998 as a
result of lower crude oil purchase prices.
Petroleum exploration expenses of $151 million for the second
quarter of 1998 increased 28 percent from the second quarter of
1997, mainly due to higher dry hole costs in the United States
and overseas. For the first six months of 1998, exploration
expenses increased four percent over the six-month period in
1997, reflecting higher exploration costs in the United States
offset by lower costs overseas.
The increase for both the quarter and year-to-date in
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 second quarter and
first six months of 1998, compared with the prior-year's periods,
,reflected higher long-term debt balances.
Subsequent Event
On August 11, 1998, Amoco and The British Petroleum Company
p.l.c. ("BP") announced that the companies signed a merger
agreement. Subject to standard approvals and contingencies, Amoco
will merge with a subsidiary of BP. Under the agreement, Amoco
shareholders will be entitled to receive for each Amoco common
share held at closing, 3.97 BP ordinary shares. Such shares will
be delivered in the form of American Depository Receipts, which
represent six BP ordinary shares. Following the merger, BP
shareholders will hold approximately 60 percent and Amoco
shareholders approximately 40 percent of the capital of the
combined company on a diluted basis. BP will be renamed BP Amoco
p.l.c.
Liquidity and Capital Resources
Cash flows from operating activities was $765 million in the
first six months of 1998 compared with $585 million in the
comparable 1997 period. Working capital totaled $1.2 billion at
June 30, 1998, compared with $1.3 billion at year-end 1997. The
Company's current ratio was 1.24 to 1 at June 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 29.3 percent at June 30, 1998, compared with 21.7
percent at year-end 1997. Including debt with affiliates, the
ratio was 45.7 percent at June 30, 1998, and 39.5 percent at year-
end 1997. The ratio of earnings to fixed charges on third-party
obligations was 4.6 to 1 for the first six 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 $1.3 billion as of June 30, 1998,
an increase of $705 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 June 30, 1998, bank lines of
credit available to support 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. The Company issued $500 million of ten-year,
6% guaranteed notes during the second quarter of 1998. A $500
million shelf registration statement on file with the Securities
and Exchange Commission was withdrawn during the second quarter
of 1998.
Amoco Corporation and Amoco Company guarantee the public notes,
bonds and debentures of Amoco Canada. 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 six months of
1998 totaled $1,568 million compared with $1,586 million for the
similar 1997 period. Approximately 69 percent of the spending is
in E&P operations.
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 computer information technology 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 to be prepared 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 bulk of this work being completed by the
end of 1998. Incremental costs related to this effort are
expected to reduce income by about $55 million before tax in
1998, and by about $100 million for the 1997 through 1999 period.
The Company's year 2000 process will assess the year 2000
readiness of critical suppliers and customers who are addressing
similar issues in their businesses and systems. Interruptions in
supplies or customer orders (or other failures of third parties
on which the Company relies) resulting from year 2000 issues
could adversely affect the Company's business. The Company is in
the process of reviewing its business resumption and contingency
plans to mitigate the impact of possible third party failures
where cost effective.
The Company has provided in its accounts for the reasonably
estimable future costs of probable environmental remediation
obligations relating to various oil and gas operations,
refineries, marketing sites and chemical locations, including
multiparty sites at which the Company and certain of its
subsidiaries have been identified as potentially responsible
parties by the U.S. Environmental Protection Agency. Such
estimated costs will be refined over time as remedial
requirements and regulations become better defined. However, any
additional environmental costs cannot be reasonably estimated at
this time due to uncertainty of timing, the magnitude of
contamination, future technology, regulatory changes and other
factors. Although future costs could have a significant effect on
the results of operations in any one period, they are not
expected to be material in relation to the Company's liquidity or
consolidated financial position. In total, the accrued liability
represents a reasonable best estimate of the Company's
remediation liability.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995.
Statements in this report that are not historical facts,
including statements about industry and company growth, estimates
of expenditures and savings, and other trend projections are
forward looking statements. These statements are based on current
expectations and involve risk and uncertainties. Actual future
results or trends may differ materially depending on a variety of
factors. These include specific factors identified in the
discussion accompanying such forward looking statements, industry
product supply, demand and pricing, political stability and
economic growth in relevant areas of the world, Amoco's
successful execution of its internal performance plans,
development and use of new technology, successful partnering,
actions of competitors, natural disasters, and other changes to
business conditions.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
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 ended March 31, 1998.
Seven 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 $3.9 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
June 30, 1998.
Signature
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Amoco Company
(Registrant)
Date: August 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)
Six
Months
Ended Year Ended December 31,
June 30,
1998 1997 1996 1995 1994 1993
Determination of Income:
Consolidated earnings
before income taxes
and minority interest... $ 718 $3,235 $3,351 $2,425 $2,688 $2,427
Fixed charges expensed by
consolidated companies.. 168 282 251 233 140 193
Adjustments for certain
companies accounted for
by the equity method... 53 50 76 10 7 9
Adjusted earnings plus
fixed charges........... $ 939 $3,567 $3,678 $2,668 $2,835 $2,629
Determination of Fixed Charges:
Consolidated interest on
indebtedness (including
interest capitalized)... $ 127 $ 212 $ 164 $ 152 $ 127 $ 162
Consolidated rental
expense representative
of an interest factor... 41 84 88 71 7 31
Adjustments for certain
companies accounted for
by the equity method.... 34 7 8 6 5 6
Total fixed charges...... $ 202 $ 303 $ 260 $ 229 $ 139 $ 199
Ratio of earnings to
fixed charges........... 4.6* 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 2.6 as of June 30, 1998, 5.0 as of
December 31, 1997 and 5.5 as of December 31, 1996.
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<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
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 82
<SECURITIES> 645
<RECEIVABLES> 3553
<ALLOWANCES> 6
<INVENTORY> 958
<CURRENT-ASSETS> 6032
<PP&E> 44292
<DEPRECIATION> 24892
<TOTAL-ASSETS> 29927
<CURRENT-LIABILITIES> 4865
<BONDS> 3505
0
0
<COMMON> 0
<OTHER-SE> 11609
<TOTAL-LIABILITY-AND-EQUITY> 29927
<SALES> 12129
<TOTAL-REVENUES> 14169
<CGS> 8884
<TOTAL-COSTS> 8884
<OTHER-EXPENSES> 3161
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134
<INCOME-PRETAX> 716
<INCOME-TAX> 261
<INCOME-CONTINUING> 455
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 455
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
