<PAGE>
1994
---------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
For the fiscal year ended December 31, 1994
Commission file number 1--1196
[LOGO OF ARCO]
ATLANTIC RICHFIELD COMPANY
(Exact name of registrant as specified in its charter)
Delaware 23-0371610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.
515 South Flower Street, Los Angeles, California 90071
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 486-3511
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- -----------------------
<S> <C>
Common Stock ($2.50 par value) New York Stock Exchange
Pacific Stock Exchange
Basel Stock Exchange
Geneva Stock Exchange
Zurich Stock Exchange
London Stock Exchange
$3.00 Cumulative Convertible Preference Stock New York Stock Exchange
($1 par value) Pacific Stock Exchange
$2.80 Cumulative Convertible Preference Stock New York Stock Exchange
($1 par value) Pacific Stock Exchange
Thirty year 5 5/8% Debentures Due May 15, 1997 New York Stock Exchange
Three year 9% Exchangeable Notes due September 15, 1997 New York Stock Exchange
Ten year 10 3/8% Notes Due July 15, 1995 New York Stock Exchange
Twenty year 10 7/8% Debentures Due July 15, 2005 New York Stock Exchange
Thirty year 9 7/8% Debentures Due March 1, 2016 New York Stock Exchange
Twenty-five year 9 1/8% Debentures Due March 1, 2011 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant on December 31, 1994, based on the closing price on the New York
Stock Exchange composite tape on that date, was $16,596,957,043.
Number of shares of Common Stock, $2.50 par value, outstanding as of December
31, 1994: 160,753,966.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement, which will be filed
with the Securities and Exchange Commission within 120 days after December 31,
1994 are incorporated by reference under Part III.
<PAGE>
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<C> <S> <C>
1. and 2. Business and Properties....................................... 1
Corporate History and Organization......................... 1
Financial Information about Industry Segments.............. 2
Upstream................................................... 2
Worldwide Oil and Gas Operations........................ 2
Worldwide Coal Operations............................... 6
Downstream................................................. 7
Refining and Marketing.................................. 7
Transportation.......................................... 9
Intermediate Chemicals and Specialty Products........... 9
Equity Interest in Lyondell................................ 11
Capital Program............................................ 12
Patents.................................................... 12
Competition................................................ 12
Human Resources............................................ 13
Research and Development................................... 13
Environmental Matters...................................... 13
3. Legal Proceedings............................................. 16
4. Submission of Matters to a Vote of Security Holders........... 18
----------------
Executive Officers of the Registrant.......................... 19
Description of Capital Stock.................................. 22
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters...................................................... 26
6. Selected Financial Data....................................... 26
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 27
8. Financial Statements and Supplementary Data................... 34
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 54
PART III
10. Directors and Executive Officers of the Registrant............ 54
11. Executive Compensation........................................ 54
12. Security Ownership of Certain Beneficial Owners and
Management................................................... 54
13. Certain Relationships and Related Transactions................ 54
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.......................................................... 54
</TABLE>
(i)
<PAGE>
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
CORPORATE HISTORY AND ORGANIZATION
Atlantic Richfield Company ("ARCO" or the "Company") was incorporated in
1870 under the laws of Pennsylvania as The Atlantic Refining Company. Atlantic
Petroleum Storage Company, a predecessor to The Atlantic Refining Company,
began operations in 1866. The Company's principal executive offices are at 515
South Flower Street, Los Angeles, California 90071 (Telephone (213) 486-3511).
ARCO's present name was adopted subsequent to the merger of Richfield Oil
Corporation into The Atlantic Refining Company in 1966. In 1969, Sinclair Oil
Corporation was merged into ARCO. In 1977, The Anaconda Company was merged
into a wholly-owned subsidiary of ARCO and, on December 31, 1981, that
subsidiary was merged into ARCO. On May 7, 1985, ARCO was reincorporated in
the State of Delaware. Unless indicated otherwise, the terms "ARCO" or the
"Company" as used herein refer to Atlantic Richfield Company or Atlantic
Richfield Company and one or more of its consolidated subsidiaries.
ARCO, including its subsidiaries, constitutes one of the largest integrated
enterprises in the petroleum industry. ARCO conducts operations in two
business segments: resources and products.
ARCO's resources segment, known as its "upstream" operations, includes the
exploration, development and production of petroleum, which includes petroleum
liquids (crude oil, condensate and natural gas liquids ("NGLs")) and natural
gas, the purchase and sale of petroleum liquids and natural gas, and the
mining and sale of coal. ARCO's products segment, or its "downstream"
operations, includes the refining and transportation of petroleum and
petroleum products, the marketing of petroleum products on the U.S. West Coast
and the worldwide manufacture and sale of intermediate chemicals and specialty
products.
ARCO's corporate structure is a complex of wholly-owned and majority-owned
subsidiaries and various divisions or units of the parent company, ARCO, that
have been delineated or defined for various operational reasons. Many of the
wholly-owned subsidiaries are formed to conduct ARCO's numerous international
operations. The principal majority-owned subsidiaries are ARCO Chemical
Company ("ARCO Chemical") and Vastar Resources, Inc. ("Vastar"). ARCO Chemical
was formed in July 1987, and it sold just under 20 percent of its common stock
to the public in October 1987; ARCO currently owns 83.3 percent of ARCO
Chemical. Vastar was formed in September 1993, and in July 1994 sold just
under 20 percent of its common stock to the public; ARCO currently owns 82.3
percent of Vastar. Vastar is the primary vehicle through which ARCO conducts
natural gas and, to a lesser extent oil, exploration and production in the
Lower 48 States (the "Lower 48"). ARCO's principal subsidiaries are ARCO
Chemical, Vastar, ARCO Alaska, Inc. (a wholly-owned subsidiary through which
ARCO conducts its Alaska operations) and ARCO Transportation Alaska, Inc. (a
wholly-owned subsidiary through which ARCO holds its interest in the Trans
Alaska Pipeline System ("TAPS")).
ARCO also owns a 49.9 percent equity interest in Lyondell Petrochemical
Company ("Lyondell"), which operates petrochemical processing and petroleum
refining businesses. ARCO originally sold just over 50 percent of Lyondell's
common stock ("Lyondell Common Stock") to the public in January 1989; in
August 1994, ARCO received net proceeds of approximately $958 million from the
sale of its 9% Exchangeable Notes due September 1997 (the "Exchangeable
Notes"). The Exchangeable Notes are exchangeable at maturity, at ARCO's
option, into shares of Lyondell Common Stock, of which ARCO currently holds
39,921,400 shares, or cash with an equal value. The number of shares or amount
of such cash will be determined based on a formula that takes into account the
market price of Lyondell Common Stock at maturity of the Exchangeable Notes.
If ARCO elects to deliver shares of Lyondell Common Stock upon maturity of the
Exchangeable Notes, ARCO's equity interest in Lyondell will be substantially
reduced or eliminated, depending on the market price of Lyondell Common Stock
at such time.
1
<PAGE>
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Reference is made to Note 4 of Notes to Consolidated Financial Statements on
page 40 for segment information concerning sales and other operating revenues,
earnings, total assets and additional information for certain operations of
the Company.
UPSTREAM
WORLDWIDE OIL AND GAS OPERATIONS
General
ARCO conducts its worldwide oil and gas exploration and production
operations primarily in Alaska, the Lower 48, the North Sea and Indonesia.
Reserves
Estimated net quantities of ARCO's proved oil and gas reserves at December
31, 1994 were as follows:
<TABLE>
<CAPTION>
NATURAL GAS
PETROLEUM LIQUIDS (BILLION CUBIC
(MILLION BARRELS) FEET)
---------------------- ----------------------
U.S. INTERNATIONAL U.S. INTERNATIONAL
----- ------------- ----- -------------
<S> <C> <C> <C> <C>
Proved reserves................... 2,246(a) 222 4,615(c) 3,493
Proved developed reserves......... 1,915(b) 87 4,301(d) 1,142
</TABLE>
- --------
(a) Includes 95 million barrels owned by Vastar.
(b) Includes 72 million barrels owned by Vastar.
(c) Includes 1,982 billion cubic feet owned by Vastar.
(d) Includes 1,755 billion cubic feet owned by Vastar.
Reference is made to Supplemental Information, Oil and Gas Producing
Activities, beginning on page 51, for additional information concerning oil
and gas producing activities and estimates of proved oil and gas reserves.
In 1994 and 1993, ARCO produced approximately 148 percent and 147 percent,
respectively, of the crude oil requirements for its two West Coast refineries.
Of the excess production, a portion was delivered to a refinery owned by Tosco
Corporation ("Tosco") under a long-term supply agreement, some was sold to
Lyondell and the significant remainder was sold on the open market. See
"Downstream--Refining and Marketing."
Production
Net quantities of petroleum liquids and natural gas produced by ARCO were as
follows:
<TABLE>
<CAPTION>
NATURAL GAS
PETROLEUM LIQUIDS (MILLION CUBIC FEET
(BARRELS PER DAY) PER DAY)
--------------------- ---------------------
YEARS ENDED
DECEMBER 31, U.S.(A) INTERNATIONAL U.S.(B) INTERNATIONAL
- ------------ ------- ------------- ------- -------------
<S> <C> <C> <C> <C>
1994................................ 591,300 72,800 960 511
1993................................ 604,700 79,700 911 321
1992................................ 660,500 77,700 1,202 240
</TABLE>
- --------
(a) Includes 43,500, 44,700, and 51,400 barrels per day produced by Vastar in
1994, 1993 and 1992, respectively.
(b) Includes 782, 695, and 720 million cubic feet per day produced by Vastar
in 1994, 1993, and 1992, respectively.
2
<PAGE>
Average sales prices and average production costs per unit of petroleum
liquids and natural gas were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1993 1992
-------------------- -------------------- --------------------
U.S. INTERNATIONAL U.S. INTERNATIONAL U.S. INTERNATIONAL
------ ------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Average sales price
(including transfers)
per barrel of petroleum
liquids produced....... $10.43 $14.56 $11.67 $16.05 $12.88 $17.82
Average lifting cost per
equivalent barrel of
production............. 4.05 3.52 4.78 3.99 4.72 5.27
Average sales price per
MCF of natural gas
produced............... 1.76 2.51 1.93 2.69 1.65 2.96
</TABLE>
Delivery Commitments
ARCO has various long-term natural gas sales contracts covering the majority
of its production in Indonesia and the United Kingdom North Sea, substantially
all of which are reservoir specific. While annual delivery requirements may
vary under these contracts, delivery obligations under the agreements are
essentially limited to producible reserves from specific fields.
In the Lower 48, Vastar has various long-term natural gas sales contracts
under which Vastar has contracted to deliver approximately 940 MMcfd in 1995.
Such obligation is presently the maximum requirement and declines to less than
100 MMcfd by 2003. The majority of these contracts are either index-based and
present little or no price risk, or are reservoir-dedicated, and present no
obligation to deliver if production from these reservoirs ceases. Vastar can
satisfy its existing natural gas delivery commitments from the gross natural
gas production controlled by Vastar, including proprietary production, royalty
gas, call rights on third party gas and gas obtained through joint operating
agreements. Vastar's total proprietary production was 782 MMcfd in 1994. There
have been no instances in the last three years in which Vastar was unable to
meet its natural gas delivery commitments.
Exploration and Drilling Activity
The following table shows the number of wells drilled to completion by the
Company:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1994 1993 1992
--------------------- --------------------- ---------------------
U.S.(a) INTERNATIONAL U.S.(b) INTERNATIONAL U.S.(c) INTERNATIONAL
------- ------------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net productive
exploratory wells
drilled................ 12 3 13 8 16 9
Net dry exploratory
wells drilled.......... 29 5 65 13 70 15
Net productive
development wells
drilled................ 245 11 228 31 164 22
Net dry development
wells drilled.......... 27 1 21 2 19 1
</TABLE>
- --------
(a) Includes 11, 25, 89, and 11 wells, respectively, drilled by Vastar.
(b) Includes 11, 46, 90, and 11 wells, respectively, drilled by Vastar.
(c) Includes 11, 50, 72, and 7 wells, respectively, drilled by Vastar.
3
<PAGE>
The Company's current activities, as of December 31, 1994, were as follows:
<TABLE>
<CAPTION>
U.S. INTERNATIONAL
---- -------------
<S> <C> <C>
Gross wells in process of drilling (including wells
temporarily suspended)..................................... 129 33
Net wells in process of drilling (including wells
temporarily suspended)..................................... 47 14
Waterflood projects in process.............................. 25 --
Pressure maintenance and waterflood operations.............. 14 3
</TABLE>
The following table shows the approximate number of productive wells at
December 31, 1994:
<TABLE>
<CAPTION>
OIL GAS
--------------------------- ---------------------
U.S.(A)(B) INTERNATIONAL(C) U.S.(D) INTERNATIONAL
---------- ---------------- ------- -------------
<S> <C> <C> <C> <C>
Total gross productive
wells.................. 12,382 478 3,151 190
Total net productive
wells.................. 5,432 201 1,344 47
</TABLE>
- --------
(a) Includes approximately 1,579 gross and 289 net multiple completions for
ARCO, of which there are 235 gross and 98 net multiple completions for
Vastar.
(b) Includes approximately 1,243 gross and 617 net wells, respectively, owned
by Vastar.
(c) Includes approximately 85 gross and 39 net multiple completions.
(d) Includes approximately 2,127 gross and 1,057 net wells, respectively,
owned by Vastar.
As of December 31, 1994, the Company's holdings of petroleum rights acreage
(including options and exploration rights) were as follows (in thousands):
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
ACREAGE ACREAGE
----------- -------------
NET GROSS NET GROSS
----- ----- ------ ------
<S> <C> <C> <C> <C>
U.S.
Alaska.............................................. 208 368 945 1,247
Lower 48(a)......................................... 1,414 2,554 3,397 4,958
----- ----- ------ ------
Total U.S......................................... 1,622 2,922 4,342 6,205
International......................................... 96 296 31,506 46,874
----- ----- ------ ------
Total............................................. 1,718 3,218 35,848 53,079
===== ===== ====== ======
</TABLE>
- --------
(a) Includes 981,000 net developed acreage, 1,603,000 gross developed acreage,
2,701,000 net undeveloped acreage and 3,770,000 gross undeveloped acreage,
respectively, held by Vastar.
Alaska
Approximately 63 percent of ARCO's worldwide petroleum liquids production
came from ARCO's interests in Alaska, primarily in the Prudhoe Bay, Kuparuk
River and the Greater Point McIntyre area fields on the North Slope of Alaska.
ARCO's net liquids production from Alaska in 1994 increased to 421,200 barrels
per day as a full year's benefit from the new Point McIntyre field and from
the full implementation of Prudhoe Bay's second major gas handling expansion
facility ("GHX-2") was recognized. ARCO's interests in Alaska provided net
proved reserves of 1,981 million barrels of oil equivalent at December 31,
1994.
ARCO operates the eastern half of the Prudhoe Bay field and has a 21.78
percent working interest in the oil produced from the field, a 42.56 percent
working interest in the condensate produced and, in 1994, a 39.9 percent
working interest in the NGLs produced. ARCO's net petroleum liquids production
from the Prudhoe Bay field averaged 236,600 barrels per day in 1994, compared
to 250,800 barrels per day in 1993. In third quarter 1994, the GHX-2 project,
a joint undertaking among the working interest owners, was completed. The
project, designed to increase the field's average gas handling capacity and
thereby mitigate declining oil production, increased annual average gas
handling capacity to 7.5 billion cubic feet per day and should increase gross
liquids production by approximately 100,000 barrels per day. The project is
expected to increase field recovery by an estimated 435 million gross barrels.
4
<PAGE>
ARCO is the sole operator of the Kuparuk River field and holds a 55.17
percent working interest in the field. Its share of production from the field
was 147,200 net barrels per day of petroleum liquids during 1994, compared to
151,500 net barrels per day during 1993. ARCO plans to begin expending capital
in 1995 on an enhanced oil recovery project, subject to final approval by
ARCO's partners. NGLs, obtained from the Prudhoe Bay field, will be injected
into existing wells in the Kuparuk field in order to maintain reservoir
pressure and offset natural field decline. ARCO estimates that this project
will result in an additional 160 million gross barrels (80 million net barrels
to ARCO) of incremental oil from the Kuparuk River field.
ARCO operates four of the five fields which encompass the Greater Point
McIntyre area, and holds working interests in four of them as follows: 30.1
percent in Point McIntyre, 40.0 percent in Lisburne, 50.0 percent in both West
Beach and North Prudhoe Bay State. All five fields are produced through the
Lisburne Production Facility, which ARCO operates. During 1994, liquids
produced through the Lisburne Production Facility averaged 139,000 gross
barrels per day, and 37,400 net barrels per day.
ARCO's exploration program in Alaska focused on projects near existing
infrastructure in 1994. Following delineation work in 1994, ARCO determined
that the 1991 Sunfish discovery was non-commercial on a stand alone basis.
ARCO is currently negotiating with its partner and others to trade its 60
percent working interest in the project.
All petroleum liquids shipped from the North Slope fields are transported to
market through TAPS to terminal facilities at Valdez, and from there to West
Coast locations by ocean-going tankers.
Lower 48
During 1994, ARCO's consolidated Lower 48 operations had net production of
338 billion cubic feet of natural gas and 62 million barrels of petroleum
liquids as compared to 321 billion cubic feet and 68 million barrels in 1993,
respectively. Reserves were reduced by 25 million barrels of oil equivalent,
primarily due to production. Development and exploration activities replaced
79 percent of 1994 net production on a barrel-of-oil-equivalent basis.
The primary vehicle for ARCO's Lower 48 exploration and production
operations is Vastar, of which ARCO owns 82.3 percent. Vastar, headquartered
in Houston, Texas, is engaged in the exploration for and the development,
production and marketing of natural gas and, to a lesser extent, crude oil in
selected major producing basins in the Gulf of Mexico, the Gulf Coast, the San
Juan/Rockies and the midcontinent areas. For additional information about
Vastar, a copy of Vastar's 1994 Annual Report to Stockholders and 1994 Annual
Report on Form 10-K can be obtained by writing to Manager, Investor Relations,
Vastar Resources, Inc., 15375 Memorial Drive, Houston, Texas 77079. Vastar's
telephone number is (713) 584-6000.
ARCO's other Lower 48 operations accounted for reserves at December 31, 1994
of 608 million barrels of oil equivalent, of which 86 percent were petroleum
liquids. In 1994 net production from ARCO's other Lower 48 interests was 56
million barrels of oil equivalent, down from 63 million barrels in 1993, the
result of natural field decline.
International
ARCO's international operations include both exploration and production.
ARCO's 1994 international production of petroleum liquids averaged 72,800
barrels of oil equivalent per day, and came primarily from Indonesia and the
United Kingdom. Natural gas production averaged 511 million cubic feet per
day. The Pagerungan and the Offshore Northwest Java natural gas fields in
Indonesia accounted for 40 percent of ARCO's 1994 international natural gas
production. Natural gas production from the United Kingdom sector of the North
Sea accounted for 56 percent.
5
<PAGE>
ARCO's net proved reserves from international interests at December 31, 1994
were 804 million barrels of oil equivalent. ARCO replaced 187 percent of its
international production, primarily from the 1992 Villano discovery in
Ecuador, which accounted for the addition of 75 million barrels of proved
reserves in 1994.
ARCO's principal development activities in 1994 were conducted offshore in
the United Kingdom, China and Indonesia. In the United Kingdom, ARCO will
bring its first operated U.K. oil field onstream when the Blenheim field in
the Central North Sea begins production in the first half of 1995. ARCO and
its partner are developing the Gawain gas field, and production is expected to
begin in late 1995. In the North Sea Southern Gas Basin, ARCO is moving
forward with a development plan for the Trent and Tyne fields; start up is
expected in 1996. In the South China Sea, a 500-mile subsea pipeline from the
Yacheng 13-1 field to Hong Kong was completed. In addition, development of the
Yacheng 13-1 natural gas field continued, and production is expected to begin
in early 1996. Construction of another pipeline to Hainan Island continued on
schedule. In Ecuador, ARCO submitted to the government development plans for
the Villano discovery. ARCO's principal exploration activities in 1994 were
conducted in the South China Sea, in and around producing gas fields in
Indonesia, and in the North Sea Southern Gas Basin.
WORLDWIDE COAL OPERATIONS
ARCO operates surface and underground coal mines in the western United
States and in northeastern Australia.
In the United States, ARCO owns and operates two surface mines in Wyoming's
Powder River Basin, Black Thunder and Coal Creek, that produce low-sulfur
steam coal, and owns and operates West Elk, an underground mine in western
Colorado that uses longwall technology to produce its low-sulfur, high-BTU
steam coal. Total U.S. coal shipments for 1994 were 38.3 million tons of coal.
In Queensland, Australia, ARCO has interests in three mines in the Bowen
Basin: Curragh, Blair Athol and Gordonstone. ARCO operates and holds an
effective 87 percent interest in Curragh, a surface mine which produces high-
grade coking and steam coal. ARCO holds a non-operating 31.4 percent interest
in Blair Athol, a surface mine which produces steam coal. ARCO operates and
has an 80 percent interest in Gordonstone, an underground mine that uses
longwall technology to produce its high-grade coking and steam coal. ARCO's
net share of total shipments in 1994 from Australian operations was 11.3
million tons.
As of December 31, 1994, ARCO had long-term contracts to supply U.S. utility
companies with steam coal from its Black Thunder, Coal Creek and West Elk
mines. These contracts have various termination dates with the longest being
December 31, 2017. Several of these include options for extensions for
additional periods. Future revenues from these contracts can be affected by
periodic reopeners that adjust sales prices based on prevailing market
conditions. It is anticipated that these contracts will require approximately
85 percent of planned production from Black Thunder, Coal Creek and West Elk
in 1995. Approximately 75 percent of planned 1995 production in Australia is
committed under both long and short-term contract arrangements.
In total, ARCO shipped 49.6 million tons of coal during 1994 and had 1,506
million tons of recoverable coal reserves as of December 31, 1994. Reference
is made to Supplemental Information, Coal Operations on page 53 for further
information concerning reserves and shipments of coal.
6
<PAGE>
DOWNSTREAM
REFINING AND MARKETING
ARCO operates two U.S. petroleum refineries on the West Coast, the Los
Angeles Refinery in Carson, California and the Cherry Point Refinery near
Ferndale, Washington. Both of these refineries are accessible to major supply
sources and major markets through ocean-going tankers, pipelines and other
transportation facilities. Both currently utilize Alaskan North Slope crude
oil.
The combined annual average operable crude distillation capacities of these
two refineries, as measured pursuant to the standards of the American
Petroleum Institute, are shown in the following table:
<TABLE>
<CAPTION>
ANNUAL AVERAGE OPERABLE
CRUDE DISTILLATION
CAPACITY
(BARRELS PER DAY)
-----------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Los Angeles Refinery.................................... 237,000 237,000 223,000
Cherry Point Refinery................................... 185,000 181,000 167,000
------- ------- -------
Total................................................. 422,000 418,000 390,000
======= ======= =======
</TABLE>
ARCO's crude oil refinery runs and petroleum products manufactured at its
refining facilities were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1994 1993 1992
------- ------- --------
(EQUIVALENT BARRELS PER
DAY)
<S> <C> <C> <C>
Crude oil refinery runs.............................. 408,300 425,800 425,100
======= ======= =======
Petroleum products manufactured:
Gasoline........................................... 206,700 221,600 198,800
Jet fuels.......................................... 88,800 84,600 90,600
Distillate fuels................................... 71,900 79,500 81,600
Other (a).......................................... 66,600 69,400 79,400
------- ------- -------
Total (b)........................................ 434,000 455,100 450,400
======= ======= =======
</TABLE>
- --------
(a) Includes chemical products and feedstocks, sulfur, middle-of-barrel
specialties and changes in unfinished stocks.
(b) Total manufactured petroleum products volumes exceed total crude oil runs
as a result of the expansion of petroleum product through rearrangement of
molecular structure and refinery blending of oxygenates.
ARCO is also obligated to deliver approximately 50,000 barrels per day of
Alaskan North Slope crude oil to the Avon, California refinery of Tosco under
a 1986 agreement. Pursuant to the agreement, which has an initial term that
expires in 1996, ARCO receives in exchange a quantity of gasoline that is a
variable percentage of the amount of crude oil delivered, based on the price
of certain crude oils.
In connection with its refining operations, ARCO also produces calcined
coke, a refinery by-product, and operates electric cogeneration facilities.
ARCO markets gasoline and other refined petroleum products to both consumers
and resellers. Gasoline is marketed under the ARCO(R) trademark through
independent dealers and distributors and directly to motorists at branded
retail outlets located in Arizona, California, Nevada, Oregon and
7
<PAGE>
Washington. ARCO also sells gasoline to unbranded resellers. NGLs are sold
directly to end-use customers and the Watson Cogeneration Facility, which is
51 percent owned by ARCO, and are also marketed through distributors. Jet
fuels are sold directly to airlines and the United States Department of
Defense. Calcined coke is sold to U.S. and international industrial consumers.
Cargo and bulk sales of petroleum products are also made to commercial and
industrial consumers, and certain products are marketed through other
channels.
As of December 31, 1994, there were 1,554 branded retail outlets, which
included franchisee and Company-operated am/pm(R) convenience stores and
SMOGPROS(R) Service Centers, and traditional service stations.
In response to anticipated federal, state and local air quality
requirements, ARCO began development of reformulated automotive fuels in the
late 1980s.
The Environmental Protection Agency ("EPA") emission control regulations
covering nine regions with the nation's highest air pollution, two of which
are in Southern California, became effective January 1, 1995. In order to
comply with these regulations, in 1994 ARCO completed modifications to produce
EPA gasolines at the Los Angeles Refinery, which serves the Southern
California market. Effective January 1, 1995, ARCO is selling reformulated
gasolines and diesel that meet either California Air Resources Board ("CARB")
specifications or EPA specifications. These reformulated fuels use oxygenates,
such as methyl tertiary butyl ether ("MTBE"), to produce a cleaner burning
fuel. ARCO has a small MTBE production unit at the Los Angeles Refinery. In
addition, ARCO and ARCO Chemical entered into long-term sales agreements in
1991 providing for delivery of fixed quantities of MTBE to ARCO at contract
prices.
By March 1996, ARCO and the other California gasoline marketers will also be
required to meet CARB standards for automobile gasolines sold in California.
In order to meet the more stringent CARB standards with 100 percent of the
gasoline produced at the Los Angeles Refinery, ARCO continued in 1994, and
will continue in 1995, to make necessary modifications at the refinery. ARCO
expects to spend a total of approximately $500 million for modifications to
meet both EPA and CARB standards, most of which had been completed by the end
of 1994. These new standards have not required any modifications to ARCO's
Cherry Point refinery in Washington state.
Total U.S. and international refined petroleum product sales, which include
insignificant sales to ARCO Chemical and Lyondell, for the periods indicated,
were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1994 1993 1992
-------- ------- -------
(EQUIVALENT BARRELS PER
DAY)
<S> <C> <C> <C>
Petroleum product sales:
U.S.:
Gasoline............................................ 253,800 252,500 240,800
Jet fuels........................................... 97,600 97,100 104,900
Distillate fuels.................................... 73,500 78,700 81,800
Other............................................... 53,000 53,200 52,000
------- ------- -------
Total............................................. 477,900 481,500 479,500
Brazil................................................ -- 94,400 92,800
------- ------- -------
Total............................................. 477,900 575,900 572,300
======= ======= =======
</TABLE>
Total petroleum product sales differ from total petroleum products
manufactured due to the consumption of some products as refinery fuel, the
exchange of products with other companies, change in inventory levels, and the
purchase and resale of products not manufactured by ARCO.
8
<PAGE>
TRANSPORTATION
ARCO's transportation business includes ownership interests in pipelines in
Alaska, ownership interests in and operations of pipelines and terminalling
facilities in the Lower 48, and the operation of 10 ocean-going U.S. flag
tankers, eight of which are owned by ARCO.
In Alaska, ARCO has a 21.3 percent weighted average undivided ownership
interest in TAPS. TAPS consists of an 800-mile, 48-inch diameter pipeline
system used to transport petroleum liquids from the North Slope of Alaska to
the ice-free port of Valdez in south-central Alaska. In addition, ARCO owns
approximately 21 percent of the stock of Alyeska Pipeline Service Company,
which was established to design, construct, operate and maintain TAPS for the
owners. ARCO's undivided interest in TAPS is proportionately consolidated for
financial reporting purposes. TAPS 1994 total throughput averaged
approximately 1,587,000 barrels per day. During 1993 and 1994, regulatory and
owner company assessment teams completed reviews of TAPS operations and
maintenance, inspection procedures and management. During 1994, numerous
operations and maintenance items were addressed. This work will continue in
1995.
In the Lower 48, ARCO manages facilities for transportation and terminalling
of petroleum liquids, refined petroleum products, petrochemicals and natural
gas. Ownership interests in petroleum liquids pipeline systems include
gathering lines serving producing fields in California, Colorado, New Mexico,
Oklahoma, Texas and Utah, and common carrier trunk lines extending from dock
facilities and producing areas to refineries and terminals. In 1994, ARCO's
ownership interests in refined petroleum product and petrochemical pipeline
systems included trunk lines originating at refineries in Texas, California
and Oklahoma. These pipelines moved petrochemicals and refined petroleum
products for all shippers (including ARCO) that properly tendered these
materials for transportation. In the third quarter of 1994, ARCO sold its
refined petroleum product pipeline assets in the midcontinent. In the western
United States, ARCO has interests in several other petroleum liquids and
refined petroleum product pipelines and several natural gas pipeline systems.
In addition, ARCO owns or leases and operates terminals that provide a variety
of terminalling and transportation services both to third-party customers and
ARCO.
INTERMEDIATE CHEMICALS AND SPECIALTY PRODUCTS
The Company's Intermediate Chemicals and Specialty Products operation
consists of the businesses owned by ARCO Chemical. ARCO currently owns
80,000,001 shares of common stock of ARCO Chemical, which represent 83.3
percent of the outstanding shares.
ARCO Chemical is a leading international manufacturer and marketer of
intermediate chemicals and specialty products used in a broad range of
consumer goods. ARCO Chemical's core product is propylene oxide ("PO"), which
it produces through two distinct process technologies based on indirect
oxidation (peroxidation) processes that yield co-products. One process yields
tertiary butyl alcohol ("TBA") as the co-product; the other process yields
styrene monomer ("SM") as the co-product. The two technologies are mutually
exclusive such that either a dedicated PO/TBA plant or a dedicated PO/SM plant
must be built. ARCO Chemical's other major products include PO derivatives
(which include polyols and propylene glycols ("PG")), TBA derivatives (which
include MTBE and ethyl tertiary butyl ether ("ETBE")), and SM derivatives
(including polystyrenics). In January 1995, ARCO Chemical entered into a long-
term arrangement with Rhone Poulenc for a supply of toulene di-isocyanate
("TDI"). ARCO Chemical will market TDI to customers.
ARCO Chemical's principal chemical facilities are located in: Bayport, Texas
(PO, TBA and various derivatives including PG); Channelview, Texas (PO, SM and
various derivatives including polyols and MTBE); Monaca (Beaver Valley),
Pennsylvania (SM derivatives); Rotterdam, The Netherlands (PO, TBA and various
derivatives including PG and MTBE); Fos-sur-Mer, France (PO, TBA and various
9
<PAGE>
derivatives including PG, polyols and MTBE); and a joint venture in Chiba,
Japan (PO and SM). Other production facilities include facilities for the
production of polystyrenics at Painesville, Ohio and polyols at South
Charleston and Institute, West Virginia, Rieme, Belgium, Kaohsiung, Taiwan,
and Anyer, West Java, Indonesia. ARCO Chemical owns a majority equity interest
in the second PO/SM plant at Channelview, Texas, completed in 1992. The two
equity investors in the plant, which are limited partners, each take a
substantial portion of the SM output of the plant through long-term processing
agreements.
The following table shows ARCO Chemical's worldwide production capacity (in
millions of pounds per year, except where otherwise noted) for PO, TBA, SM and
certain key derivatives:
<TABLE>
<CAPTION>
PRODUCT U.S. INTERNATIONAL
------- ------ -------------
<S> <C> <C>
PO 2,315 1,290
Polyols 655 595
PG 520 340
TBA 2,870 2,395
SM 2,525 740
MTBE--Bbls/day 30,000 28,500
</TABLE>
Capacities shown are the production capacities that, as of December 31,
1994, ARCO Chemical believes it can obtain based upon plant design and subject
to certain onstream factors, product mix and other variable factors.
Capacities shown include the full capacity of onstream joint-venture
facilities. Plants can and have exceeded these capacities for extended periods
of time. In addition, ARCO Chemical currently has processing arrangements at
third party facilities pursuant to which it has the capacity to produce an
additional 20,000 barrels per day of MTBE.
The following table sets forth ARCO Chemical's key product volumes sold to
and processed for customers for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1994 1993 1992
----- ----- -----
(MILLIONS)
<S> <C> <C> <C>
PO and derivatives (pounds)................................... 3,699 3,356 3,055
SM and derivatives (pounds)................................... 2,496 2,084 1,434
TBA and derivatives (gallons)................................. 1,004 1,164 1,092
</TABLE>
Total sales and other operating revenues for ARCO's intermediate chemicals
and specialty products segment for the years ended December 31, 1994, 1993 and
1992 were $3,423 million, $3,192 million, and $3,100 million, respectively,
including immaterial amounts for sales and services to Lyondell.
In addition to raw material purchase agreements and product sales or
processing agreements with unrelated third parties, ARCO Chemical has
agreements with ARCO and Lyondell which provide for, among other things, the
purchase, sale and processing of various products and feedstocks. ARCO
Chemical sells MTBE at contract prices to ARCO for use in the production of
the Company's reformulated gasolines. During 1991, ARCO and ARCO Chemical
entered into long-term sales agreements providing for delivery of fixed
quantities of MTBE. Lyondell provides to ARCO Chemical a portion of the
feedstocks purchased by ARCO Chemical for use at its chemical manufacturing
facilities in Texas. Lyondell also provides certain plant services at these
facilities. ARCO Chemical in turn provides certain feedstocks and supplies to
Lyondell. ARCO Chemical is also a party to certain service agreements and
other arrangements with the Company and Lyondell.
For additional information about ARCO Chemical, a copy of ARCO Chemical's
1994 Annual Report to Stockholders and 1994 Annual Report on Form 10-K can be
obtained by writing to Manager, Investor Relations, ARCO Chemical Company,
3801 West Chester Pike, Newtown Square, Pennsylvania 19073-2387. ARCO
Chemical's telephone number is (610) 359-2000.
10
<PAGE>
EQUITY INTEREST IN LYONDELL
ARCO owns a 49.9 percent equity interest in Lyondell, which is accounted for
on the equity method. Prior to 1989, Lyondell was a wholly owned subsidiary of
ARCO. In August 1994, ARCO completed an offering of Exchangeable Notes due
1997 which can be exchanged at maturity into Lyondell Common Stock or, at
ARCO's option, cash of an equal value. If ARCO elects to deliver shares of
Lyondell Common Stock at maturity, ARCO's equity interest in Lyondell will be
substantially reduced or eliminated. ARCO currently owns 39.9 million shares
of Lyondell Common Stock. See Notes 7 and 20 of Notes to Consolidated
Financial Statements on pages 43 and 49, respectively, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Lyondell is a manufacturer and marketer of petrochemicals and, through its
interest in LYONDELL-CITGO Refining Company Ltd. ("LCR"), of refined petroleum
products. Lyondell manufactures a wide variety of petrochemicals, including
olefins (ethylene, propylene, butadiene, butylenes and specialty products),
polyolefins (polyethylene and polypropylene), methanol and MTBE. Lyondell's
refining business is conducted through its approximate 90 percent
participation interest in LCR, which operates a 265,000-barrel-per-day
refinery in Houston, Texas (the "Houston Refinery"). LCR sells the majority of
the gasoline, jet fuel and heating oil it produces to CITGO Petroleum
Corporation ("CITGO"), which currently has an approximate 10 percent interest
in LCR. LCR also produces fuel oil, aromatics and lubricants.
For the year ended December 31, 1994, Lyondell recorded total revenues of
approximately $309 million from sales to ARCO Chemical. Lyondell also provides
certain plant services at ARCO Chemical's Texas facilities. ARCO Chemical in
turn provides certain feedstocks and supplies to Lyondell. See "Downstream--
Intermediate Chemicals and Specialty Products."
Lyondell historically purchased a portion of its crude oil, natural gas and
NGLs requirements from ARCO. Lyondell currently purchases certain of these
requirements from ARCO and Vastar at prices based on prevailing market prices.
In addition, Lyondell and ARCO have entered into a services agreement and
various leases, technology transfers and licenses and other arrangements.
During 1994, Lyondell paid ARCO and its consolidated subsidiaries an aggregate
of $44 million under these agreements, arrangements and transactions and
received an aggregate of $314 million.
In July 1993, Lyondell entered into arrangements with CITGO and other
affiliates of the Venezuelan National Oil Company, Petroleos de Venezuela,
S.A. ("PDVSA") that, among other things, established LCR as the entity that
owns and operates the Houston Refinery. LCR is undertaking a major upgrade
project to create a world-class facility capable of refining very heavy grades
of crude oil into valuable light products, including reformulated gasoline and
low-sulfur diesel. Completion of the upgrade project is anticipated in late
1996 or early 1997. An affiliate of PDVSA, Lagoven, has entered into a 25-year
supply agreement pursuant to which it supplies Venezuelan crude oil to LCR.
CITGO has entered into a long-term agreement to purchase the Houston
Refinery's gasoline, jet fuel, heating oil and low-sulfur diesel at market-
based prices. Upon completion of the upgrade project, when it receives credit
for its project-related contributions, CITGO's interest in LCR will increase
to approximately 40 percent. CITGO also has a one-time option following
completion of the upgrade to make an additional contribution to LCR in order
to increase its interest up to 50 percent.
For additional information about Lyondell, a copy of Lyondell's 1994 Annual
Report to Stockholders and 1994 Annual Report on Form 10-K can be obtained by
writing to Investor Relations, Lyondell Petrochemical Company, One Houston
Center, 1221 McKinney Street, Houston, Texas 77010. Lyondell's telephone
number is (713) 652-7200.
11
<PAGE>
CAPITAL PROGRAM
The Company's capital expenditures for additions to fixed assets (including
dry hole costs) totaled approximately $1.65 billion in 1994 and are budgeted
at $1.9 billion for 1995. The levels of future capital expenditures may be
affected by business conditions in the industry, particularly possible changes
in prices of and demand for crude oil, natural gas and petroleum products.
Changes in the tax laws, the imposition of and changes in federal and state
clean air and clean fuel requirements, and other changes in environmental
rules and regulations may also affect future capital expenditures.
PATENTS
ARCO owns numerous patents, many of which are available for license to the
petroleum industry, and is itself a licensee under certain patents which are
available generally to the industry. The Company's operations are not
dependent upon any particular patent or patents or upon any exclusive patent
rights.
COMPETITION
The petroleum industry is competitive in all its phases, including
manufacturing, distribution and marketing of petroleum products and
petrochemicals. Methods of competition for new sources of supply include
finding and developing such sources and competition in bidding for leases
which may contain such sources and the acquisition of producing properties.
Competitive factors in manufacturing, distribution and marketing include
price, methods and reliability of delivery, product quality, new product
development and, with respect to consumer products, advertising and sales
promotion.
Crude oil and natural gas supplies are currently abundant relative to demand
in the worldwide markets for those commodities. Market prices are typically
volatile as a result of uncertainties caused by world events. ARCO's leasehold
position on the North Slope of Alaska and its emphasis on the cost-efficient
exploration and development of petroleum resources and on innovative marketing
strategies make the Company well situated to compete in this environment.
In the refining, marketing and manufacturing segment of the industry,
refining operations that yield a higher proportion of high-margin products and
marketing operations that put a premium on high volume and innovation are of
primary importance. The Company's historic emphasis on efficient refinery
operations and innovative retail marketing makes ARCO a strong competitor in
its wholesale markets and in its West Coast retail market.
The U.S. coal industry serves competitive U.S. markets, where the
availability of specific transportation arrangements, primarily rail
transportation, are often a key element in competition because transportation
costs are a significant component of the delivered price of coal. Almost all
of the Company's U.S. coal customers are electric utilities. The Company's
Australian mines are export-oriented, largely to North Asia, and face
worldwide competition from Canadian, Indonesian, South African, U.S. and other
Australian producers.
Key competitive factors in the intermediate chemicals and specialty products
markets include product price, quality, reliability of supply, technical
support, customer service and potential substitute materials. Commodity
chemicals and polymers compete mainly on the basis of price, while specialty
products compete mainly on the basis of product performance.
The Company ranked twenty-second in sales in the most recent Fortune 500
list of industrial companies.
12
<PAGE>
HUMAN RESOURCES
As of December 31, 1994, ARCO had approximately 23,200 full-time equivalent
employees, of whom approximately 12 percent were represented by collective
bargaining agents.
RESEARCH AND DEVELOPMENT
ARCO engages in research for new and improved products and methods for
operating its businesses principally at three facilities located at Plano,
Texas, Newtown Square, Pennsylvania and Anaheim, California. Total research
and development expenses were $109 million, $109 million and $89 million in
1994, 1993 and 1992, respectively.
ENVIRONMENTAL MATTERS
Site Remediation
The Company is subject to federal, state and local environmental laws and
regulations, including the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA" or "Superfund"), and the
Superfund Amendments and Reauthorization Act of 1986 and the Resource
Conservation Recovery Act of 1976 ("RCRA"), which may require the Company to
remove or mitigate the effects on the environment of the disposal or release
of certain chemical, mineral and petroleum substances at various sites,
including the restoration of natural resources located at these sites and
damages for loss of use and non-use values. The Company is currently
participating in environmental assessments and cleanups under these laws at
federal Superfund and state-managed sites, as well as other clean-up sites,
including service stations, refineries, terminals, chemical facilities, third
party landfills, former nuclear processing facilities, sites associated with
discontinued operations and sites that were formerly owned by ARCO. The
Company may in the future be involved in additional environmental assessments
and cleanups, including the restoration of natural resources and damages for
loss of use and non-use values. The ultimate amount of the future costs
associated with such environmental assessments and cleanups is indeterminable
due to such factors as the unknown nature and/or extent of contaminants at
many sites, the unknown timing, extent and method of the remedial actions
which may be required and the determination of the Company's liability in
proportion to other responsible parties. In addition, environmental loss
contingencies include claims for personal injuries allegedly caused by
exposure to toxic materials manufactured or used by ARCO. The Company
continues to estimate the amount of these costs in periodically establishing
reserves based on progress made in determining the magnitude of remediation
costs, experience gained from sites on which remediation has been completed,
the timing, extent and method of remedial actions required by the applicable
governmental authorities and an evaluation of the amount of the Company's
liability considered in light of the liability and financial wherewithal of
the other responsible parties. As the scope of the Company's obligation
becomes more clearly defined, there may be changes in these estimated costs,
which might result in future charges against the Company's earnings.
The Company's environmental remediation reserve of $670 million at December
31, 1994 covers federal Superfund and state-managed sites as well as other
clean-up sites, including service stations, refineries, terminals, chemical
facilities, third-party landfills, former nuclear processing facilities, sites
associated with discontinued operations and sites formerly owned by ARCO. The
Company has been named a potentially responsible party ("PRP") for 126 sites.
The number of PRP sites in and of itself does not represent a relevant measure
of liability, because the nature and extent of environmental concerns vary
from site to site and the Company's share of responsibility varies from sole
responsibility to very little responsibility. The Company reviews all of the
PRP sites along with other sites as to which no claims have been asserted, in
estimating the amount of accrual. The Company's future costs for these sites
could exceed the amount reserved by as much as $1 billion.
13
<PAGE>
Approximately half of the reserve relates to sites associated with the
Company's discontinued operations, primarily mining activities in the states
of Montana, Utah and New Mexico. Another significant component relates to
currently and formerly owned chemical, nuclear processing, and refining and
marketing facilities, and other sites that received wastes from these
facilities. The Company is also the subject of certain material legal
proceedings described below under the caption "Material Environmental
Litigation." The remainder relates to sites with reserves ranging from $1
million to $10 million per site. No one site represents more than 15 percent
of the total reserve. Substantially all amounts reserved are expected to be
paid out over the next five to six years.
Clean Air
The Federal Clean Air Act Amendments of 1990 (the "1990 Clean Air Act
Amendments") and various state and local laws and regulations impose certain
air quality requirements. Among other things, the 1990 Clean Air Act
Amendments effectively require the manufacture and sale of reformulated and
oxygenated gasolines in areas not meeting specified air quality standards.
These EPA requirements became effective January 1, 1995 for the nine U.S.
cities, including Los Angeles and San Diego, with the worst ozone pollution.
The CARB's specifications for reformulated gasoline, which are stricter than
the EPA requirements, become effective March 1, 1996. To comply with the EPA
air quality requirements, during 1994 ARCO completed major modifications at
its Los Angeles Refinery. In order to meet the CARB standards with 100 percent
of the gasoline produced at the Los Angeles Refinery, ARCO is continuing to
make additional modifications. The Company does not anticipate any material
adverse effect upon its consolidated financial position as a result of
compliance with such environmental laws and regulations.
In 1992 the South Coast Air Quality Management District ("AQMD"), which sets
environmental standards for a five county area of Southern California,
proposed a Regional Clean Air Incentives Market ("RECLAIM") program for the
buying and selling of emission credits. On October 15, 1993, after several
modifications, AQMD adopted the program, which monitors emission reductions
and provides companies with "credits" for achieving emission reductions below
targeted levels. These "credits" may be bought and sold to satisfy compliance.
Under this program, the Los Angeles Refinery must, by 2003, achieve overall
reductions from 1992 levels of oxides of nitrogen (NOx) by 63 percent and
oxides of sulfur (SOx) by 83 percent.
Environment-Related Expenditures
For the past three years, the Company's environment-related expenditures
have been comprised of both capital expenditures and operating expenses.
Environment-related capital expenditures include the cost of projects to
reduce and/or eliminate pollution and contamination in the future and the cost
of modifications to the Company's manufacturing facilities necessary to comply
with the aforementioned federal, state and local air quality laws and
regulations. Environment-related operating costs include both costs to
eliminate, control or dispose of, pollutants, as well as costs to remediate
previously contaminated sites. Sites are remediated using a variety of
techniques, including on-site stabilization, bioremediation, soil removal,
pump and treat and other methods as deemed appropriate for each specific site.
For the past three years, the Company's environment-related capital
expenditures have averaged approximately $320 million per year. The Company
anticipates environment-related capital programs of approximately $275 million
and $140 million for 1995 and 1996, respectively. For the past three years,
the Company's operating expenses for the remediation of previously
contaminated properties either compelled or likely to be compelled in the
foreseeable future by government or third parties have averaged approximately
$160 million per year. Cash payments for site remediation have averaged
$176 million per year over the same period. The Company's operating expenses
also include ongoing costs of controlling or disposing of pollutants. For the
past three years, the Company estimates that its operating expenses related to
these ongoing costs have averaged approximately $260 million per year.
14
<PAGE>
In addition to the reserve for environmental remediation costs, the Company
has also accrued, as of December 31, 1994, $848 million for the estimated
cost, net of salvage value, of dismantling facilities as required by contract,
regulation or law, and the estimated costs of restoration and reclamation of
land associated with such facilities.
Material Environmental Litigation
Pursuant to the authority provided under Superfund, the State of Montana has
asserted claims against ARCO for compensation for damage to natural resources
up to the maximum amount allowed by 42 United States Code (S)9607. These
alleged damages, arising out of ARCO's or its predecessors' alleged
activities, include restoration and compensable damages, assessment costs, and
prejudgment interest. These claims, which relate to the four Upper Clark Fork
River Basin Superfund sites in Montana, have been filed both as a lawsuit and
an informal letter claim against the Company. The lawsuit, styled Montana v.
ARCO, ex rel., was filed on December 12, 1983, in the United States District
Court for the District of Montana (Case No. CV-83-317-HLN-PGH). In January
1995, the State revised its demand for payment of damages from ARCO for
alleged injuries to natural resources resulting from mining and mineral
processing operations. The revised demand is for $635.4 million. ARCO is
contesting the amount of this demand and defending the lawsuit. In addition,
on October 17, 1994, The Confederated Salish and Kootenai Tribes of the
Flathead Reservation ("Tribes"), filed a motion to intervene in Montana v.
ARCO. Pursuant to this motion, the Tribes, as trustees, have asserted claims
against ARCO for alleged damage to and loss of natural resources located in
the Clark Fork River Basin in southwest Montana. The Court has not yet ruled
on the Tribes' motion.
In addition, on June 23, 1989, the EPA filed a CERCLA cost-recovery action
against ARCO (amended October 15, 1992), styled U.S. v. ARCO, et al. (Case No.
CV-89-039-BU-PGH), in the United States District Court for the District of
Montana, for oversight costs at several of the Upper Clark Fork River Basin
Superfund sites. Litigation is proceeding on both the EPA's claims (in the
approximate amount of $80 million) and ARCO's counterclaims against various
federal agencies. (In the counterclaims, ARCO seeks contributions from the
federal agencies for remediation costs and for any natural resource damage
liability ARCO might incur in Montana v. ARCO.)
In addition, the State of Colorado has filed a natural resource damage claim
which relates to the Rico-Argentine Mine Site. This claim was originally filed
against the Superfund itself as an administrative claim with the EPA; it has
been denied by the EPA. While this claim has not been actively pursued by the
State, it currently remains unresolved.
ARCO and its subsidiary, Atlantic Richfield Hanford Company ("ARHCO"), and
several other companies who have served as government contractors at the
Hanford Nuclear Reservation in south central Washington State (the
"Reservation") are named as defendants in a consolidated complaint in the
United States District Court for the Eastern District of Washington.
Presently, this action is proceeding on the basis of a consolidated complaint
filed on April 19, 1991 (the "Consolidated Complaint") which is titled In re
Hanford Nuclear Reservation Litigation (CY-91-3015-AAM). The Consolidated
Complaint is brought on behalf of numerous individuals and several purported
classes of persons. The Consolidated Complaint alleges that the defendant
government contractors accidentally or deliberately released radioactive and
non-radioactive toxic and hazardous substances generated at the Reservation
into the surrounding air, water and ground. The Consolidated Complaint seeks
extensive relief on behalf of the individual and class plaintiffs, broad
injunctive and declaratory relief pursuant to CERCLA, and seeks attorneys'
fees and costs. The claims against ARCO and ARHCO arise out of the performance
by ARHCO of a contract with the Atomic Energy Commission to provide chemical
processing, waste management and support services at HNR from 1967 to 1977. In
October 1994, the Department of Energy determined that the government will
indemnify ARCO and ARHCO for any judgment or settlement in the action pursuant
to the contract between ARHCO and the Atomic Energy Commission and the
provisions of the Price-Anderson Act.
15
<PAGE>
Following the March 1989 EXXON VALDEZ oil spill, numerous lawsuits seeking
compensatory and punitive damages and injunctions were filed by the State of
Alaska, the United States and private plaintiffs against Exxon, Alyeska
Pipeline Service Company ("Alyeska"), and Alyeska's owner companies (including
ARCO, which owns approximately 21 percent). Alyeska and its owner companies
have settled the civil damage claims by federal and state governments and the
lawsuits by all but a handful of private plaintiffs. Certain issues relating
to liability for the spill remain unresolved between the Exxon companies, on
the one hand, and Alyeska and its owner companies, on the other hand.
On November 21, 1990, ARCO filed a complaint in Los Angeles County Superior
Court, Atlantic Richfield Company v. AETNA Casualty and Surety Company of
America, et al. (Case No. BC 015575), naming more than 70 insurance companies
as defendants and seeking recovery under numerous insurance policies in effect
at times during past years for certain environmental expenses incurred by
ARCO. The claims arise from the activities of ARCO and its predecessor
companies, including Anaconda, at sites and locations throughout the United
States. The Company cannot predict the outcome of this litigation, which may
be protracted.
Conclusion
Environmental concerns, including the minimization and prevention of
environmental contamination from ongoing operations, and the cost-effective
remediations of existing contaminated sites, continue to be vital factors in
the Company's future planning. See Note 12 of Notes to Consolidated Financial
Statements on pages 44-45, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ITEM 3. LEGAL PROCEEDINGS
THE COMPANY
On March 23, 1979, in the case of Van Vranken, et al. v. Atlantic Richfield,
two California service station dealers purporting to represent a class of all
resellers of gasoline, aviation fuels, butane and propane sued the Company in
the United States District Court for the Northern District of California (Case
No. C-79-0627-SW) for allegedly willfully violating the Department of Energy's
("DOE") 1973-1981 price regulations by unlawfully inflating its costs of crude
oil eligible for recovery. On March 25, 1986, the District Court certified the
plaintiffs as representatives of the class. In September 1993, the United
States Court of Appeals for the Federal Circuit affirmed, without opinion, the
trial court's judgment against ARCO. In October 1994, the Court of Appeals
denied the Company's request for reconsideration. The parties have settled the
case and the settlement has been approved by the District Court.
On June 7, 1989, the City of New York, the New York City Housing Authority
and the New York City Health and Hospitals Corporation brought suit in the
Supreme Court of the State of New York for the County of New York (Case No.
14365/89) against six alleged former lead pigment manufacturers or their
successors (including ARCO as successor to International Smelting and Refining
Company ("IS&R"), a former subsidiary of The Anaconda Company), and the Lead
Industries Association ("LIA"), a trade association. Plaintiffs seek to
recover damages in excess of $50 million including (i) past and future costs
of abating lead-based paint from housing owned by New York City and the New
York City Housing Authority; (ii) other costs associated with dealing with the
presence of lead-based paint in that housing and privately owned housing; and
(iii) any amounts paid by the City or the Housing Authority to tenants because
of injuries caused by the ingestion of lead-based paint. Plaintiffs also seek
punitive damages and attorney fees. The court has dismissed plaintiffs'
negligence and strict liability claims and, pursuant to stipulation, dismissed
with prejudice plaintiffs' claims for indemnification arising from third-party
personal injury claims resolved before March 15, 1993, and dismissed without
prejudice claims for indemnification brought after that date. On June 2, 1994,
the trial court entered an order dismissing plaintiffs' remaining claims for
restitution and indemnification, from which plaintiffs noticed an appeal on
June 20, 1994. Plaintiffs' only remaining claim in the trial court is their
fraud claim.
16
<PAGE>
On August 25, 1992, ARCO (as successor to IS&R) was added as a defendant to
a purported class action suit pending in the Court of Common Pleas in Cuyahoga
County (Cleveland), Ohio, Jackson, et al. v. The Glidden Company, et al. (Case
No. 236835), which seeks on behalf of the three named plaintiffs, and all
other persons similarly situated in the state of Ohio, money damages for
injuries allegedly suffered from exposure to lead paint, punitive damages, and
an order requiring defendants to remove and abate all lead paint applied to
any building in Ohio. The suit names as defendants, in addition to ARCO, the
LIA and 16 companies alleged to have participated in the manufacture and sale
of lead pigments and paints and includes causes of action for strict product
liability, negligence, breach of warranty, fraud, nuisance, restitution,
negligent infliction of emotional distress, and enterprise, market share and
alternative liability. On July 29, 1993, the Court entered an order granting
defendants' motion to dismiss the complaint on the grounds that Ohio law does
not recognize market share, enterprise, or alternative liability causes of
action in this case. On December 8, 1994, the Ohio State Court of Appeals
reversed the final court's rulings on market share and alternative liability
and affirmed its ruling on enterprise liability. On January 13, 1995,
defendants' motion asking the Court of Appeals to reconsider its decision was
denied.
In addition, the Company is a defendant in several lawsuits brought by
individuals that allege injury from exposure to lead paint. These cases, in
the aggregate, are not material to the financial condition of the Company.
ENVIRONMENTAL PROCEEDINGS
As discussed under the caption "Environmental Matters," ARCO is currently
participating in environmental assessments and cleanups at numerous operating
and non-operating sites under Superfund and comparable state laws, RCRA and
other state and local laws and regulations, and pursuant to third party
indemnification requests, and is the subject of material legal proceedings
relating to certain of these sites. See "Environmental Matters--Material
Environmental Litigation." Set forth below is a description, in accordance
with SEC rules, of certain fines and penalties imposed by governmental
agencies in respect of environmental rules and regulations.
ARCO Chemical has discovered that certain organic waste material is situated
in the soil and ground water at portions of its Monaca, Pennsylvania (Beaver
Valley) plant. In 1994, ARCO Chemical entered into a Consent Order and
Agreement (the "Consent Agreement") with the Pennsylvania Department of
Environmental Resources ("PADER") pursuant to which ARCO Chemical and PADER
agreed upon a work plan for testing and remedial process design with regard to
the conditions at the plant. Under the terms of the Consent Agreement, ARCO
Chemical paid civil penalties totaling $363,000 in 1994. Under the terms of
the Consent Agreement, ARCO Chemical must pay an additional penalty of $63,000
each year until the commencement of active remediation at the plant, after
which the amount of such annual penalty shall be reduced based on the extent
of remediation commenced at the plant. ARCO Chemical has an agreement with
Beazer East, Inc., the successor to Koppers Inc. (the previous owner of the
Beaver Valley plant), whereby Beazer East, Inc. agreed to pay for
approximately 50 percent of the cost of the remediation.
ARCO and Snyder Oil Corporation received Notices of Violation ("NOV") from
the United States Environmental Protection Agency Region VIII alleging that
certain equipment at the Riverton Dome Gas Plant had been installed and
operated without permits required by the Clean Air Act's Prevention of
Significant Deterioration regulations. ARCO's NOV related to the period of
time during which ARCO owned and operated the plant; Snyder's related to the
period of time after it purchased the plant from ARCO. ARCO and Snyder entered
into a consent decree with the United States to settle these claims; the
decree has now been entered by the court. The decree assessed the penalty
against both ARCO and Snyder without specifying an allocation between the two;
pursuant to the indemnity provisions of the purchase and sale agreement
between it and Snyder, ARCO paid Snyder's portion of the penalty also; the
civil penalty agreed to in the decree totalled $875,000.
17
<PAGE>
In January 1994, the California Air Resources Board ("CARB") requested
information regarding any failure by a terminal, within the period starting
January 1, 1992 and ending December 31, 1993, to meet CARB's minimum additive
injection standards for gasoline. CARB's regulations require monthly records
at each terminal of the volume of each grade of gasoline, the volume of
additive injected, and the minimum volume of additive required, as a way of
monitoring compliance. Although some terminals' monthly records showed less
than the minimum amount of additive injected during one month in 1992, the
other terminals' monthly records demonstrated compliance with CARB's minimum
additive injection rules. Nonetheless, CARB has obtained the daily additive
injection records from each terminal. These daily records were not maintained
in a manner designed to measure compliance, because CARB's regulations
required monthly, not daily, record keeping. If CARB is able to use these
daily records to measure compliance for the last two years, ARCO believes that
CARB may impose penalties for failure to comply; in such event, ARCO would
negotiate with CARB the amount of such penalty.
On January 17, 1994, Southern California experienced a major earthquake that
caused widespread property damage and major disruptions to utilities and
highways. Certain of ARCO's assets located in the region experienced varying
degrees of damage. A common carrier crude oil pipeline suffered ruptures, one
of which was involved in a fire of unknown origin. In addition, there was one
person injured, property damage, and oil spills into the Santa Clara and Los
Angeles Rivers. Each of the Los Angeles District Attorney and the State of
California Attorney General have notified the Company that pursuant to various
state statutes, some of which impose liability without fault, penalties and
damages in excess of $100,000 may be imposed on the Company. Negotiations are
currently in progress. A class action lawsuit has been filed seeking damages
in excess of $10 million plus punitive damages on behalf of individuals
alleged to have been injured in the pipeline ruptures.
In addition to the matters reported herein, from time to time, certain of
the Company's operating divisions and subsidiaries receive notices from
federal, state or local governmental entities of alleged violations of
environmental laws and regulations pertaining to, among other things, the
disposal, emission and storage of chemical and petroleum substances, including
hazardous wastes. Such alleged violations may become the subject of
enforcement actions or other legal proceedings and may involve monetary
sanctions of $100,000 or more (exclusive of interest and costs).
TAX MATTERS
On December 23, 1994, the Internal Revenue Service issued a Notice of
Deficiency for income tax relating to tax years 1983 through 1988. The Notice
was issued shortly in advance of the expiration of the applicable statute of
limitations. The aggregate amount of income tax asserted on the face of the
Notice is $537 million plus interest. ARCO has paid to the Internal Revenue
Service the amount of tax (and interest) that it believes is due and intends
to file a petition in the U.S. Tax Court in March 1995 challenging the balance
of the additional federal income tax set forth in the Notice.
OTHER LITIGATION
The Company and its subsidiaries are defendants in numerous suits in which
they are not covered by insurance which involve smaller amounts than the
matters described above. Although the legal responsibility and financial
impact in respect to such litigation cannot be ascertained, it is not
anticipated that these suits will result in the payment by the Company or its
subsidiaries of monetary damages which in the aggregate would be material in
relation to the net assets of the Company and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1994.
----------------
18
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the executive officers of Registrant as of February 27,
1995.
<TABLE>
<CAPTION>
NAME, AGE AND PRESENT
POSITION WITH ATLANTIC BUSINESS EXPERIENCE DURING PAST
RICHFIELD FIVE YEARS AND PERIOD SERVED AS OFFICER(A)(B)
---------------------- ---------------------------------------------
<S> <C>
Lodwrick M. Cook, 66 Mr. Cook has been Chairman of the Board of ARCO since January
Chairman of the Board 1986 and a director since June 1980. He served as Chief Exec-
and Director utive Officer (October 1985-June 1994), President (October
1985-January 1986), Chief Operating Officer--Products (May
1984-October 1985), Executive Vice President (June 1980-May
1984) and a Senior Vice President of ARCO (September 1977-
June 1980), and President of ARCO Transportation Company
(January 1979-June 1980). He has been an officer of the Com-
pany since 1970.
Mike R. Bowlin, 52 Mr. Bowlin has been Chief Executive Officer since July 1,
President, Chief 1994, President and Chief Operating Officer of ARCO since
Executive Officer, June 1, 1993 and a director since June 1992. He served as Ex-
Chief Operating Officer ecutive Vice President (June 1992-May 1993) and Senior Vice
and Director President of ARCO (August 1985-June 1992), President of ARCO
International Oil and Gas Company (November 1987-June 1992),
President of ARCO Coal Company (August 1985-July 1987), Se-
nior Vice President of International Oil and Gas Acquisitions
(July 1987-November 1987), a Vice President of ARCO (October
1984-July 1985) and a Vice President of ARCO Oil and Gas Com-
pany (April 1981-December 1984). He has been an officer of
the Company since October 1984.
Ronald J. Arnault, 51 Mr. Arnault has been an Executive Vice President of ARCO and
Executive Vice a director since October 1987. He is also ARCO's Chief Finan-
President, Chief cial Officer (June 1984-July 1990 and July 1992 to present).
Financial Officer and He was a Senior Vice President of ARCO (June 1980-October
Director 1987) and President of ARCO Solar Industries (January 1980-
June 1984). He has been an officer of the Company since 1977.
Anthony G. Fernandes, 49 Mr. Fernandes has been an Executive Vice President of ARCO
Executive Vice and a director since September 1994. He served as a Senior
President and Director Vice President of ARCO and President of ARCO Coal Company
(July 1990-September 1994), Vice President and Controller of
ARCO (July 1987-July 1990), a Vice President of ARCO Oil and
Gas Company (January 1985-July 1987) and a Vice President of
Anaconda Minerals (May 1981-January 1985). He has been an of-
ficer of the Company since 1987.
William E. Wade, Jr., 52 Mr. Wade has been an Executive Vice President of ARCO and a
Executive Vice director since June 1993. He served as a Senior Vice Presi-
President and Director dent of ARCO (May 1987-May 1993), President of ARCO Oil and
Gas Company (October 1990-May 1993), President of ARCO Alas-
ka, Inc. (July 1987-July 1990), a Vice President of ARCO
(1985-1987) and a Vice President of ARCO Exploration Company
(1981-1985). He has been an officer of the Company since
1985.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND PRESENT
POSITION WITH ATLANTIC BUSINESS EXPERIENCE DURING PAST
RICHFIELD FIVE YEARS AND PERIOD SERVED AS OFFICER(A)(B)
---------------------- ---------------------------------------------
<S> <C>
H. L. Bilhartz, 48 Mr. Bilhartz has been a Senior Vice President of ARCO since
Senior Vice President July 1990 and President of ARCO Exploration and Production
Technology since June 1994. He served as President of ARCO
Alaska, Inc. (July 1990-May 1994), a Vice President of ARCO
(June 1987-July 1990), President of ARCO Coal Company (July
1987-July 1990), Vice President and Managing Director for
ARCO British Limited and ARCO Netherlands in London (1985-
1987), Vice President of Finance, Control and Planning, of
ARCO International Oil and Gas Company (1984-1985) and Vice
President and District Manager for ARCO Oil and Gas Company
(1983-1984). He has been an officer of the Company since
1987.
E. Kent Damon, Jr., 52 Mr. Damon has been a Senior Vice President of ARCO since July
Senior Vice President 1990 and President of ARCO Asia Pacific Ltd. since August
1993. He was Senior Vice President, Planning and Control
(July 1990-July 1993) and Vice President and Investment Offi-
cer of ARCO (August 1985-February 1991) and President and
Chief Investment Officer of ARCO Investment Management Com-
pany (December 1987-February 1991). He has been an officer of
the Company since 1985.
Kenneth R. Dickerson, 59 Mr. Dickerson has been a Senior Vice President, External Af-
Senior Vice President fairs, for ARCO since July 1988. He served as Vice President
and General Tax Officer (October 1985-June 1988) and Deputy
General Counsel--Resources of ARCO (September 1983-October
1985) and Associate General Counsel for ARCO Oil and Gas Com-
pany (September 1982-September 1983). He has been an officer
of the Company since 1985.
Marlan W. Downey, 63 Mr. Downey has been a Senior Vice President of ARCO and Pres-
Senior Vice President ident of ARCO International Oil and Gas Company since June
1992. He was Senior Vice President of ARCO International Oil
and Gas (1990-1992). He has been an officer of the Company
since 1992.
Marie L. Knowles, 48 Mrs. Knowles has been a Senior Vice President of ARCO and
Senior Vice President President of ARCO Transportation Company since June 1993. She
served as Vice President and Controller of ARCO (July 1990-
May 1993), Vice President of Finance, Control and Planning,
of ARCO International Oil and Gas Company (July 1988-July
1990), and Assistant Treasurer of Banking of ARCO (October
1986-July 1988). She has been an officer of the Company since
1990.
Stephen R. Mut, 44 Mr. Mut has been a Senior Vice President of ARCO and Presi-
Senior Vice President dent of ARCO Coal Company since September 1994. He was Senior
Vice President of Operations for ARCO International Oil and
Gas Company (1991-1994). He has been an officer of the Com-
pany since 1994.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND PRESENT
POSITION WITH ATLANTIC BUSINESS EXPERIENCE DURING PAST
RICHFIELD FIVE YEARS AND PERIOD SERVED AS OFFICER(A)(B)
---------------------- ---------------------------------------------
<S> <C>
William C. Rusnack, 50 Mr. Rusnack has been a Senior Vice President of ARCO since
Senior Vice President July 1990 and President of ARCO Products Company since June
1993. He was President of ARCO Transportation Company (July
1990-May 1993), Vice President, Corporate Planning, of ARCO
(June 1987-July 1990) and Senior Vice President, Marketing
and Employee Relations, of ARCO Oil and Gas Company (1985-
1987). He has been an officer of the Company since 1987.
J. Kenneth Thompson, 43 Mr. Thompson has been a Senior Vice President of ARCO and
Senior Vice President President of ARCO Alaska, Inc. since June 1994. He was a Vice
President of ARCO and a Vice President of ARCO Exploration
and Production Technology (June 1993-June 1994) and as Senior
Vice President, Western District, of ARCO Oil and Gas Company
(January 1990-June 1993). He has been an officer of the Com-
pany since 1994.
Thomas W. Velleca, 61 Mr. Velleca has been a Senior Vice President, Exploration, of
Senior Vice President ARCO since September 1994. He was the Senior Vice President,
Exploration, of ARCO International Oil and Gas Company (April
1993-September 1994). He retired from Shell Oil Company in 1987.
He has been an officer of the Company since September 1994.
Bruce G. Whitmore, 50 Mr. Whitmore has been the Senior Vice President, General
Senior Vice President, Counsel and Corporate Secretary of ARCO since January 1,
General Counsel and 1995. He served as Vice President and General Counsel for
Corporate Secretary ARCO Chemical Company (October 1990-December 1994) and as As-
sociate General Counsel, Finance and Corporate Affairs, of
ARCO (June 1986-September 1990). He has been an officer of
the Company since January 1995.
Allan L. Comstock, 51 Mr. Comstock has been a Vice President and Controller of ARCO
Vice President and since June 1993. He was a Vice President of ARCO Chemical
Controller Company (October 1989-June 1993) and General Auditor of ARCO
(November 1985-October 1989). He has been an officer of the
Company since 1993.
Terry G. Dallas, 44 Mr. Dallas has been a Vice President of ARCO since June 1993
Vice President and and Treasurer since January 1994. He was Vice President, Cor-
Treasurer porate Planning (June 1993-January 1994) and Assistant Trea-
surer, Corporate Finance of ARCO (1990-1993) and Manager, Fi-
nance, Control and Planning, ARCO British, Ltd. (1988-1990).
He has been an officer of the Company since July 1993.
</TABLE>
- --------
(a) Division names used in the descriptions of business experience of
executive officers of the Company are the names which were in effect at
the time such officers held such positions. In some instances, divisions
have been combined or reorganized and, accordingly, activities thereof are
presently conducted under different division names.
(b) The By-Laws of the Company provide that each officer shall hold office
until the officer's successor is elected or appointed and qualified or
until the officer's death, resignation or removal by the Board of
Directors.
21
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock is included in
order to facilitate incorporation by reference of such description in filings
by the Company under the federal securities laws.
Certain statements under this heading are summaries of provisions of the
Certificate of Incorporation of ARCO, as adopted upon the reincorporation of
the Company into a Delaware corporation on May 7, 1985, and do not purport to
be complete. A copy of the Restated Certificate of Incorporation, as of June
27, 1994, is filed as an exhibit hereto. The summaries make use of certain
terms defined in the Certificate of Incorporation and are qualified in their
entirety by reference thereto.
The term "$3.00 Preference Stock" refers to the Company's $3.00 Cumulative
Convertible Preference Stock, par value $1 per share. The term "$2.80
Preference Stock" refers to the Company's $2.80 Cumulative Convertible
Preference Stock, par value $1 per share. The term "Preferred Stock" refers to
the Company's Preferred Stock, par value $.01 per share; this class of
Preferred Stock was authorized by stockholders on May 3, 1993. The term
"Common Stock" refers to the Company's Common Stock, par value $2.50 per
share.
The following is a summary of the capital stock of ARCO as of December 31,
1994.
<TABLE>
<CAPTION>
SHARES SHARES
AUTHORIZED OUTSTANDING
----------- -----------
<S> <C> <C>
$3.00 Preference Stock.......................... 78,089 73,721
$2.80 Preference Stock.......................... 833,776 794,796
Preferred Stock................................. 75,000,000 --
Common Stock.................................... 600,000,000 160,753,966*
</TABLE>
- --------
* Excludes treasury stock.
Certain Treasury Stock Purchases. From time to time ARCO may purchase Common
Stock on the open market and contribute it to treasury in order to satisfy its
obligations upon conversion of the $3.00 and $2.80 Preference Stocks and upon
exercise of stock options. In addition, in connection with ARCO's Capital
Accumulation and Savings Plans, ARCO may from time to time purchase Common
Stock on the open market and contribute it to treasury pending delivery of
Common Stock in satisfaction of employer and employee contributions
thereunder.
Power of Board to Determine Terms of Preferred Stock. Under the Certificate
of Incorporation, as amended following approval by stockholders on May 3,
1993, the Board is authorized to issue, at any time or from time to time, one
or more series of Preferred Stock at its discretion. In addition, the Board
has the power to determine all designations, powers, preferences and the
rights of such stock and any qualifications, limitations and restrictions,
including but not limited to: (i) the designation of series and numbers of
shares; (ii) the dividend rights, if any; (iii) the rights upon liquidation or
distribution of the assets of the Company, if any; (iv) the conversion or
exchange rights, if any; (v) the redemption provisions, if any; and (vi) the
voting rights, if any.
So long as the Preference Stocks are outstanding, and only for that period
of time, the rights of the Preferred Stock are subordinate to the rights of
the holders of Preference Stocks.
Dividend Rights. Holders of $3.00 Preference Stock and holders of $2.80
Preference Stock are entitled to receive cumulative dividends at the annual
rate of $3.00 per share and $2.80 per share, respectively, payable quarterly,
before cash dividends are paid on the Preferred Stock, if any, and the Common
Stock. Shares of $3.00 Preference Stock and shares of $2.80 Preference Stock
rank on a parity as to dividends. After provision for payment in full of
cumulative dividends on the outstanding $3.00 Preference and $2.80 Preference
Stocks, and the payment in full of cumulative dividends on the outstanding
Preferred Stock, if any, dividends may be paid on the Common Stock as the
Board of Directors may deem advisable, within the limits and from the sources
permitted by law.
22
<PAGE>
Conversion Rights. Each share of $3.00 Preference Stock is convertible, at
the option of the holder, into six and eight-tenths (6.8) shares of Common
Stock of the Company at any time, and each share of $2.80 Preference Stock is
convertible, at the option of the holder, into two and four-tenths (2.4)
shares of Common Stock of the Company at any time. These conversion rates are
subject to adjustment as set forth in the Certificate of Incorporation. Shares
of Preferred Stock would be convertible, if at all, on such terms as were
designated by the Board of Directors.
Voting Rights. The holders of $3.00 Preference Stock are entitled to eight
votes per share; holders of $2.80 Preference Stock are entitled to two votes
per share; and holders of Common Stock are entitled to one vote per share.
Holders of $3.00 Preference and $2.80 Preference Stocks are entitled to vote
cumulatively for directors; holders of Common Stock have no cumulative voting
rights. The $3.00 Preference, $2.80 Preference and Common Stocks vote together
as one class, except as provided by law and except as to certain matters which
require a vote by the holders of $3.00 Preference Stock or by the holders of
$2.80 Preference Stock as a separate class as set forth below.
The Certificate of Incorporation provides that if the Company shall be in
default with respect to dividends on the $3.00 Preference Stock in an amount
equal to six quarterly dividends, the number of directors of the Company shall
be increased by two at the first annual meeting thereafter, and at such
meeting and at each subsequent annual meeting until all dividends on the $3.00
Preference Stock shall have been paid in full, the holders of the $3.00
Preference Stock shall have the right, voting as a class, to elect such two
additional directors. The Certificate of Incorporation contains identical
provisions with respect to the $2.80 Preference Stock.
The Certificate of Incorporation provides that the Company shall not,
without the assent of the holders of two-thirds of the then outstanding shares
of $3.00 Preference Stock, (a) change any of the terms of the $3.00 Preference
Stock in any material respect adverse to the holders, or (b) authorize any
prior ranking stock; and that the Company shall not, without the assent of the
holders of a majority of the then outstanding shares of $3.00 Preference
Stock, (1) authorize any additional $3.00 Preference Stock or stock on a
parity with it; (2) sell, lease or convey all or substantially all of the
property or business of the Company; or (3) become a party to a merger or
consolidation unless the surviving or resulting corporation will have
immediately after such merger or consolidation no stock either authorized or
outstanding (except such stock of the Company as may have been authorized or
outstanding immediately before such merger or consolidation of such stock of
the surviving or resulting corporation as may be issued upon conversion
thereof or in exchange therefor) ranking as to dividends or assets prior to or
on a parity with the $3.00 Preference Stock or the stock of the surviving or
resulting corporation issued upon conversion thereof or in exchange therefor.
The Certificate of Incorporation contains identical provisions with respect to
the $2.80 Preference Stock.
The holders of Preferred Stock, if any, would have such voting rights, if
any, as were designated by the Board.
Redemption Provisions. The $3.00 Preference Stock is redeemable at the
option of the Company as a whole or in part at any time on at least thirty
days' notice at $82 per share plus accrued dividends to the redemption date.
The $2.80 Preference Stock is redeemable at the option of the Company as a
whole or in part at any time on at least thirty days' notice at $70 per share
plus accrued dividends to the redemption date. The holders of Preferred Stock,
if any, would have such redemption provisions, if any, as were designated by
the Board.
Liquidation Rights. In the event of liquidation of the Company, the holders
of $3.00 Preference Stock and holders of $2.80 Preference Stock will be
entitled to receive, before any payment to holders of Common Stock, $80 per
share and $70 per share, respectively, together in each case with accrued and
unpaid dividends. Shares of $3.00 Preference Stock and shares of $2.80
Preference Stock will rank on a parity as to assets of the Company upon its
liquidation. Subject to the rights of creditors and the holders of $3.00
Preference Stock and $2.80 Preference Stock, the holders of Common Stock are
23
<PAGE>
entitled pro rata to the assets of the Company upon its liquidation. The
holders of Preferred Stock, if any, would have such liquidation rights, if
any, as were designated by the Board.
Preemptive Rights. No holders of shares of capital stock of the Company have
or will have any preemptive rights to acquire any securities of the Company.
Liability to Assessment. The shares of Common Stock are fully paid and non-
assessable.
Prohibition of Greenmail. Article VII of the Certificate of Incorporation
provides in general that any direct or indirect purchase by the Company of any
of its voting stock (or rights to acquire voting stock) known to be
beneficially owned by any person or group which holds more than 3 percent of a
class of its voting stock and which has owned the securities being purchased
for less than two years must be approved by the affirmative vote of at least
66 2/3 percent of the votes entitled to be cast by the holders of the voting
stock. Such approval shall not be required with respect to any purchase by the
Company of such securities made (i) at or below fair market value (based on
average New York Stock Exchange closing prices over the preceding 90 days) or
(ii) as part of a Company tender offer or exchange offer made on the same
terms to all holders of such securities and complying with the Securities
Exchange Act of 1934 or (iii) in a Public Transaction (as defined).
Rights to Purchase Common Stock. On May 27, 1986, the Board of Directors of
the Company declared a dividend distribution of one Right for each outstanding
share of Common Stock to the stockholders of record on June 9, 1986 (the
"Record Date"). Each Right entitles the registered holder to purchase from the
Company one share of Common Stock at a price of $200 per share (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are
set forth in a Rights Agreement (the "Rights Agreement") between the Company
and Morgan Guaranty Trust Company of New York, as Rights Agent (the "Rights
Agent").
The Rights were issued on the Record Date. Thereafter, as long as the Rights
are attached to the Common Stock, the Company will issue one Right with each
share of Common Stock that shall become outstanding so that all such shares
will have attached Rights.
The Rights are attached to all Common Stock certificates representing
outstanding Common Stock, and no separate certificates evidencing Rights
("Right Certificates") have been distributed. Until the earlier to occur of
(i) 10 days following a public announcement that a person or group of
affiliated or associated persons acquired, or obtained the right to acquire,
beneficial ownership of 20 percent or more of the outstanding shares of Common
Stock (an "Acquiring Person") or (ii) 10 days following the earlier of the
commencement of, or the announcement of an intention to make, a tender offer
or exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 30 percent or more of the outstanding shares
of Common Stock (the earlier of such dates described in (i) and (ii) above
being called the "Distribution Date"), the Rights are evidenced by such Common
Stock certificate with a copy of the Summary of Rights attached thereto. The
date of announcement of the existence of an Acquiring Person referred to in
clause (i) above is hereinafter referred to as the "Shares Acquisition Date."
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights), Common
Stock certificates issued after the Record Date upon transfer or issuance of
Common Stock contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates evidencing Common
Stock outstanding as of the Record Date, even without a copy of the Summary of
Rights attached thereto, will also constitute the transfer of the Rights
associated with the Common Stock represented by such certificate. As soon as
practicable following the Distribution Date, Right Certificates will be mailed
to holders of record of the Common Stock as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on June 9,1996, unless earlier redeemed by the Company as described
below.
24
<PAGE>
The Purchase Price payable, and the number of shares of Common Stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a
stock dividend on, or a subdivision, combination or reclassification of the
Common Stock, (ii) upon the grant to holders of the Common Stock of certain
rights or warrants to subscribe for Common Stock or convertible securities at
less than the current market price of the Common Stock or (iii) upon the
distribution to holders of the Common Stock of evidences of indebtedness or
assets (excluding regular periodic cash dividends out of earnings or retained
earnings at a rate not in excess of 125 percent of the rate of the last cash
dividend theretofore paid or dividends payable in Common Stock) or of
subscription rights or warrants (other than those referred to above).
In the event that the Company were to be acquired in a merger or other
business combination transaction, or more than 50 percent of its assets or
earning power were sold, proper provision would be made so that each holder of
a Right would thereafter have the right to receive, upon the exercise thereof
at the then current exercise price of the Right, that number of shares of
common stock of the acquiring company which at the time of such transaction
would have a market value of two times the exercise price of the Right. In the
event that the Company were to be the surviving corporation in a merger with
an Acquiring Person and its Common Stock were not changed or exchanged, or in
the event that an Acquiring Person were to engage in one of a number of self-
dealing transactions or certain other events occur while there is an Acquiring
Person (e.g., a reverse stock split), as specified in the Rights Agreement,
proper provision would be made so that each holder of a Right (except as
provided below) would thereafter have the right to receive upon exercise that
number of shares of Common Stock of the Company having a market value of two
times the exercise price of the Right. Upon the occurrence of any of the
events described in the preceding sentence, any Rights that are or were at any
time on or after the earlier of (a) the Shares Acquisition Date and (b) the
Distribution Date beneficially owned by an Acquiring Person will immediately
become null and void, and no holder of such Rights will have any right with
regard to such Rights from and after such occurrence.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1
percent in such Purchase Price. No fractional shares will be issued and in
lieu thereof, an adjustment in cash will be made based on the market price of
the Common Stock on the last trading date prior to the date of exercise.
At any time prior to the time that a person or group of affiliated or
associated persons has acquired beneficial ownership of 20 percent or more of
the outstanding Common Stock, the Company may redeem the Rights in whole, but
not in part, at a price of $0.10 per Right (the "Redemption Price").
Immediately upon the action of the Board of Directors of the Company electing
to redeem the Rights, the Company will make announcement thereof, and upon
such election, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends.
While the distribution of the Rights was not, and the issuance of Rights
thereafter is not, taxable to plan participants or the Company, stockholders
may recognize taxable income if the Rights become exercisable.
The terms of the Rights may be amended by the Board of Directors of the
Company and the Rights Agent, provided that the amendment does not adversely
affect the interests of the holders of Rights.
The Rights have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by its Board of Directors, except pursuant to an offer
conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors at a time when the Rights are redeemable.
A copy of the Rights Agreement is filed as an exhibit hereto. This summary
description of the Rights is qualified in its entirety by reference thereto.
25
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
<TABLE>
<CAPTION>
1994 1993
----------------------------------- -----------------------------------
4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock:
Market price per share
High................. $108 3/4 $109 1/2 $104 1/2 $112 3/8 $116 1/4 $117 3/8 $127 3/4 $122
Low.................. $ 97 5/8 $ 99 5/8 $ 92 1/2 $ 93 1/2 $100 1/2 $109 3/8 $113 1/8 $107 1/2
Cash dividends per
share................. $1.375 $1.375 $1.375 $1.375 $1.375 $1.375 $1.375 $1.375
$3.00 Convertible
Preference Stock:
Market price per share
High................. $717 1/2 $736 $697 $731 $749 3/4 $780 1/2 $834 1/2 $776
Low.................. $675 3/4 $711 $648 1/2 $648 1/2 $730 $760 $806 1/2 $745 1/2
Cash dividends per
share................. $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75
$2.80 Convertible
Preference Stock:
Market price per share
High................. $259 3/4 $259 3/4 $247 1/4 $263 1/2 $275 1/4 $279 3/4 $302 3/4 $287
Low.................. $234 1/2 $241 $226 1/2 $228 $245 $262 1/2 $277 $260 3/4
Cash dividends per
share................. $0.70 $0.70 $0.70 $0.70 $0.70 $0.70 $0.70 $0.70
</TABLE>
Prices in the foregoing table are from the New York Stock Exchange composite
tape. On February 27, 1995 the high price per share was $109 3/8 and the low
price per share was $108 5/8.
As of December 31, 1994, the approximate number of holders of record of
Common Stock of ARCO was 100,000. The principal markets in which ARCO's Common
Stock is traded are listed on the cover page.
The quarterly dividend rate for Common Stock was increased to $1.375 per
share in January 1991. On January 23, 1995, a dividend of $1.375 per share was
declared on Common Stock, payable on March 15, 1995 to stockholders of record
on February 17, 1995. Future cash dividends will depend on earnings, financial
conditions and other factors; however, the Company presently expects that
dividends will continue to be paid.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information for ARCO:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1994(1)(2) 1993(1) 1992(1) 1991(3) 1990
---------- ------- ------- ------- -------
(MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales and other operating revenues
(including excise taxes)........... $16,552 $18,487 $18,668 $18,191 $18,836
Income before changes in accounting
principles......................... $ 919 $ 269 $ 1,193 $ 709 $ 1,688
Net income.......................... $ 919 $ 269 $ 801 $ 709 $ 2,011
Earned per share before changes in
accounting principles.............. $ 5.63 $ 1.66 $ 7.39 $ 4.39 $ 10.20
Earned per share.................... $ 5.63 $ 1.66 $ 4.96 $ 4.39 $ 12.15
Cash dividends per common share..... $ 5.50 $ 5.50 $ 5.50 $ 5.50 $ 5.00
Total assets........................ $24,563 $23,894 $24,256 $24,492 $23,864
Long-term debt and capital lease
obligations........................ $ 7,198 $ 7,089 $ 6,227 $ 5,989 $ 5,997
</TABLE>
- --------
(1) See Note 2 of Notes to Consolidated Financial Statements regarding unusual
items on page 39.
(2) Includes after-tax gain of $273 million from issuance of stock by Vastar
Resources, Inc.
(3) Includes a net provision of $312 million after tax related to
reorganization of Lower 48 oil and gas operations, companywide work force
reduction, and the writedown of certain assets.
26
<PAGE>
ARCO
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating results in 1994 improved compared to 1993 as a result of
approximately $250 million after tax in first-year savings from ARCO's cost
reduction program, higher earnings from ARCO's chemical interests in Lyondell
Petrochemical Company (Lyondell) and ARCO Chemical Company (ARCO Chemical), and
higher natural gas sales volumes. These improvements were partially offset by
lower crude oil and natural gas prices and reduced refining and marketing
margins.
Earnings from Operations
<TABLE>
<CAPTION>
Millions 1994 1993 1992
<S> <C> <C> <C>
Net income $ 919 $ 269 $ 801
Special items (benefit) charge (40) 545 (140)
Accounting changes -- -- 392
----- ----- ------
Operating results $ 879 $ 814 $1,053
===== ===== ======
</TABLE>
Operations in 1993, compared to 1992, benefited from improved margins and
higher gasoline sales volumes in ARCO's West Coast refining and marketing
operations, higher coal sales volumes and higher natural gas prices. These
benefits were more than offset by lower crude oil prices and volumes, lower
natural gas volumes, higher exploration and selling, general and administrative
(SG&A) expenses and lower after-tax earnings from transportation operations.
Special Items After Tax
<TABLE>
<CAPTION>
Millions 1994 1993 1992
<S> <C> <C> <C>
Restructuring charges $(210) $(404) $ --
Gain on issuance of subsidiary stock 273 -- --
Future environmental remediation (48) (52) (73)
Deferred tax impact of rate change -- (65) --
Settlement of asset nationalization -- -- 136
Deferred gain, Lyondell -- -- 111
Other, net 25 (24) (34)
----- ----- -----
Total special items benefit (charge) $ 40 $(545) $ 140
===== ===== =====
</TABLE>
RESULTS OF CONSOLIDATED OPERATIONS
REVENUES
The sale of ARCO's Brazilian marketing operations in December 1993 resulted
in reduced operating revenues in 1994. At the same time, increased crude oil
trading and natural gas marketing activity, higher chemical prices and volumes,
natural gas volumes and excise taxes were offset by lower crude oil prices and
volumes, and lower prices for refined products and natural gas. In 1993,
increased natural gas marketing volumes and higher refined and chemical products
sales volumes and natural gas prices were more than offset by lower crude oil
prices, crude oil and natural gas volumes, decreased crude oil trading volumes
and lower refined and chemical products prices.
The increase in income from equity investments in 1994 primarily reflected
Lyondell's higher earnings. ARCO has a 49.9% equity interest in Lyondell.
The fluctuations in other revenues primarily reflected the impact of asset
sales.
EXPENSES
The sale of ARCO's Brazilian marketing operations resulted in reduced trade
purchases in 1994. At the same time, increased crude oil trading and natural gas
marketing activity were offset by lower crude oil and natural gas prices. In
1993, lower crude oil trading prices and volumes and lower purchased volumes of
finished refined products and chemical feedstocks resulted in reduced trade
purchases. This reduction was partially offset by higher natural gas marketing
volumes and prices.
As a result of ARCO's cost reduction program, lease and other operating
costs in oil and gas operations and refining and marketing operations were lower
in 1994. These reductions were partially offset by higher operating costs as a
result of increased production volumes for coal operations and ARCO Chemical,
and by higher operating costs associated with the response to
27
<PAGE>
ARCO
findings of regulatory and owner company reviews of the Trans Alaska Pipeline
System (TAPS). Litigation-related accruals, higher compensation and contract
personnel costs associated with downstream and coal operations and higher
maintenance costs, including turnarounds at three chemical plants, resulted in
higher operating costs in 1993. Partially offsetting these increases were lower
lease and other operating costs in oil and gas operations.
The decline in exploration expense in 1994 reflected reduced activity as
part of ARCO's cost reduction program, particularly in Alaska and the Lower 48.
The increase in 1993 reflected higher dry hole costs in Alaska and increased
activity overseas, partially offset by decreased activity in the Lower 48.
Selected Expenses
<TABLE>
<CAPTION>
Millions 1994 1993 1992
<S> <C> <C> <C>
Operating expenses $3,222 $3,293 $3,174
SG&A expenses $1,705 $1,828 $1,724
Exploration expenses $ 455 $ 667 $ 567
</TABLE>
The sale of ARCO's Brazilian marketing operations and lower personnel costs
in oil and gas operations resulted in reduced SG&A expenses in 1994. Higher
compensation expense and higher delivery and advertising costs increased SG&A
expenses in 1993.
The sale of ARCO's Brazilian marketing operations also resulted in reduced
taxes other than excise and income taxes in 1994. The decrease in 1993, compared
to 1992, primarily resulted from lower production taxes related to lower crude
oil prices and volumes.
Excise taxes increased in 1994 as a result of the full-year effect in 1994
of the fourth quarter 1993 increase in federal excise taxes and a mandatory
assumption of the collection responsibility for excise taxes on diesel fuel. The
increase in 1993 primarily resulted from the fourth quarter 1993 federal excise
tax increase, the full-year effect in 1993 of increased state excise taxes in
1992 and higher refined products sales volumes.
Depreciation, depletion and amortization (DD&A) decreased in 1994
reflecting the absence of a $73 million accrual for plugging and abandonment of
onshore wells recorded in 1993. This was partially offset by increased
depreciation associated with the first full year of operation of the Gordonstone
mine. The decrease in DD&A in 1993 resulted from the sale of Lower 48 oil and
gas properties, partially offset by the $73 million plug and abandonment
accrual.
Personnel reductions associated with ARCO's cost reduction program were
reported as unusual items in 1994. The fourth quarter 1993 reorganization of
ARCO's Lower 48 oil and gas operations is reflected in unusual items expense and
included $554 million before tax for writedowns for sale or other disposition of
oil and gas properties and excess office space, in addition to charges for work
force reductions. The 1992 unusual items comprised a settlement on assets
nationalized by Iran and recognition of a previously deferred portion of the
gain from the 1989 sale of a majority interest in Lyondell, partially offset by
a charge related to the withdrawal by ARCO Chemical from a Korean joint venture.
GAIN ON ISSUANCE OF
STOCK BY VASTAR RESOURCES, INC.
On July 5, 1994, Vastar Resources, Inc. (Vastar) consummated the sale of
28
<PAGE>
ARCO
17,250,000 shares of its common stock to the public at an initial offering price
of $28 per share. Prior to the offering, Vastar was a wholly owned subsidiary of
ARCO. At December 31, 1994, ARCO owned 80,000,001 shares of Vastar's common
stock, which represented 82.3% of Vastar's outstanding common stock. ARCO
realized an after-tax gain of $273 million as a result of the initial public
offering by Vastar. Vastar's results are included in ARCO's Lower 48 results in
the oil and gas segment.
INCOME TAXES
ARCO's effective tax rate was 28.3% in 1994, compared to 51.6% in 1993 and
35.6% in 1992. The lower effective tax rate in 1994 reflected recognition of a
foreign deferred tax asset, increased net foreign tax credits, a refund of paid
foreign taxes and an increase in other tax credits. The higher effective tax
rate in 1993 reflected increased taxes on foreign income and the effect of the
1993 federal tax rate increase on deferred taxes.
ACCOUNTING CHANGES
The 1992 results included a net after-tax charge of $392 million, or $2.43
per share, for the cumulative effect of the adoption of two new accounting
standards related to non-pension postretirement benefits and income taxes.
RESULTS OF SEGMENT OPERATIONS
OIL AND GAS
<TABLE>
<CAPTION>
Millions 1994 1993 1992
<S> <C> <C> <C>
Net income $ 405 $ 45 $ 816
Special items (benefit) charge 75 390 (138)
----- ----- -----
Operating results $ 480 $ 435 $ 678
===== ===== =====
</TABLE>
Lower exploration and operating expenses and higher natural gas volumes
were partially offset by lower crude oil prices and volumes and lower natural
gas prices in 1994.
In 1993, the effect of lower crude oil prices and volumes, natural gas
volumes and higher dry hole expense was partially offset by higher natural gas
prices and lower depletion and lease operating costs.
Oil and Gas Special Items After Tax
<TABLE>
<CAPTION>
Millions 1994 1993 1992
<S> <C> <C> <C>
Restructuring charges $ (66) $(404) $ --
Asset sales 6 82 69
Deferred tax impact of rate change -- (40) --
Settlement of asset nationalization -- -- 136
Lower 48 downsizing costs -- -- (59)
Tax-related and other, net (15) (28) (8)
----- ----- -----
Total special items benefit (charge) $ (75) $(390) $ 138
===== ===== =====
</TABLE>
PETROLEUM LIQUIDS PRODUCTION
Worldwide petroleum liquids volumes decreased in 1994 and 1993 as a result
of Lower 48 property divestitures and natural field declines. In 1994,
<TABLE>
<CAPTION>
Petroleum liquids production -- barrels/day -- net 1994 1993 1992
<S> <C> <C> <C>
Prudhoe Bay 236,600 250,800 270,500
Kuparuk River 147,200 151,500 150,800
Other Alaska 37,400 16,400 17,600
Lower 48, including Vastar 170,100 186,000 221,600
International 72,800 79,700 77,700
------- ------- -------
Total 664,100 684,400 738,200
======= ======= =======
</TABLE>
increased volumes resulting from the expanded gas handling system (GHX-2) at
Prudhoe Bay and new volumes from the Point McIntyre field, which began
production in October 1993, were partially offset by natural field decline in
Alaska from the Prudhoe Bay and Kuparuk River fields.
NATURAL GAS PRODUCTION
ARCO's international natural gas production grew in 1994 as a result of the
new Pagerungan and Offshore Northwest Java Sea fields in Indonesia and a full
year of production from the Orwell and Murdoch fields in the United Kingdom
North Sea. International natural gas
29
<PAGE>
ARCO
operations in 1993 were favorably impacted by a full year of production from the
Pickerill field in the U.K. North Sea, new production from the Orwell and
Murdoch fields in the U.K. North Sea, which began in late 1993, and the Java Sea
field in Indonesia.
<TABLE>
<CAPTION>
Natural Gas Production
Million/cubic feet per day 1992 1993 1994
<S> <C> <C> <C>
U.S. 1,202 911 960
International 240 321 511
Total 1,442 1,232 1,471
</TABLE>
U.S. natural gas production growth in 1994 came primarily from Vastar's
Mustang Island 805 field in the Gulf of Mexico and fields in the San Juan Basin.
The sale of Lower 48 properties and natural field declines reduced domestic
natural gas production in 1993.
COAL
<TABLE>
<CAPTION>
Millions 1994 1993 1992
<S> <C> <C> <C>
Net income $ 70 $ 107 $ 83
Worldwide shipments (tons) 49.6 47.7 39.8
</TABLE>
Revenues from record volumes in 1994 were more than offset by lower
international coal prices, the reopening to current market prices of a major
sales contract in the U.S. and unfavorable foreign exchange rate movements.
Improved earnings in 1993 reflected higher sales volumes as a result of strong
electric utility demand and reduced East Coast supply as a result of a mine
workers strike. The 1993 results included a benefit of approximately $10 million
after tax associated with a change in the accrued estimated loss on the sale of
the Coal Resources of Queensland mine, which was completed in January 1993.
REFINING AND MARKETING
<TABLE>
<CAPTION>
Millions 1994 1993 1992
<S> <C> <C> <C>
Net income $ 195 $ 307 $ 346
Special items 80 80 40
----- ----- -----
Operating results $ 275 $ 387 $ 386
===== ===== =====
</TABLE>
The 1994 results were negatively impacted by reduced U.S. West Coast
margins and the absence of earnings from Brazil, partially offset by reduced
operating costs. The 1994 special items included after-tax charges related to
personnel reductions and future environmental remediation costs. The 1993
special items comprised primarily litigation-related accruals, a loss associated
with the sale of the Brazilian marketing subsidiaries and the effect of the
increase in the federal tax rate on deferred taxes. The 1992 special items
included a charge of approximately $40 million after tax primarily for
environmental costs related to previously divested operations.
ARCO's U.S. West Coast sales volumes were relatively unchanged for the
three years ended December 31, 1994.
TRANSPORTATION
<TABLE>
<CAPTION>
Millions 1994 1993 1992
<S> <C> <C> <C>
Net income $172 $189 $239
</TABLE>
The 1994 results included charges of approximately $20 million after tax
related to personnel reductions, a loss on the sale of midcontinent product
pipelines, and costs associated with the Southern California earthquake,
partially offset by a tax credit. The 1993 earnings declined as a result of
lower TAPS earnings and the effect of the federal tax rate increase, partially
offset by higher commercial pipeline earnings.
INTERMEDIATE CHEMICALS AND
SPECIALTY PRODUCTS
After-tax earnings for ARCO's intermediate chemicals and specialty products
segment were $265 million in 1994, $239 million in 1993 and $210 million
30
<PAGE>
ARCO
in 1992. The segment consists of ARCO Chemical, an 83.3% owned subsidiary. ARCO
Chemical reported that its 1994 results included an after-tax charge of $19
million for corporate restructuring and a $12 million benefit from insurance
proceeds. ARCO Chemical's reported net income in 1993 included a $10 million
after-tax loss on early debt retirement and net benefits of $20 million from
lower income taxes. The 1992 results included $56 million before tax for a
charge resulting from ARCO Chemical's withdrawal from a joint venture in Korea.
<TABLE>
<CAPTION>
ARCO Chemical Sales Volumes
Millions 1994 1993 1992
<S> <C> <C> <C>
PO and derivatives (pounds) 3,699 3,356 3,055
SM and derivatives (pounds) 2,496 2,084 1,434
TBA and derivatives (gallons) 1,004 1,164 1,092
</TABLE>
ARCO Chemical's reported net income was higher in 1994, compared to 1993,
primarily as a result of higher sales volumes in ARCO Chemical's core products,
propylene oxide (PO) and derivatives and styrene monomer (SM), and higher SM
margins, partially offset by the effects of a weaker methyl tertiary butyl ether
(MTBE) market. In 1993, increased sales volumes in ARCO Chemical's core products
worldwide were offset by higher fixed costs associated with a new plant, lower
MTBE margins, primarily in Europe, and lower overall PO and derivatives margins
as a result of lower U.S. PO derivatives prices and continued weakness in the
European economy.
LYONDELL PETROCHEMICAL COMPANY
ARCO's 49.9% equity share of Lyondell's net income was $111 million for
1994, $13 million for 1993 and $8 million for 1992. Lyondell's results in 1994
reflected improved olefins and methanol margins and increased olefins sales
volumes. This more than offset lower earnings from Lyondell's approximate 90%
participation interest in LYONDELL-CITGO Refining Company Ltd. (LCR), which was
affected by poor industry conditions as well as downtime for major maintenance
turnarounds in the fourth quarter. LCR took over Lyondell's operation of the
Houston, Texas, refinery in July 1993. Lyondell's results in 1993 improved as a
result of higher margins attained through the processing of greater volumes of
Venezuelan crude oil.
UNALLOCATED EXPENSES AND OTHER
Unallocated expenses and other was a net after-tax expense of $57 million
in 1994 and $140 million in 1993 compared to a net after-tax benefit of $25
million in 1992. Reductions in corporate staff expense, increased foreign tax
credits and a tax refund resulted in lower unallocated expenses in 1994. In
addition, increased interest income on short-term investments was more than
offset by reimbursement of money market losses in certain employee benefit plans
and charges for personnel reductions at ARCO's corporate headquarters. The
increase in unallocated expenses in 1993 reflected the absence of a $111 million
after-tax gain recognized in 1992 and discussed below, increased compensation,
higher charges for future environmental remediation, and lower net investment
income. In 1992, unallocated expenses and other included the recognition of a
$111 million after-tax gain representing a previously deferred portion of the
gain from the 1989 sale of a majority interest in Lyondell, partially offset by
increased corporate expenses and charges for future environmental remediation.
31
<PAGE>
ARCO
FINANCIAL POSITION AND LIQUIDITY
<TABLE>
<CAPTION>
Millions 1994 1993 1992
- -------- ------- ------- -------
<S> <C> <C> <C>
Cash flow provided (used) by:
Operations $ 2,097 $ 2,762 $ 3,079
Investing activities $(2,169) $(2,237) $(2,115)
Financing activities $ (2) $ (426) $ (716)
</TABLE>
The net cash used in investing activities in 1994 included expenditures for
additions to fixed assets (including dry hole costs) of $1,658 million and a net
increase in short-term investments of $768 million, partially offset by proceeds
from asset sales of $167 million. The net cash used in financing activities in
1994 included proceeds of $1,275 million from the issuance of long-term debt,
primarily 9% Exchangeable Notes and $453 million from issuance of common stock
by Vastar, offset by repayments of long-term debt of $796 million and dividend
payments of $885 million.
Cash and cash equivalents and short-term investments totaled $4.4 billion
at year-end 1994 and short-term borrowings were $1.5 billion. Working capital
was $429 million higher at the end of 1994, primarily reflecting an increase in
short-term investments, partially offset by an increase in long-term debt due
within one year. At December 31, 1994, ARCO had unused bank credit facilities
totaling $3.2 billion and ARCO Chemical had an unused bank credit facility
totaling $300 million, while Vastar had fully utilized its $1.05 billion
revolving credit facility with an interest rate of 6.15%. Vastar's revolving
line of credit is available until November 30, 1996.
On August 8, 1994, ARCO issued 39.9 million 9% Exchangeable Notes (the
Notes) due September 15, 1997, at a price of $24.75 per Note. ARCO realized
proceeds of approximately $958 million. At maturity, holders will receive shares
of Lyondell common stock, or at ARCO's option, cash with an equal value in
exchange for the principal amount of the Notes. The number of shares or the
amount of such cash will be determined using a formula based on the price of
Lyondell common stock at the maturity of the Notes.
<TABLE>
<CAPTION>
Capital Spending 1993 1994 1995
<S> <C> <C> <C>
(Billions) $2.1 $1.7 $1.9
</TABLE>
ARCO's 1995 capital spending program includes $1.9 billion for additions to
fixed assets. Future capital expenditures remain subject to business conditions
affecting the industry, particularly changes in price and demand for crude oil,
natural gas and petroleum products. Changes in the tax laws, the imposition of
and changes in federal and state clean air and clean fuel requirements, and
other changes in environmental rules and regulations may also affect future
capital expenditures.
It is expected that future cash requirements for capital expenditures,
dividends and debt repayments will come from cash generated from operating
activities, existing cash balances, and future financings.
ENVIRONMENTAL MATTERS
ARCO is subject to federal, state and local environmental laws and regulations
which require the Company to remove or mitigate the effect on the environment of
the disposal or release of certain chemical, mineral and petroleum substances at
various sites.
32
<PAGE>
ARCO
Environmental Reserve
<TABLE>
<CAPTION>
Millions 1994 1993 1992
<S> <C> <C> <C>
Beginning balance $ 648 $ 682 $ 729
Charges 138 172 160
Payments (116) (206) (207)
----- ----- -----
Ending balance $ 670 $ 648 $ 682
===== ===== =====
</TABLE>
The amount reserved represents the estimated undiscounted costs which ARCO
will incur to complete the remediation of sites with known contamination. In
view of the uncertainties associated with estimating these costs, such as
differences of opinion between ARCO and various regulatory agencies with respect
to the appropriate method for remediating contaminated sites, uncertainty as to
the extent of contamination at various sites, and uncertainty regarding ARCO's
ultimate share of costs at various sites, it is possible that actual costs could
exceed the amount reserved by as much as $1 billion. See Note 12 to Consolidated
Financial Statements regarding environmental matters.
In addition to the provision for environmental remediation costs, $848
million has been accrued for the estimated cost, net of salvage value, of
dismantling facilities as required by contract, regulation or law, and the
estimated costs of restoration and reclamation of land associated with such
facilities.
RISK MANAGEMENT
ARCO utilizes derivative instruments for risk management purposes. The
Company uses simple, non-leveraged derivative instruments denominated in major
currencies with highly liquid secondary markets. The derivative instruments are
placed with major international financial institutions whose creditworthiness
is continually monitored. Hedging strategies are reviewed and approved by senior
management before being implemented. Policy controls limit the maximum dollar
amount of positions that can be taken at any given time.
To minimize the effects of interest rate and foreign currency fluctuations,
the Company enters into the following transactions using derivatives: 1) foreign
currency forward and swap contracts; 2) interest rate swaps; and 3) financial
futures contracts and OTC Treasury options which are limited to investment
portfolio hedging, alteration of portfolio duration and changing asset mix.
The Company and its subsidiaries engage in hedging strategies involving
forward and futures contracts, swaps and options to hedge part of their crude
oil and natural gas production to minimize the effects of commodity price
fluctuations. In 1994, Vastar entered into a series of commodity swaps covering
approximately 50% of its natural gas production for March through December.
Vastar realized a $42 million pre-tax gain as a result of these swaps.
EFFECTS OF INFLATION
While the annual rate of inflation remained moderate during the three-year
period ended December 31, 1994, ARCO continued to experience certain
inflationary effects. ARCO will benefit by using current, inflated dollars to
satisfy its debt obligations and other monetary liabilities.
In addition, it is estimated that the replacement cost of ARCO's property,
plant, equipment and inventory is greater than the historical cost reflected in
the financial statements.
33
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE
NO. PAGE
---- ----
<C> <S> <C>
Report of Independent Accountants............................. 35
Financial Statements:
Consolidated Statement of Income and Retained Earnings...... 36
Consolidated Balance Sheet.................................. 37
Consolidated Statement of Cash Flows........................ 38
Notes to Consolidated Financial Statements.................. 39
Supplemental Information.................................... 51
Supporting Financial Statement Schedule Covered by the
Foregoing Report of Independent Accountants:
II Valuation and Qualifying Accounts........................... 60
</TABLE>
Schedules other than those listed above have been omitted since they are
either not required, are not applicable, or the required information is shown
in the financial statements or related notes.
Financial statements with respect to unconsolidated subsidiaries and 50
percent owned companies are omitted per Rule 3-09(a) of Regulation S-X.
34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Atlantic Richfield Company
We have audited the accompanying consolidated balance sheets of Atlantic
Richfield Company as of December 31, 1994 and 1993, and the related
consolidated statements of income and retained earnings and cash flows for
each of the three years in the period ended December 31, 1994 and the related
financial statement schedule listed in the index on page 34 of this Form 10-K.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Atlantic
Richfield Company as of December 31, 1994 and 1993, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
As discussed in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for income taxes, postretirement benefits
other than pensions and postemployment benefits in 1992.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 10, 1995
35
<PAGE>
ARCO
CONSOLIDATED STATEMENT OF INCOME
AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For the year ended December 31,
Millions, except per share amounts 1994 1993 1992
- ---------------------------------- --------- -------- --------
<S> <C> <C> <C>
REVENUES
Sales and other operating revenues (including
excise taxes) $16,552 $18,487 $18,668
Income from equity investments 141 40 22
Interest 201 164 182
Other revenues 305 492 376
------- ------- -------
17,199 19,183 19,248
------- ------- -------
EXPENSES
Trade purchases 5,834 7,224 7,263
Operating expenses 3,222 3,293 3,174
Selling, general and administrative expenses 1,705 1,828 1,724
Depreciation, depletion and amortization 1,671 1,718 1,754
Exploration expenses (including undeveloped lease
amortization) 455 667 567
Excise taxes 1,517 1,298 1,165
Taxes other than excise and income taxes 780 1,147 1,203
Interest 759 715 762
Unusual items 347 659 (271)
------- ------- -------
16,290 18,549 17,341
------- ------- -------
Income before gain on issuance of stock by
subsidiary 909 634 1,907
Gain on issuance of stock by subsidiary 459 -- --
------- ------- -------
Income before income taxes, minority interest and
cumulative effect of changes in accounting
principles 1,368 634 1,907
Provision for taxes on income 387 327 678
Minority interest in earnings of subsidiaries 62 38 36
------- ------- -------
Income before cumulative effect of changes in
accounting principles 919 269 1,193
Cumulative effect of changes in accounting
principles -- -- (392)
------- ------- -------
Net income $ 919 $ 269 $ 801
======= ======= =======
EARNED PER SHARE
Before cumulative effect of changes in accounting
principles $ 5.63 $ 1.66 $ 7.39
Cumulative effect of changes in accounting
principles -- -- (2.43)
------- ------- -------
Net income per share $ 5.63 $ 1.66 $ 4.96
======= ======= =======
RETAINED EARNINGS
Balance, January 1 $ 5,308 $ 5,918 $ 5,990
Net income 919 269 801
Cash dividends:
Preference stocks (3) (3) (3)
Common stock (882) (876) (870)
------- ------- -------
Balance, December 31 $ 5,342 $ 5,308 $ 5,918
======= ======= =======
</TABLE>
See Notes on pages 39 through 50.
36
<PAGE>
ARCO
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
Millions 1994 1993
- -------- -------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,394 $ 1,458
Short-term investments 2,991 2,289
Accounts receivable 1,446 1,333
Inventories 797 914
Prepaid expenses and other current assets 185 237
------- -------
Total current assets 6,813 6,231
------- -------
Investments and long-term receivables:
Investments accounted for on the equity method 348 266
Other investments and long-term receivables 297 221
------- -------
645 487
------- -------
Fixed assets:
Property, plant and equipment 32,248 31,494
Less accumulated depreciation, depletion and
amortization 16,526 15,628
------- -------
15,722 15,866
Deferred charges and other assets 1,383 1,310
------- -------
Total assets $24,563 $23,894
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,478 $ 1,510
Accounts payable 986 1,091
Long-term debt due within one year 630 165
Taxes payable, including excise taxes 253 272
Accrued interest 183 190
Other 958 1,107
------- -------
Total current liabilities 4,488 4,335
------- -------
Long-term debt 7,198 7,089
Deferred income taxes 2,721 2,779
Other deferred liabilities and credits 3,471 3,177
Minority interest 407 387
Stockholders' equity:
Preference stocks 1 1
Common stock, $2.50 par value;
shares issued 160,800,137 (1994), 160,746,125
(1993); shares outstanding 160,753,966 (1994),
159,953,980 (1993) 402 402
Capital in excess of par value of stock 647 661
Retained earnings 5,342 5,308
Foreign currency translation (51) (133)
Pension liability adjustment (20) (29)
Treasury stock, at cost (5) (83)
Net unrealized loss on investments (38) --
------- -------
Total stockholders' equity 6,278 6,127
------- -------
Total liabilities and stockholders' equity $24,563 $23,894
======= =======
</TABLE>
The Company follows the successful efforts method of accounting for oil and gas
producing activities.
See Notes on pages 39 through 50.
37
<PAGE>
ARCO
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended December 31,
Millions 1994 1993 1992
- -------- --------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 919 $ 269 $ 801
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 1,671 1,718 1,754
Dry hole expense and undeveloped leasehold
amortization 251 419 331
Net gain on asset sales (3) (204) (162)
Gain on issuance of stock by subsidiary (459) -- --
Income from equity investments (141) (40) (22)
Dividends from equity investments 71 97 111
Transition obligation for postretirement
benefits -- -- 697
Noncash provisions greater (less) than cash
payments 88(a) 513(a) (207)
Deferred income taxes 118 (157) 2
Changes in accounts receivable, inventories
and accounts payable (169) 55 109
Changes in other working capital accounts (287) 53 (103)
Other 38 39 (232)(a)
------- ------- -------
Net cash provided by operating activities 2,097 2,762 3,079
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets, including dry hole
costs (1,658) (2,070) (2,278)
Net cash used by short-term investments (768) (789) (180)
Proceeds from asset sales 167 582 553
Investments and long-term receivables (79) (6) (93)
Other 169 46 (117)
------- ------- -------
Net cash used by investing activities (2,169) (2,237) (2,115)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (796) (886) (834)
Proceeds from issuance of long-term debt 1,275 1,255 1,112
Proceeds from issuance of stock by subsidiary 453 -- --
Net cash provided (used) by notes payable (69) 30 (199)
Dividends paid (885) (879) (873)
Treasury stock contributed to benefit plans 56 81 110
Other (36) (27) (32)
------- ------- -------
Net cash used by financing activities (2) (426) (716)
------- ------- -------
Effect of exchange rate changes on cash 10 (55) (62)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents (64) 44 186
Cash and cash equivalents at beginning of year 1,458 1,414 1,228
------- ------- -------
Cash and cash equivalents at end of year $1,394 $ 1,458 $1,414
======= ======= =======
</TABLE>
(a) Includes noncash unusual items of $347, $659 and ($149) in 1994, 1993 and
1992, respectively.
See Notes on pages 39 through 50.
38
<PAGE>
ARCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING POLICIES
ARCO's accounting policies conform to generally accepted accounting
principles, including the "successful efforts" method of accounting for oil and
gas producing activities.
Principles of Consolidation
The consolidated financial statements include the accounts of all
subsidiaries, ventures and partnerships in which a controlling interest is held,
including at December 31, 1994, ARCO Chemical Company (ACC), of which ARCO owned
83.3% of the outstanding shares, and Vastar Resources, Inc. (Vastar), of
which ARCO owned 82.3% of the outstanding shares. ARCO also consolidates its
interests in undivided interest pipeline companies and in oil and gas and coal
mining joint ventures. ARCO uses the equity method of accounting for companies
where its ownership is between 20% and 50% and for other ventures and
partnerships in which less than a controlling interest is held.
Cash Equivalents
Cash equivalents consist of highly liquid investments, such as time deposits,
certificates of deposit and marketable securities other than equity securities,
maturing within three months of purchase. Cash equivalents are stated at cost,
which approximates market value.
Oil and Gas Unproved Property Costs
Unproved property costs are capitalized and amortized on a composite basis,
considering past success experience and average property life. In general, costs
of properties surrendered or otherwise disposed of are charged to accumulated
amortization. Costs of successful properties are transferred to developed
properties.
Fixed Assets
Fixed assets are recorded at cost and are written off on either the unit-of-
production or straight-line method based on the expected lives of individual
assets or groups of assets.
Upon disposal of assets depreciated on an individual basis, residual cost less
salvage is included in current income. Upon disposal of assets depreciated on a
group basis, unless unusual in nature or amount, residual cost less salvage is
charged against accumulated depreciation.
Dismantlement, Restoration and Reclamation Costs
The estimated costs, net of salvage value, of dismantling facilities or
projects with limited lives or facilities that are required to be dismantled by
contract, regulation or law, and the estimated costs of restoration and
reclamation associated with oil and gas and mining operations are accrued during
production and classified as a long-term liability. Such costs are taken into
account in determining the cost of production in all operations, except oil and
gas production, in which case such costs are considered in determining
depreciation, depletion and amortization.
Environmental Remediation
Environmental remediation costs are accrued as operating expenses based on the
estimated timing and extent of remedial actions required by applicable
governmental authorities and the amount of ARCO's liability in consideration of
the proportional liability and financial wherewithal of other responsible
parties. Estimated liabilities are not discounted to present value.
Reclassifications
Certain previously reported amounts have been restated to conform to
classifications adopted in 1994.
NOTE 2 UNUSUAL ITEMS
During 1994, ARCO announced a restructuring program under which approximately
2,400 positions were eliminated. The program covered all operating units,
excluding Lower 48 oil and gas operations, along with the corporate
headquarters. ARCO provided as unusual items $347 million before tax, consisting
primarily of personnel costs (pension enhancements, severance and other
ancillary costs) associated with the terminations.
Approximately $155 million of the accrual related to severance and other
ancillary costs that will be paid from Company funds over the next two years.
Approximately $110 million related to enhanced pension benefits which will be
paid from the assets of qualified pension plans, not from Company funds. An
additional $60 million related to enhanced non-qualified pension benefits and
postretirement benefits other than pensions which are currently unfunded. These
benefits will be paid after retirement and over the remaining lives of the
recipients; as such, it will not be practical to track the actual payments of
these benefits.
In 1993, ARCO announced a reorganization of its Lower 48 oil and gas
operations. ARCO provided as unusual items a pretax charge of $659 million, of
which $554 million related to the writedown for sale or other disposition of oil
and gas
39
<PAGE>
ARCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
properties and excess office space. In addition, amounts of $65 million,
$35 million, and $5 million, respectively, were accrued for severance and
ancillary costs, enhanced qualified pension benefits, and enhanced non-qualified
pension benefits related to the elimination of approximately 1,300 positions.
Through December 31, 1994, approximately 1,400 and 1,300 employees have been
terminated under the 1994 and 1993 programs, respectively. Approximately $41
million and $47 million, respectively, of severance and ancillary benefits have
been paid and charged against the 1994 and 1993 accruals. Payments do not
necessarily correlate with the number of terminations due to the ability of
employees to defer receipt of certain payments.
In 1992, ARCO recognized a pretax benefit of $149 million from the settlement
with Iran related to Company assets that had been nationalized in the late
1970s. ARCO also recognized a pretax benefit of $178 million related to a
portion of the gain from the 1989 sale of a majority interest in Lyondell
Petrochemical Company (Lyondell) which was previously deferred as the amount
equal to ARCO's guarantee of certain Lyondell notes. When Lyondell repaid the
notes in 1992, ARCO was released from its guarantee and accordingly recognized
the gain. ARCO also recognized a pretax charge of $56 million resulting from
ACC's withdrawal from the YUKONG ARCO Chemical Ltd. joint venture in Korea. The
net benefit related to 1992 unusual items was $211 million after tax.
NOTE 3 ACCOUNTING CHANGES
Effective January 1, 1994, ARCO adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which requires investments to be carried at fair value, unless they
are considered held-to-maturity securities. The effect of adopting SFAS No. 115
had no impact on 1994 net income.
Effective January 1, 1992, ARCO adopted SFAS Nos. 106, 109 and 112. The
cumulative effect of adopting SFAS No. 106 resulted in a charge of $435 million,
or $2.70 per share, to 1992 earnings, net of income tax effects of approximately
$262 million. The cumulative effect of adopting SFAS No. 109 resulted in a
benefit of $43 million, or $0.27 per share. There was no cumulative effect of
adopting SFAS No. 112. Excluding the cumulative effects, the effect of adopting
SFAS Nos. 106, 109 and 112 was not material to 1992 net income.
NOTE 4 SEGMENT INFORMATION
ARCO operates primarily in the Resources (upstream) and Products (downstream)
segments. The Resources segment includes oil and gas operations, which comprise
the exploration, development and production of petroleum, including petroleum
liquids (crude oil, condensate and natural gas liquids) and natural gas; the
purchase and sale of petroleum liquids and natural gas; and the mining and sale
of coal. The Products segment includes the refining and transportation of
petroleum and petroleum products; the marketing of petroleum products; and the
manufacture and sale of intermediate chemicals and specialty products, including
propylene oxide and derivatives, styrene monomer, tertiary butyl alcohol, and
methyl tertiary butyl ether.
Segment information for the years ended December 31, 1994, 1993 and 1992 was as
follows:
<TABLE>
<CAPTION>
Millions 1994 1993 1992
- -------- ------- ------- -------
<S> <C> <C> <C>
SALES AND OTHER OPERATING
REVENUES
Resources:
Oil and gas $ 7,969 $ 8,357 $ 8,994
Coal 663 648 585
Products:
Refining and marketing 6,529 8,603 8,461
Transportation 897 878 900
Intermediate chemicals and
specialty products 3,423 3,192 3,100
Other 30 28 24
Elimination of intersegment
amounts (2,959) (3,219) (3,396)
------- ------- -------
Total $16,552 $18,487 $18,668
======= ======= =======
</TABLE>
Intersegment sales were made at prices approximating current market values.
Intersegment sales included in sales and other operating revenues were as
follows:
<TABLE>
<CAPTION>
Millions 1994 1993 1992
- -------- ------ ------ ------
<S> <C> <C> <C>
Resources:
Oil and gas $2,338 $2,592 $2,833
Products:
Refining and marketing 21 19 16
Transportation 416 385 419
Intermediate chemicals and
specialty products 154 195 104
Other 30 28 24
------ ------ ------
Total $2,959 $3,219 $3,396
====== ====== ======
</TABLE>
40
<PAGE>
ARCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Millions 1994 1993 1992
- -------- ------- ------- -------
<S> <C> <C> <C>
PRETAX SEGMENT EARNINGS
Resources:
Oil and gas $ 608 $ 114 $ 1,183
Coal 95 160 107
Products:
Refining and marketing 303 569 547
Transportation 239 327 378
Intermediate chemicals and
specialty products 502 412 396
Equity in earnings from Lyondell 111 13 8
Gain on issuance of stock by
subsidiary 459 - -
Unallocated expenses and other (190) (246) 50
Interest (759) (715) (762)
Income taxes (387) (327) (678)
Minority interest (62) (38) (36)
Changes in accounting
principles - - (392)
------- ------- -------
Net income $ 919 $ 269 $ 801
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Millions 1994 1993 1992
- -------- ------- ------- -------
<S> <C> <C> <C>
AFTER-TAX SEGMENT EARNINGS
Resources:
Oil and gas(a) $ 405 $ 45 $ 816
Coal 70 107 83
Products:
Refining and marketing 195 307 346
Transportation 172 189 239
Intermediate chemicals and
specialty products(a) 265 239 210
Equity in earnings from Lyondell 111 13 8
Gain on issuance of stock by
subsidiary 273 - -
Unallocated expenses and other (57) (140) 25
Interest (515) (491) (534)
Changes in accounting
principles - - (392)
------- ------- -------
Net income $ 919 $ 269 $ 801
======= ======= =======
</TABLE>
(a) Net of minority interest.
<TABLE>
<CAPTION>
Millions 1994 1993 1992
- -------- ------- ------- -------
<S> <C> <C> <C>
TOTAL ASSETS
Resources:
Oil and gas $ 9,192 $ 9,349 $10,362
Coal 1,381 1,320 1,411
Products:
Refining and marketing 2,841 2,789 2,830
Transportation 2,046 2,145 2,191
Intermediate chemicals and
specialty products 3,737 3,502 3,599
Other 5,366 4,789 3,863
------- ------- -------
Total $24,563 $23,894 $24,256
======= ======= =======
ADDITIONS TO FIXED ASSETS
Resources:
Oil and gas $ 989 $ 1,383 $ 1,249
Coal 57 94 308
Products:
Refining and marketing 376 345 315
Transportation 48 59 94
Intermediate chemicals and
specialty products 186 181 295
Other 2 8 17
------- ------- -------
Total $ 1,658 $ 2,070 $ 2,278
======= ======= =======
DEPRECIATION, DEPLETION AND
AMORTIZATION
Resources:
Oil and gas(a) $ 1,043 $ 1,092 $ 1,176
Coal 76 59 53
Products:
Refining and marketing 191 200 178
Transportation 104 104 98
Intermediate chemicals and
specialty products 235 223 199
Other 22 40 50
------- ------- -------
Total $ 1,671 $ 1,718 $ 1,754
======= ======= =======
</TABLE>
(a) Excludes undeveloped leasehold amortization of $67, $98, and $110,
respectively, included in exploration expense.
International operations are conducted principally in the following geographic
regions: Oil and gas - United Kingdom, Asia Pacific and Dubai; Coal - Australia;
Intermediate chemicals and specialty products - Europe and Asia Pacific;
Refining and marketing - Brazil (marketing only). The Brazilian operations were
sold in December 1993.
<TABLE>
<CAPTION>
Millions 1994 1993 1992
- -------- ------ ------ ------
<S> <C> <C> <C>
INTERNATIONAL OPERATIONS
Sales and other operating
revenues:
Oil and gas $1,027 $ 998 $ 952
Coal 336 304 282
Refining and marketing 2 1,920 1,794
Intermediate chemicals and
specialty products 1,210 1,122 1,255
Other 30 29 23
------ ------ ------
Total $2,605 $4,373 $4,306
====== ====== ======
Net income (loss):
Oil and gas $ 26 $ (17) $ 171(b)
Coal 29 59 41
Refining and marketing 2 2 28
Intermediate chemicals and
specialty products(a) 70 58 37
Other (23) (25) (26)
------ ------ ------
Total $ 104 $ 77 $ 251
====== ====== ======
Total assets:
Oil and gas $2,792 $2,691 $2,415
Coal 892 821 901
Refining and marketing - - 301
Intermediate chemicals and
specialty products 1,580 1,424 1,567
Other 299 230 233
------ ------ ------
Total $5,563 $5,166 $5,417
====== ====== ======
</TABLE>
(a) Includes income (losses) of equity affiliates, principally Asian joint
ventures, of $2, $(2), and $(18), in 1994, 1993 and 1992, respectively.
(b) Includes gain from settlement on assets nationalized by Iran (Note 2).
41
<PAGE>
ARCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 TAXES
Taxes other than excise and income taxes for the years ended December 31,
1994, 1993 and 1992 comprised the following:
<TABLE>
<CAPTION>
Millions 1994 1993 1992
- -------- ----- ------ ------
<S> <C> <C> <C>
Property $189 $ 198 $ 205
Production/severance 306 331 389
Value added - 349 330
Other 285 269 279
---- ------ ------
Total $780 $1,147 $1,203
==== ====== ======
</TABLE>
The components of the provision for taxes on income for the years ended
December 31, 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
Millions 1994 1993 1992
- -------- ---- ----- -----
<S> <C> <C> <C>
Federal:
Current $176 $ 382 $292
Deferred 128 (159) 198
---- ----- ----
304 223 490
---- ----- ----
Foreign:
Current 62 69 80
Deferred (19) 13 17
---- ----- ----
43 82 97
---- ----- ----
State:
Current 31 33 42
Deferred 9 (11) 49
---- ----- ----
40 22 91
---- ----- ----
Total provision for taxes on income $387 $ 327 $678
==== ===== ====
Total income taxes paid in cash $447 $ 510 $675
==== ===== ====
</TABLE>
The deferred tax benefit in 1993 primarily resulted from book accruals
associated with the Lower 48 reorganization and work force reductions. The major
components of the net deferred tax liability as of December 31, 1994 and 1993
were as follows:
<TABLE>
<CAPTION>
Millions 1994 1993
- --------- ------- -------
<S> <C> <C>
Depreciation, depletion and amortization $(3,648) $(3,630)
Other (356) (329)
------- -------
Total deferred tax liabilities (4,004) (3,959)
------- -------
Dismantlement and environmental 522 492
Postretirement benefits 325 302
Foreign excess tax basis/loss carryforwards 208 197
Other 332 316
------- -------
Total deferred tax assets 1,387 1,307
------- -------
Valuation allowance (104) (127)
------- -------
Net deferred income tax liability $(2,721) $(2,779)
======= =======
</TABLE>
ARCO has foreign loss carryforwards of $290 million which begin expiring in
1995. The valuation allowance was $102 million at December 31, 1992.
The domestic and foreign components of income before income taxes, minority
interest and cumulative effect of changes in accounting principles, and a
reconciliation of income tax expense with tax at the effective federal statutory
rate for the years ended December 31, 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
Percent
of Pretax
Millions Amount Income
- -------- ------ ---------
<S> <C> <C>
1994
Income before income taxes:
Domestic $1,147 83.8
Foreign 221 16.2
------ -----
Total $1,368 100.0
====== =====
Tax at 35% $ 479 35.0
Increase (reduction) in taxes resulting from:
Dividend exclusion (31) (2.3)
Taxes on foreign income in excess of statutory rate 46 3.4
Foreign deferred tax asset recognition (30) (2.2)
State income taxes (net of federal effect) 26 1.9
Tax credits (84) (6.1)
Other (19) (1.4)
------ -----
Provision for taxes on income $ 387 28.3
====== =====
1993
Income before income taxes:
Domestic $ 342 53.9
Foreign 292 46.1
------ -----
Total $ 634 100.0
====== =====
Tax at 35% $ 222 35.0
Increase (reduction) in taxes resulting from:
Dividend exclusion 7 1.1
Impact of federal rate increase on deferred tax liability 65 10.3
Taxes on foreign income in excess of statutory rate 74 11.7
Sale of foreign subsidiary 37 5.8
Foreign deferred tax asset recognition (26) (4.1)
State income taxes (net of federal effect) 14 2.2
Tax credits (49) (7.7)
Other (17) (2.7)
------ -----
Provision for taxes on income $ 327 51.6
====== =====
1992
Income before income taxes:
Domestic $1,449 76.0
Foreign 458 24.0
------ -----
Total $1,907 100.0
====== =====
Tax at 34% $ 648 34.0
Increase (reduction) in taxes resulting from:
Dividend exclusion 12 .6
Taxes on foreign income in excess of statutory rate 25 1.3
State income taxes (net of federal effect) 60 3.2
Tax credits (43) (2.2)
Other (24) (1.3)
------ -----
Provision for taxes on income $ 678 35.6
====== =====
</TABLE>
NOTE 6 INVENTORIES
Inventories are recorded when purchased, produced or manufactured and are
stated at the lower of cost or market. In 1994, approximately 86% of
inventories, excluding
42
<PAGE>
ARCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
materials and supplies, were determined by the last-in, first-out (LIFO) method.
Materials and supplies and other non-LIFO inventories are determined
predominantly on an average cost basis.
Total inventories at December 31, 1994 and 1993 comprised the following
categories:
<TABLE>
<CAPTION>
Millions 1994 1993
- -------- ----- -----
<S> <C> <C>
Crude oil and petroleum products $ 172 $ 266
Chemical products 351 373
Other products 46 32
Materials and supplies 228 243
----- -----
Total $ 797 $ 914
===== =====
</TABLE>
The excess of the current cost of inventories over book value was
approximately $253 million and $228 million at December 31, 1994 and 1993,
respectively.
NOTE 7 LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1993 comprised the following:
<TABLE>
<CAPTION>
Millions 1994 1993
- -------- ------ ------
<S> <C> <C>
5-5/8%, due in 1997 $ 14 $ 18
5.90%, due in 2007 - 265
6-1/8%, due in 1996 102 102
8-1/4%, due in 2022 250 250
8-1/2%, due in 2012 194 250
8-3/4%, due in 2032 203 250
9% exchangeable notes, due in 1997 988 -
9%, due in 2021 286 300
9%, due in 2031 136 150
9-1/8%, due in 2011 300 300
9-1/8%, due in 2031 350 350
9-7/8%, due in 2016 450 450
10-1/4%, due in 2000 250 250
10-3/8%, due in 1995 500 500
10-7/8%, due in 2005 500 500
Third Series Medium-Term Notes 75 137
Medium-Term Notes - A Series 198 200
Medium-Term Notes - B Series 250 250
ARCO Tresop Notes 311 311
Variable rate(a), due in 2031 265 -
ARCO Chemical Company:
9.375%, due in 2005 100 100
9.8%, due in 2020 224 224
9.9%, due in 2000 200 200
10.25%, due in 2010 100 100
French bank loans 84 94
ACNL bank loans 172 155
Vastar bank loan 1,050 1,250
Capitalized lease obligations 26 26
Other 261 287
------ ------
Total, including debt due within one year 7,839 7,269
Less:
Debt due within one year 630 165
Bonds held in sinking fund 11 15
------ ------
Long-term debt $7,198 $7,089
====== ======
</TABLE>
(a) Weighted average 4.5% at December 31, 1994.
Maturities and sinking fund obligations for the five years subsequent to
December 31, 1994 are as follows (millions of dollars): 1995 - $630; 1996 -
$1,234; 1997 - $1,275; 1998 - $177; 1999 - $139. No material amounts of long-
term debt are collateralized by Company assets.
In 1993, Vastar borrowed $1.25 billion principal amount under a $1.25 billion
unsecured, variable rate (6.15% at December 31, 1994), revolving-term credit
agreement available until 1996. During 1994, the maximum principal amount under
the credit agreement was reduced to $1.05 billion. The agreement contains
restrictions which, among other things, require Vastar to maintain certain
financial ratios and restrict encumbrance of assets.
In August 1994, ARCO issued 39.9 million 9% Exchangeable Notes (Notes) due
September 15, 1997 at a price of $24.75 per note. At maturity, holders will
receive, in exchange for the principal amount of the Notes, shares of Lyondell
stock, or at ARCO's option, cash with an equal value. The number of shares or
the amount of such cash will be determined using a formula based on the price of
Lyondell common stock at the maturity of the Notes.
At December 31, 1994 and 1993, approximately $360 million and $355 million,
respectively, of long-term debt was denominated in foreign currencies. To reduce
the exposure to foreign currency fluctuations, ARCO entered into a swap
agreement on an 18 billion yen debt issue due in 1996 which fixes the principal
balance at $102 million with an effective interest rate of 8.14%.
ARCO periodically enters into interest rate swap agreements with the objective
of managing interest rate risk by converting the interest rate on variable rate
debt to a fixed rate. The fixed rate is accrued and charged to interest expense
through the term of the interest rate swap agreement. At December 31, 1994, ARCO
had outstanding interest rate swaps on two loans totalling 300 million Dutch
guilders (approximately $172 million) due in 1997. Both swaps mature in 1997
when the related debt becomes due. The swaps effectively changed both loans'
floating interest rates to fixed rates of 5.7% and 6.71%. ARCO intends to hold
the swaps until maturity.
NOTE 8 SHORT-TERM BORROWINGS AND BANK CREDIT FACILITIES
Notes payable consist primarily of commercial paper issued to a variety of
financial investors and institutions and any amounts outstanding under ARCO or
ACC credit facilities. The weighted average interest rate on notes payable
outstanding at December 31, 1994 and 1993 was 6.1% and 4.3%, respectively.
43
<PAGE>
ARCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1994, ARCO and certain wholly owned subsidiaries had committed bank credit
facilities of approximately $3.3 billion. At December 31, 1994, $115 million was
borrowed under these committed facilities.
ACC maintains its own credit facility, not guaranteed by ARCO, under which it
may borrow up to $300 million. At December 31, 1994, there were no borrowings
against the ACC credit facility.
At December 31, 1994, ARCO had letters of credit outstanding totalling
approximately $330 million.
NOTE 9 INTEREST EXPENSE
Interest expense for the years ended December 31, 1994, 1993 and 1992
comprised the following:
<TABLE>
<CAPTION>
Millions 1994 1993 1992
- -------- ----- ----- ----
<S> <C> <C> <C>
Long-term debt $634 $573 $ 624
Short-term debt 82 92 105
Other 80 106 148
---- ---- -----
796 771 877
Capitalized interest (37) (56) (115)
---- ---- -----
Total interest expense $759 $715 $ 762
==== ==== =====
Total interest paid in cash $766 $749 $ 752
==== ==== =====
</TABLE>
NOTE 10 FOREIGN CURRENCY TRANSACTIONS
Foreign exchange transactions resulted in a net loss of $12 million in 1994
and net gains of $22 million and $1 million in 1993 and 1992, respectively.
NOTE 11 FIXED ASSETS
Property, plant and equipment, and related accumulated depreciation, depletion
and amortization at December 31, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Millions 1994 1993
- -------- ------- -------
<S> <C> <C>
Resources:
Oil and gas $19,355 $19,100
Coal 1,418 1,296
Products:
Refining and marketing 4,000 3,647
Transportation 3,568 3,588
Intermediate chemicals and specialty products 3,524 3,257
Other 383 606
------- -------
32,248 31,494
Accumulated depreciation, depletion and amortization 16,526 15,628
------- -------
Total $15,722 $15,866
======= =======
</TABLE>
Expenses for maintenance and repairs for 1994, 1993 and 1992 were $525
million, $509 million and $513 million, respectively.
NOTE 12 OTHER COMMITMENTS AND CONTINGENCIES
ARCO has commitments, including those related to the acquisition, construction
and development of facilities, all made in the normal course of business.
At December 31, 1994 and 1993, there were contingent liabilities primarily
with respect to guarantees of securities of other issuers of approximately $75
million and $111 million, respectively, of which approximately $41 million was
indemnified at December 31, 1993.
Following the March 1989 EXXON VALDEZ oil spill, Alyeska Pipeline Service
Company (Alyeska) and Alyeska's owner companies were the subject of numerous
lawsuits by the State of Alaska, the United States and private plaintiffs. ARCO
Transportation Alaska, Inc. (ATA) owns approximately 21% of Alyeska. Alyeska and
its owner companies have settled the federal and state claims and all but a
handful of the lawsuits by private plaintiffs. Certain issues relating to the
liability for the spill remain unresolved between the Exxon companies and
Alyeska and its owner companies.
ARCO and former producers of lead pigments have been named as defendants in
cases filed by a municipal housing authority, a purported class and several
individuals seeking damages and injunctive relief as a consequence of the
presence of lead-based paint in certain housing units. ARCO is also the subject
or party to a number of other pending or threatened legal actions.
In January 1995, the State of Montana presented to ARCO a revised demand for
damages of $635 million based on alleged injuries to natural resources resulting
from ARCO's mining and mineral processing businesses formerly operated by
Anaconda, ARCO's predecessor, in Montana. ARCO is contesting the amount of this
demand.
ARCO is subject to other loss contingencies pursuant to federal, state and
local environmental laws and regulations. These include possible obligations to
remove or mitigate the effects on the environment of the disposal or release of
certain chemical, mineral and petroleum substances at various sites, including
the restoration of natural resources located at these sites and damages for loss
of use and non-use values. ARCO is currently participating in environmental
assessments and cleanups under these laws at federal Superfund and state-managed
sites, as well as other clean-up sites, including service stations, refineries,
terminals, chemical facilities, third-party landfills, former nuclear processing
facilities, sites associated with discontinued operations and sites formerly
owned by ARCO. ARCO may in the future be involved in additional environmental
44
<PAGE>
ARCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assessments and cleanups, including the restoration of natural resources and
damages for loss of use and non-use values. The amount of such future costs will
depend on such factors as the unknown nature and extent of contamination at many
sites, the unknown timing, extent and method of the remedial actions which may
be required and the determination of ARCO's liability in proportion to other
responsible parties. In addition, environmental loss contingencies include
claims for personal injuries allegedly caused by exposure to toxic materials
manufactured or used by ARCO.
ARCO continues to estimate the amount of these costs in periodically
establishing reserves based on progress made in determining the magnitude of
remediation costs, experience gained from sites on which remediation has been
completed, the timing and extent of remedial actions required by the applicable
governmental authorities and an evaluation of the amount of ARCO's liability
considered in light of the liability and financial wherewithal of the other
responsible parties. At December 31, 1994, the environmental remediation accrual
was $670 million. As the scope of ARCO's obligations becomes more clearly
defined, there may be changes in these estimated costs, which might result in
future charges against ARCO's earnings.
ARCO's environmental remediation accrual covers federal Superfund and state-
managed sites as well as other clean-up sites, including service stations,
refineries, terminals, chemical facilities, third-party landfills, former
nuclear processing facilities, sites associated with discontinued operations and
sites formerly owned by ARCO. ARCO has been named a potentially responsible
party (PRP) for 126 sites. The number of PRP sites in and of itself does not
represent a relevant measure of liability, because the nature and extent of
environmental concerns varies from site to site and ARCO's share of
responsibility varies from sole responsibility to very little responsibility.
ARCO reviews all of the PRP sites, along with other sites as to which no claims
have been asserted, in estimating the amount of the accrual. ARCO's future costs
at these sites could exceed the amount accrued by as much as $1 billion.
Approximately half of the accrual related to sites associated with ARCO's
discontinued operations, primarily mining activities in the states of Montana,
Utah and New Mexico. Another significant component related to currently and
formerly owned chemical, nuclear processing, and refining and marketing
facilities, and other sites which received wastes from these facilities. The
remainder related to other sites with reserves ranging from $1 million to $10
million per site. No one site represents more than 15 percent of the total
accrual. Substantially all amounts accrued are expected to be paid out over the
next five to six years.
Claims for recovery of remediation costs already incurred and to be incurred
in the future have been filed against various insurance companies and other
third parties. These claims have not been resolved. Due to the uncertainty as to
ultimate recovery from these parties, ARCO has neither recorded any asset nor
reduced any liability in anticipation of such recovery.
Although any ultimate liability arising from any of the matters described
herein could result in significant expenses or judgments that, if aggregated and
assumed to occur within a single fiscal 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 from time to time in varying degrees by domestic and foreign political
developments as well as legislation, regulations and litigation pertaining to
restrictions on production, imports and exports, tax increases, environmental
regulations, cancellation of contract rights and expropriation of property. Both
the likelihood of such occurrences and their overall effect on ARCO vary greatly
and are not predictable.
These uncertainties are part of a number of items that ARCO has taken and will
continue to take into account in periodically establishing reserves.
NOTE 13 RETIREMENT PLANS
ARCO and its subsidiaries have defined benefit pension plans to provide
pension benefits to substantially all employees. The benefits are based on years
of service and the employee's compensation, primarily during the last three
years of service. ARCO's funding policy is to make annual contributions as
required by applicable regulations. ARCO accrues pension costs based on an
actuarial valuation for each plan and funds the plans through contributions to
trust funds that are kept apart from Company funds.
45
<PAGE>
ARCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the plans' funded status and amounts recognized
in the balance sheet at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
Assets Exceed Accumulated
Accumulated Benefits
Millions Benefits Exceed Assets
- -------- ------------- -------------
<S> <C> <C>
1994
Actuarial present value of benefit obligations:
Vested benefit obligation $1,692 $ 152
------ -----
Accumulated benefit obligation $1,799 $ 171
------ -----
Projected benefit obligation $2,105 $ 230
Plan assets at fair value, primarily stocks
and bonds 2,377 -
------ -----
Projected benefit obligation (in excess of)
or less than plan assets 272 (230)
Unrecognized net loss 121 82
Prior service cost not yet recognized in net
periodic pension cost 149 25
Remaining unrecognized (asset) obligation from
January 1, 1986 (319) 13
Adjustment required to recognize minimum liability - (63)
------ -----
Prepaid pension cost (liability) recognized in the
balance sheet $ 223 $(173)
====== =====
1993
Actuarial present value of benefit obligations:
Vested benefit obligation $2,007 $ 158
------ -----
Accumulated benefit obligation $2,054 $ 161
------ -----
Projected benefit obligation $2,420 $ 214
Plan assets at fair value, primarily stocks
and bonds 2,720 -
------ -----
Projected benefit obligation (in excess of)
or less than plan assets 300 (214)
Unrecognized net loss 134 100
Prior service cost not yet recognized in net
periodic pension cost 148 27
Remaining unrecognized (asset) obligation from
January 1, 1986 (348) 9
Adjustment required to recognize minimum liability - (83)
------ -----
Prepaid pension cost (liability) recognized in the
balance sheet $ 234 $(161)
====== =====
</TABLE>
Pension costs related to ARCO-sponsored plans, on a pre-tax basis, including
amortization of unfunded projected benefit obligations for the years ended
December 31, 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
Millions 1994 1993 1992
- -------- ----- ----- -----
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 81 $ 59 $ 51
Interest cost on projected benefit obligation 183 173 133
Actual loss (return) on plan assets 65 (483) (91)
Net amortization and deferral (344) 220 (127)
----- ----- -----
Net periodic pension benefit $ (15) $ (31) $ (34)
===== ===== =====
</TABLE>
In addition to this pension benefit, in 1994 and 1993 ARCO recorded $143
million and $61 million, respectively, before tax as additional pension cost in
connection with the work force reductions in those years.
ARCO's assumptions used as of December 31, 1994, 1993 and 1992 in determining
the pension cost and pension liability were as follows:
<TABLE>
<CAPTION>
Percent 1994 1993 1992
- ------- ---- ---- ----
<S> <C> <C> <C>
Discount rate 8.25 7.25 8.5
Rate of salary progression 5.0 5.0 5.0
Long-term rate of return on assets 10.5 10.5 10.5
</TABLE>
NOTE 14 OTHER POSTRETIREMENT BENEFITS
ARCO and its subsidiaries sponsor defined postretirement benefit plans to
provide other postretirement benefits to substantially all employees who retire
with ARCO having rendered the required years of service, along with their
spouses and eligible dependents. Health care benefits are provided primarily
through comprehensive indemnity plans. Currently, ARCO pays approximately 80% of
the cost of such plans, but has the right to modify the cost-sharing provisions
at any time. Life insurance benefits are based primarily on the employee's final
compensation and are also partially paid for by retiree contributions, which
vary based upon coverage chosen by the retiree.
ARCO's current policy is to fund the cost of postretirement health care and
life insurance plans on a pay-as-you-go basis.
The following table sets forth the plans' combined postretirement benefit
liability as of December 31, 1994 and 1993:
<TABLE>
<CAPTION>
Health Life
Millions Care Insurance Total
- -------- ------ --------- -----
<S> <C> <C> <C>
1994
Accumulated postretirement benefit obligation:
Retirees $ 512 $153 $ 665
Employees fully eligible 25 7 32
Other active participants 156 34 190
----- ---- -----
Total 693 194 887
Unrecognized gain (loss) (53) 9 (44)
----- ---- -----
Accrued postretirement benefit cost recognized
in the balance sheet $ 640 $203 $ 843
===== ==== =====
1993
Accumulated postretirement benefit obligation:
Retirees $ 461 $158 $ 619
Employees fully eligible 35 12 47
Other active participants 211 47 258
----- ---- -----
Total 707 217 924
Unrecognized loss (125) (18) (143)
----- ---- -----
Accrued postretirement benefit cost recognized
in the balance sheet $ 582 $199 $ 781
===== ==== =====
</TABLE>
46
<PAGE>
ARCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARCO charges postretirement benefit costs as accrued, based on actuarial
calculations for each plan. Net annual postretirement benefit costs for the
years ended December 31, 1994, 1993 and 1992 included the following components:
<TABLE>
<CAPTION>
Health Life
Millions Care Insurance Total
- --------- ------ --------- -----
<S> <C> <C> <C>
1994
Service cost-benefits earned during the period $17 $ 4 $21
Interest cost on accumulated postretirement
benefit obligation 54 15 69
Net amortization 3 - 3
--- --- ---
Net postretirement benefit cost $74 $19 $93
=== === ===
1993
Service cost-benefits earned during the period $15 $ 3 $18
Interest cost on accumulated postretirement
benefit obligation 47 15 62
--- --- ---
Net postretirement benefit cost $62 $18 $80
=== === ===
1992
Service cost-benefits earned during the period $12 $ 3 $15
Interest cost on accumulated postretirement
benefit obligation 46 15 61
--- --- ---
Net postretirement benefit cost $58 $18 $76
=== === ===
</TABLE>
In addition to the cost above, in 1994 and 1993, ARCO recorded $24 million and
$9 million, respectively, before tax as additional postretirement benefit
expense in connection with workforce reductions.
The significant assumptions used in determining postretirement benefit cost
and the accumulated postretirement benefit obligation were as follows:
<TABLE>
<CAPTION>
Percent 1994 1993 1992
- -------- ---- ---- ----
<S> <C> <C> <C>
Discount rate 8.25 7.25 8.5
Rate of salary progression 5.0 5.0 5.0
</TABLE>
The weighted average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care trend rate) for the health plans is 10% for
1992 to 1996, 8% for 1997 to 2001, and 6% thereafter. The effect of a one-
percentage-point increase in the assumed health care cost trend rate would
increase the accumulated postretirement benefit obligation as of December 31,
1994, by approximately 12%, and the aggregate of the service and interest cost
components of net annual postretirement benefit cost by approximately 14%.
NOTE 15 STOCKHOLDER'S EQUITY
Detail of ARCO's capital stock as of December 31, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
1994 1993
-------- ---------
<S> <C> <C>
$3.00 Cumulative convertible preference stock, par $1:
Shares authorized 78,089 94,316
Shares issued and outstanding 73,721 81,309
Aggregate value in liquidation - (thousands) $ 5,898 $ 6,505
$2.80 Cumulative convertible preference stock, par $1:
Shares authorized 833,776 942,016
Shares issued and outstanding 794,796 854,053
Aggregate value in liquidation - (thousands) $ 55,636 $ 59,784
Common stock, par $2.50:
Shares authorized 600,000,000 600,000,000
Shares issued 160,800,137 160,746,125
Shares outstanding 160,753,966 159,953,980
Shares held in treasury 46,171 792,145
</TABLE>
Changes in preference stocks outstanding in 1994, 1993 and 1992 were due to
conversions. The $3.00 cumulative convertible preference stock is convertible
into 6.8 shares of common stock. The $2.80 cumulative convertible preference
stock is convertible into 2.4 shares of common stock. Common stock is
subordinate to the preference stocks for dividends and assets. The $3.00 and
$2.80 preference stocks may be redeemed at the option of ARCO for $82 and $70
per share, respectively.
ARCO has authorized 75,000,000 shares of preferred stock, $.01 par, of which
none were issued or outstanding at December 31, 1994.
The balance in ARCO's common stock at December 31, 1994, 1993 and 1992 was $402
million.
Detail of changes in treasury stock in 1994, 1993 and 1992 was as follows:
<TABLE>
<CAPTION>
Millions
- --------
<S> <C>
Balance, January 1, 1992 $ 325
Treasury stock contributed to benefit plans (110)
Conversions (24)
-----
Balance, December 31, 1992 191
Treasury stock contributed to benefit plans (81)
Conversions (27)
-----
Balance, December 31, 1993 83
Treasury stock contributed to benefit plans (56)
Conversions (22)
-----
Balance, December 31, 1994 $ 5
=====
</TABLE>
The net decrease in capital in excess of par value of stock in 1994, 1993 and
1992 of $14 million, $15 million and $12 million, respectively, was due
primarily to the conversion of preference stock to common stock.
47
<PAGE>
ARCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1994, shares of ARCO's authorized and unissued common stock
were reserved as follows:
<TABLE>
<S> <C>
Conversions:
$3.00 Preference stock 501,303
$2.80 Preference stock 1,907,510
Stock option plans 6,353,465
Employee benefit plans 9,974,482
----------
Total 18,736,760
==========
</TABLE>
Under ARCO's incentive compensation plans, awards of ARCO's common stock may
be made to officers, outside directors and key employees.
NOTE 16 EARNED PER SHARE
Earned per share is based on the average number of common shares outstanding
during each period including common stock equivalents that consist of certain
outstanding options and all outstanding convertible securities. The average
shares used in the calculation of earned per share for the years ended December
31, 1994, 1993 and 1992 were 163.2 million, 162.4 million and 161.5 million,
respectively.
NOTE 17 STOCK OPTIONS
Options to purchase shares of ARCO's common stock have been granted to
executives, outside directors and key employees. These options become
exercisable in varying installments and expire ten years after the date of
grant. Transactions during 1994, 1993 and 1992 were as follows:
<TABLE>
<S> <C>
Balance, January 1, 1992 2,008,091
Granted 679,457
Exercised (average option price per share: $77.09) (51,385)
---------
Balance, December 31, 1992 2,636,163
Granted 574,726
Exercised (average option price per share: $81.74) (48,707)
---------
Balance, December 31, 1993 3,162,182
Granted 573,865
Exercised (average option price per share: $75.17) (75,019)
Cancelled (87,286)
---------
Balance, December 31, 1994 3,573,742
=========
At December 31, 1994:
Shares exercisable 2,737,756
Shares available for option 2,779,723
(1,986,670 at December 31, 1993)
Average option price per share:
Shares under option $104.26
Shares exercisable $103.57
</TABLE>
NOTE 18 SUPPLEMENTAL CASH FLOW INFORMATION
The following is supplemental cash flow information for the years ended
December 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
Millions 1994 1993 1992
- -------- ------- ------ -------
<S> <C> <C> <C>
Short-term investments:
Gross maturities $ 5,952 $ 5,428 $ 4,796
Gross purchases (6,720) (6,217) (4,976)
------- ------- -------
Net cash used $ (768) $ (789) $ (180)
======= ======= =======
Notes payable:
Gross proceeds $ 9,516 $ 8,568 $ 7,380
Gross repayments (9,585) (8,538) (7,579)
------- ------- -------
Net cash provided (used) $ (69) $ 30 $ (199)
======= ======= =======
Gross noncash provisions
charged to income $ 888 $ 1,148 $ 553
Cash payments of previously
accrued items (800) (635) (760)
------- ------- -------
Noncash provisions greater
(less) than cash payments $ 88 $ 513 $ (207)
======= ======= =======
</TABLE>
NOTE 19 LEASE COMMITMENTS
Capital lease obligations are recorded at the present value of future rental
payments. The related assets are amortized on a straight-line basis.
At December 31, 1994, future minimum rental payments due under leases were as
follows:
<TABLE>
<CAPTION>
Capital Operating
Millions Leases Leases
- -------- ------- ---------
<S> <C> <C>
1995 $ 3 $162
1996 3 129
1997 3 106
1998 3 87
1999 3 59
Later years 73 307
--- ----
Total minimum lease payments 88 $850
====
Imputed interest (rates ranging from
9.75% to 12.00%) 62
---
Present value of minimum lease
payments included in long-term debt $26
===
</TABLE>
Minimum future rental income under noncancellable subleases at December 31,
1994 amounted to $108 million.
Operating lease net rental expense for the years ended December 31, 1994, 1993
and 1992 was as follows:
<TABLE>
<CAPTION>
Millions 1994 1993 1992
- -------- ---- ---- ----
<S> <C> <C> <C>
Minimum rentals $218 $220 $206
Contingent rentals 2 1 1
Sublease rental income (12) (15) (18)
---- ---- ----
Net rental expense $208 $206 $189
==== ==== ====
</TABLE>
48
<PAGE>
ARCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
No restrictions on dividends or on additional debt or lease financing exist
under ARCO's lease commitments. Under certain conditions, options and
obligations exist to purchase certain leased properties.
NOTE 20 LYONDELL PETROCHEMICAL COMPANY
Lyondell is engaged in the manufacture and marketing of basic commodity
chemicals, including ethylene, propylene, methanol and aromatics, and, through
its approximately 90% interest in LYONDELL-CITGO Refining Company, the refining
and marketing of petroleum products.
At December 31, 1994, ARCO owned 49.9% of Lyondell common stock outstanding;
ARCO accounts for this investment on the equity method. The market value of
ARCO's shares of Lyondell common stock, based on the closing quoted market price
at December 31, 1994, was $1,033 million.
Summarized financial information for Lyondell was as follows:
<TABLE>
<CAPTION>
Millions 1994 1993 1992
- --------- ------ ------ ------
<S> <C> <C> <C>
Year ended December 31:
Revenues(a) $3,857 $3,850 $4,809
Operating income $ 424 $ 93 $ 104
Income before income taxes and cumulative effect
of accounting changes $ 349 $ 16 $ 35
Cumulative effect of changes in accounting
principles $ - $ 22 $ (10)
Net income $ 223 $ 26 $ 16
------ ------ ------
ARCO's equity in net income of Lyondell $ 111 $ 13 $ 8
------ ------ ------
Cash dividends received from Lyondell $ 36 $ 54 $ 72
------ ------ ------
At December 31:
Current assets $ 697 $ 523 $ 568
Noncurrent assets $ 966 $ 708 $ 647
Current liabilities $ 433 $ 299 $ 345
Long-term debt $ 707 $ 717 $ 725
Other liabilities $ 192 $ 179 $ 151
Minority interest $ 268 $ 124 $ -
Stockholders' equity (deficit)(b) $ 63 $ (88) $ (6)
</TABLE>
(a) Includes $314, $278 and $329 of sales to ARCO in 1994, 1993 and 1992,
respectively, which approximated 5%, 4% and 5% of ARCO' purchases in those
years.
(b) ARCO's investment in Lyondell comprises 49.9% of Lyondell's stockholders'
equity (deficit) plus $72 of dividends received in excess of basis of
investment.
NOTE 21 PUBLIC OFFERING OF VASTAR COMMON STOCK
In September 1993, ARCO established Vastar, a wholly owned subsidiary of ARCO.
Effective October 1, 1993, ARCO conveyed to Vastar beneficial title to certain
producing properties together with certain developed and undeveloped acreage.
Vastar is primarily engaged in the exploration for and the development and
production of natural gas.
In July 1994, Vastar completed an initial public offering of 17,250,000 shares
of its common stock at $28 per share. ARCO recognized an after-tax gain of $273
million from this transaction. At December 31, 1994 ARCO's 80,000,001 shares
represent 82.3% of the outstanding common stock.
NOTE 22 INVESTMENTS
At December 31, 1994, investments were composed principally of U.S. Treasury
securities, corporate debt instruments, and municipal securities and were
included in cash equivalents or short-term investments depending on their
maturities, which generally ranged from one day to one year. At December 31,
1994, investments in debt securities classified as held-to-maturity were
recorded at amortized cost while investments in debt securities classified as
available-for-sale are reported at fair value, with unrealized holding gains and
losses, net of tax, reported in a separate component of stockholders' equity. At
December 31, 1993, all investments in debt securities were stated at cost, which
approximated fair value.
The following summarizes investments in debt securities at December 31, 1994:
<TABLE>
<CAPTION>
Millions Available-for-Sale Held-to-Maturity
- --------- ------------------ ----------------
<S> <C> <C>
Aggregate fair value $1,879 $ 1,239
Gross unrealized holding losses $ 62 $ -
Amortized cost $1,941 $ 1,239
Gross realized losses on sales $ 23 $ -
Gross purchases $5,300 $40,500
Gross sales $4,700 $ -
Gross maturities $ 50 $40,800
</TABLE>
For purposes of determining gross realized losses, the cost of available-for-
sale securities sold is based upon the specific identification method.
NOTE 23 FINANCIAL INSTRUMENTS AND FAIR VALUE
ARCO does not hold or issue financial instruments for trading purposes.
ARCO enters into various types of foreign currency forward and swap contracts
to hedge foreign currency transactions. Foreign currency forward contracts are
used predominantly to hedge U.S. dollar denominated debt issued by a foreign
subsidiary. A foreign currency swap contract is used to hedge debt denominated
in Japanese yen. In addition, ARCO uses a combination of foreign currency
forwards and swaps to hedge anticipated future cash flows from overseas
operations. These foreign currency contracts generally do not have maturities
exceeding one year. Gains and losses on foreign exchange contracts
49
<PAGE>
ARCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
generally offset gains and losses on assets, liabilities, and transactions being
hedged.
At December 31, 1994 and 1993, the total notional amounts of foreign currency
contracts (principally European currencies, Australian dollars and Japanese yen)
were approximately $760 million and $700 million, respectively.
ARCO also uses various hedging arrangements to reduce exposure to price risk
for future crude oil and natural gas transactions. Gains and losses are netted
and deferred until realized in sales and other operating revenues as the
physical production required by the contracts is delivered. At December 31, 1994
and 1993, the notional amounts of open contracts were not significant.
Explicitly deferred gains and losses arising from hedging activities of
anticipated transactions are generally included in the balance sheet as either
other current assets or other current liabilities.
At December 31, 1994 and 1993, the carrying and fair values of interest rate
swaps were not significant. At December 31, 1994 and 1993, the carrying value
and estimated fair value of ARCO's other financial instruments were as follows:
<TABLE>
<CAPTION>
1994 1993
Carrying Fair Carrying Fair
Millions Value Value Value Value
- -------- -------- ------ -------- ------
<S> <C> <C> <C> <C>
Non-Derivatives:
Short-term investments $2,991 $2,991 $2,289 $2,289
Long-term investments $ 348 $1,279 $ 266 $1,087
Other investments and
long-term receivables $ 297 $ 297 $ 221 $ 221
Notes payable $1,478 $1,478 $1,510 $1,510
Long-term debt, including
current maturities $7,828 $7,991 $7,254 $8,307
Derivatives:
Foreign currency forward
contracts $ (16) $ (16) $ (12) $ (12)
Foreign currency swaps $ 83 $ 83 $ 80 $ 80
Oil & gas price swaps $ 5 $ 5 $ (1) $ (1)
</TABLE>
Short-term investments and notes payable were valued at their carrying
amounts, which were reasonable estimates of fair value due to the relatively
short period to maturity. Investments and long-term receivables were valued at
quoted market prices if available. For unquoted investment securities, which
were predominantly equity interests in associated entities, the reported fair
value was estimated on the basis of financial and other information. The fair
value of ARCO's long-term debt was estimated based on the quoted market prices
for the same or similar issues or on the current rates offered to ARCO for debt
of the same remaining maturities. The fair value of foreign currency contracts
and interest rate swaps represented the amount to be exchanged if the existing
contracts had been settled at year end and were estimated by obtaining quotes
from brokers.
ARCO is exposed to credit risk related to its financial instruments in the
event of non-performance by the counterparties. ARCO does not generally require
collateral or other security to support these financial instruments. The
counterparties to these instruments are major institutions deemed creditworthy
by the Company; ARCO does not anticipate nonperformance by the counterparties.
NOTE 24 UNAUDITED QUARTERLY RESULTS
<TABLE>
<CAPTION>
Millions, except per share amounts 1994 1993
- ---------------------------------- ------- -------
<S> <C> <C>
Sales and other operating revenues (including
excise taxes)
Quarter ended:
March 31 $ 3,800 $ 4,507
June 30 4,174 4,670
September 30 4,271 4,553
December 31 4,307 4,757
------- -------
Total $16,552 $18,487
======= =======
Income (loss) before gain on issuance of stock by
subsidiary, income taxes and minority interest
Quarter ended:
March 31 $ 255 $ 442
June 30 20(a) 461
September 30 277 233
December 31 357 (502)(a)
------- -------
Total $ 909 $ 634
======= =======
Net income (loss)
Quarter ended:
March 31 $ 149 $ 260
June 30 24(a) 271
September 30 435 68
December 31 311 (330)(a)
------ -------
Total $ 919 $ 269
====== =======
Earned (loss) per share
Quarter ended:
March 31 $ 0.92 $ 1.60
June 30 $ 0.14(a) $ 1.67
September 30 $ 2.67 $ 0.42
December 31 $ 1.90 $ (2.06)(a)
</TABLE>
(a) See Note 2.
50
<PAGE>
ARCO
SUPPLEMENTAL INFORMATION (UNAUDITED)
Oil and Gas Producing Activities
The Securities and Exchange Commission (SEC) defines proved oil and gas
reserves as those estimated quantities of crude oil, natural gas, and natural
gas liquids that geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved developed oil and gas reserves are
reserves that can be expected to be recovered through existing wells with
existing equipment and operating methods.
ARCO reports reserve estimates to various federal government agencies and
commissions. These estimates may cover various regions of crude oil and natural
gas classifications within the United States and may be subject to mandated
definitions. There have been no reports of total ARCO reserve estimates
furnished to federal government agencies or commissions which vary from those
reported to the SEC since the beginning of the last fiscal year.
Estimated quantities of ARCO's proved oil and gas reserves were as follows:
<TABLE>
<CAPTION>
Petroleum Liquids Natural Gas
(million barrels) (billion cubic feet)
U.S. International U.S. International
----- ------------- ------ -------------
<S> <C> <C> <C> <C>
January 1, 1992:
Proved reserves 2,642 189 5,798 2,405
Proved developed reserves 2,094 131 5,069 534
December 31, 1992:
Proved reserves 2,517 211 5,185 3,117
Proved developed reserves 1,915 122 4,552 690
December 31, 1993:
Proved reserves 2,259 206 4,725 3,280
Proved developed reserves 1,804 127 4,190 1,120
December 31, 1994:
Proved reserves 2,246 222 4,615 3,493
Proved developed reserves 1,915 87 4,301 1,142
</TABLE>
Included in ARCO's reserves are 100% of the reserves of Vastar, a consolidated
subsidiary of which ARCO owned 82.3% at December 31, 1994. Vastar's reserves
comprised 4% and 43% of U.S. petroleum liquids and natural gas, respectively, at
December 31, 1994.
ARCO has no long-term supply contracts to purchase from foreign governments or
any interest in equity affiliates involved in oil and gas producing activities.
The changes in proved reserves for the years ended December 31, 1992, 1993 and
1994 were as follows:
<TABLE>
<CAPTION>
Petroleum Liquids Natural Gas
(million barrels) (billion cubic feet)
U.S. International U.S. International
----- ------------- ------ -------------
<S> <C> <C> <C> <C>
Reserves at January 1, 1992 2,642 189 5,798 2,405
Revisions of estimates 40 22 22 44
Improved recovery 39 - 48 -
Purchases of minerals-in-place 35 - 37 -
Extensions and discoveries 100 29 145 761
Production (242) (28) (440) (88)
Consumed in production - - (72) (5)
Sales of minerals-in-place (97) (1) (353) -
----- --- ----- -----
Reserves at December 31, 1992 2,517 211 5,185 3,117
Revisions of estimates (20) 15 (12) (54)
Improved recovery 17 - 28 -
Purchases of minerals-in-place 3 - 30 -
Extensions and discoveries 10 11 186 350
Production (221) (29) (332) (117)
Consumed in production - - (75) (9)
Sales of minerals-in-place (47) (2) (285) (7)
----- --- ----- -----
Reserves at December 31, 1993 2,259 206 4,725 3,280
Revisions of estimates 85 (19) 94 31
Improved recovery 90 - 13 -
Purchases of minerals-in-place 11 - 13 82
Extensions and discoveries 21 75 232 291
Production (216) (26) (350) (187)
Consumed in production - - (78) (4)
Sales of minerals-in-place (4) (14) (34) -
----- --- ----- -----
Reserves at December 31, 1994 2,246 222 4,615 3,493
===== === ===== =====
</TABLE>
Significant changes to proved oil and gas reserves during 1994 were due to the
addition of reserves from an enhanced oil recovery project at Kuparuk, from the
Villano field in Ecuador, and the Trent and Tyne gas fields in the North Sea.
Estimates of petroleum reserves have been made by ARCO engineers. These
estimates include reserves in which ARCO holds an economic interest under
production-sharing and other types of operating agreements with foreign
governments. These estimates do not include probable or possible reserves.
Natural gas liquids comprise 12% of petroleum liquid proved reserves.
The sale of natural gas from the North Slope of Alaska, which is not used in
providing fuel in North Slope operations or sold to others on the North Slope,
is dependent upon construction of a natural gas transportation system or another
marketing alternative. Such gas is not included in ARCO's reserves. There are
currently several projects under consideration, including the Alaska Natural Gas
Transportation System and the Trans Alaska Gas System. However,
51
<PAGE>
ARCO
SUPPLEMENTAL INFORMATION (UNAUDITED)
there are a number of regulatory, financial, legal and marketing questions
regarding the projects that remain unresolved.
ARCO continues to study various options for marketing North Slope gas.
However, ARCO Alaska believes that market conditions are not likely to permit
implementation of any large gas sales projects within the foreseeable future.
The aggregate amounts of capitalized costs relating to oil and gas producing
activities and the related accumulated depreciation, depletion and amortization
as of December 31, 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
Proved Properties Unproved Properties
Millions U.S. International U.S. International
- -------- ------- ------------- ---- -------------
<S> <C> <C> <C> <C>
1994
Gross $14,353 $3,998 $510 $231
Accumulated depreciation,
depletion and amortization 8,963 2,100 328 8
------- ------ ---- ----
Net $ 5,390 $1,898 $182 $223
======= ====== ==== ====
1993
Gross $14,521 $3,694 $593 $235
Accumulated depreciation,
depletion and amortization 8,772 1,925 315 4
------- ------ ---- ----
Net $ 5,749 $1,769 $278 $231
======= ====== ==== ====
1992
Gross $15,212 $3,369 $677 $196
Accumulated depreciation,
depletion and amortization 8,821 1,718 77 1
------- ------ ---- ----
Net $ 6,391 $1,651 $600 $195
======= ====== ==== ====
</TABLE>
Costs, both capitalized and expensed, incurred in oil and gas producing
activities during the three years ended December 31, 1994, 1993 and 1992 were as
follows:
<TABLE>
<CAPTION>
Millions U.S. International Total
- -------- ---- ------------- -----
<S> <C> <C> <C>
1994
Property acquisition costs:
Proved properties $ - $ 1 $ 1
Unproved properties $ 38 $ 23 $ 61
Exploration costs $180 $237 $417
Development costs $363 $290 $653
1993
Property acquisition costs:
Proved properties $ - $ 3 $ 3
Unproved properties $ 59 $ 2 $ 61
Exploration costs $351 $274 $625
Development costs $435 $441 $876
1992
Property acquisition costs:
Proved properties $ 13 $ 5 $ 18
Unproved properties $ 41 $ 2 $ 43
Exploration costs $362 $220 $582
Development costs $393 $388 $781
</TABLE>
Results of operations from oil and gas producing activities (including
operating overhead) for the three years ended December 31, 1994, 1993 and 1992
were as follows:
<TABLE>
<CAPTION>
Millions U.S. International Total
- -------- ------ ------------- ------
<S> <C> <C> <C>
1994
Revenues:
Sales $1,421 $859 $2,280
Transfers 1,456 - 1,456
Other 74 41 115
------ ---- ------
2,951 900 3,851
Production costs 1,166 199 1,365
Exploration expenses 277 178 455
Depreciation, depletion and amortization 731 275 1,006
Other operating expenses 251 171 422
------ ---- ------
526 77 603
Income tax expense (143) (43) (186)
------ ---- ------
Results of operations from production
activities $ 383 $ 34 $ 417
====== ==== ======
1993
Revenues:
Sales $1,639 $807 $2,446
Transfers 1,616 - 1,616
Other 48 31 79
------ ---- ------
3,303 838 4,141
Production costs 1,313 194 1,507
Exploration expenses 457 210 667
Depreciation, depletion and amortization 719 260 979
Other operating expenses 209 148 357
------ ---- ------
605 26 631
Income tax expense (206) (49) (255)
------ ---- ------
Results of operations from production
activities $ 399 $(23) $ 376
====== ==== ======
1992
Revenues:
Sales $2,157 $800 $2,957
Transfers 1,842 - 1,842
Other 77 41 118
------ ---- ------
4,076 841 4,917
Production costs 1,481 227 1,708
Exploration expenses 382 185 567
Depreciation, depletion and amortization 914 235 1,149
Other operating expenses 239 139 378
------ ---- ------
1,060 55 1,115
Income tax expense (346) (21) (367)
------ ---- ------
Results of operations from production
activities $ 714 $ 34 $ 748
====== ==== ======
</TABLE>
The difference between the above results of operations and the amounts
reported for after-tax oil and gas segment earnings in Note 4 of Notes to
Consolidated Financial Statements is primarily marketing-related activities, the
exclusions of gains on property sales and unusual items related to the oil and
gas operations.
52
<PAGE>
ARCO
SUPPLEMENTAL INFORMATION (UNAUDITED)
The standardized measure of discounted estimated future net cash flows related
to proved oil and gas reserves at December 31, 1994, 1993 and 1992 was as
follows:
<TABLE>
<CAPTION>
Billions U.S. International Total
- --------- ------ ------------- -----
<S> <C> <C> <C>
1994
Future cash inflows $30.6 $11.3 $41.9
Future development and production costs 13.9 3.9 17.8
Future income tax expense 5.4 2.7 8.1
----- ----- -----
Future net cash flows 11.3 4.7 16.0
10% annual discount 4.9 2.2 7.1
----- ----- -----
Standardized measure of discounted future
net cash flows $ 6.4 $ 2.5 $ 8.9
===== ===== =====
1993
Future cash inflows $24.4 $10.2 $34.6
Future development and production costs 16.5 3.6 20.1
Future income tax expense 2.2 2.2 4.4
----- ----- -----
Future net cash flows 5.7 4.4 10.1
10% annual discount 2.4 2.1 4.5
----- ----- -----
Standardized measure of discounted future
net cash flows $ 3.3 $ 2.3 $ 5.6
===== ===== =====
1992
Future cash inflows $37.3 $10.9 $48.2
Future development and production costs 20.9 4.4 25.3
Future income tax expense 5.2 2.2 7.4
----- ----- -----
Future net cash flows 11.2 4.3 15.5
10% annual discount 4.9 2.2 7.1
----- ----- -----
Standardized measure of discounted future
net cash flows $ 6.3 $ 2.1 $ 8.4
===== ===== =====
</TABLE>
Primary changes in the standardized measure of discounted estimated future net
cash flows for the years ended December 31, 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
Billions 1994 1993 1992
- --------- ----- ----- -----
<S> <C> <C> <C>
Sales and transfers of oil and gas, net of
production costs $(2.3) $(2.5) $(2.9)
Extensions, discoveries and improved recovery,
less related costs 1.0 .4 1.0
Revisions of estimates of reserves proved in
prior years:
Quantity estimates .2 - .3
Net changes in price and production costs 4.9 (4.2) 2.1
Purchases/Sales .1 (.3) (.4)
Other (.2) .1 .5
Accretion of discount .8 1.2 1.0
Development costs incurred during the period .7 .9 .8
Net change in income taxes (1.9) 1.6 (1.0)
----- ----- -----
Net change $ 3.3 $(2.8) $ 1.4
===== ===== =====
</TABLE>
Estimated future cash inflows are computed by applying year-end prices of oil
and gas to year-end quantities of proved reserves. Future price changes are
considered only to the extent provided by contractual arrangements. Estimated
future development and production costs are determined by estimating the
expenditures to be incurred in developing and producing the proved oil and gas
reserves at the end of the year, based on year-end costs and assuming
continuation of existing economic conditions. Estimated future income tax
expense is calculated by applying year-end statutory tax rates (adjusted for
permanent differences and tax credits) to estimated future pretax net cash flows
related to proved oil and gas reserves, less the tax basis of the properties
involved.
These estimates are furnished and calculated in accordance with requirements
of the Financial Accounting Standards Board and the SEC. Estimates of future net
cash flows presented do not represent management's assessment of future
profitability or future cash flows to ARCO. Management's investment and
operating decisions are based on reserve estimates that include proved reserves
prescribed by the SEC as well as probable reserves, and on different price and
cost assumptions from those used here.
It should be recognized that applying current costs and prices and a 10%
standard discount rate does not convey absolute value. The discounted amounts
arrived at are only one measure of the value of proved reserves.
Coal Operations
Supplemental operating statistics for the coal operations of ARCO for the
three years ended December 31, 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Coal shipments - thousand tons:
U.S. 38,322 37,499 30,634
International 11,235 10,246 9,158
------ ------ ------
Total 49,557 47,745 39,792
====== ====== ======
Coal reserves - million tons recoverable:
U.S. 1,279 1,296 1,236
International 227 214 232
------ ------ ------
Total 1,506 1,510 1,468
====== ====== ======
Average market price per ton of coal:
U.S. $ 8.52 $ 9.12 $ 9.79
International $29.90 $29.69 $30.84
Composite price $13.37 $13.53 $14.64
</TABLE>
53
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding executive officers of the Company is included in
Part I. For the other information called for by Items 10, 11, 12 and 13,
reference is made to the Registrant's definitive proxy statement for its Annual
Meeting of Stockholders, to be held on May 1, 1995, which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 1994, and
which is incorporated herein by reference, except for the material included
under the captions "Report of Compensation Committee" and "Performance Graph."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1 and 2. Financial Statements and Financial Statement Schedules: These
documents are listed in the Index to Consolidated Financial
Statements and Financial Statement Schedules.
3. Exhibits:
3.1 Restated Certificate of Incorporation of Atlantic Richfield
Company as of June 27, 1994, filed as Exhibit 3 to the
Company's Quarterly Report on Form 10-Q for the quarterly pe-
riod ended June 30, 1994, filed with the Securities and Ex-
change Commission (the "Commission") under File No. 1-1196 and
incorporated herein by reference.
3.2 By-Laws of Atlantic Richfield Company as amended through Janu-
ary 23, 1989, filed as an exhibit, bearing the same number, to
the Company's Form 10-K Report for the year 1993, File No.
1-1196, and incorporated herein by reference.
4.1 Rights Agreement dated as of May 27, 1986 between the Company
and Morgan Guaranty Trust Company of New York, as Rights
Agent, filed as Exhibit 2.1 to the Company's Form 8-A filed
with the Commission under File No. 1-1196 on June 3, 1986, and
incorporated herein by reference.
4.2 Indenture dated as of May 15, 1985 between the Company and The
Chase Manhattan Bank, N.A., filed as Exhibit 4.4 to the
Company's Quarterly Report on Form 10-Q for the quarterly pe-
riod ended June 30, 1985, File No. 1-1196, and incorporated
herein by reference.
54
<PAGE>
4.3 Indenture, dated as of January 1, 1992, between the Company
and The Bank of New York, filed as an exhibit, bearing the
same number, to the Company's Registration Statement on Form
S-3 (No. 33-44925), filed with the Commission on January 6,
1992, and incorporated herein by reference.
4.4 Instruments defining the rights of holders of long-term debt
which is not registered under the Securities Exchange Act of
1934 are not filed because the total amount of securities au-
thorized under any such instrument does not exceed 10 percent
of the consolidated total assets of the Company. The Company
agrees to furnish a copy of any such instrument to the Commis-
sion upon request.
10.1(a)* Atlantic Richfield Company Supplementary Executive Retirement
Plan, as adopted by the Board of Directors of the Company on
March 26, 1990, and effective on October 1, 1990, filed as Ex-
hibit 10.2 to the Company's Form 10-K Report for the year
1990, File No. 1-1196, and incorporated herein by reference.
10.1(b)* Amendment No. 1 to Atlantic Richfield Company Supplementary
Executive Retirement Plan effective March 22, 1993, filed as
Exhibit 10 to the Company's Form 10-Q Report for the quarterly
period ended June 30, 1993, File No. 1-1196, and incorporated
herein by reference.
10.2(a)* Atlantic Richfield Company Executive Deferral Plan, as adopted
by the Board of Directors of the Company on March 26, 1990 and
effective on October 1, 1990, filed as Exhibit 10.3 to the
Company's Form 10-K Report for the year 1990, File No. 1-1196,
and incorporated herein by reference.
10.2(b)* Amendment No. 1 to Atlantic Richfield Company Executive Defer-
ral Plan effective July 27, 1992, filed as an exhibit, bearing
the same number, to the Company's Form 10-K Report for the
year 1992, File No. 1-1196, and incorporated herein by refer-
ence.
10.3* Atlantic Richfield Executive Medical Insurance Plan-Summary
Plan Description, as in effect January 1, 1994, filed as an
exhibit, bearing the same number, to the Company's Form 10-K
Report for the year 1993, File No. 1-1196, and incorporated
herein by reference.
10.4(a)* Atlantic Richfield Company Executive Supplementary Savings
Plan II, as amended, restated and effective on July 1, 1988,
filed as Exhibit 10.6 to the Company's Form 10-K Report for
the year 1988, File No. 1-1196, and incorporated herein by
reference.
10.4(b)* Amendment No. 1 to Atlantic Richfield Company Executive Sup-
plementary Savings Plan II as amended and effective on January
1, 1989, filed as Exhibit 10.6(b) to the Company's Form 10-K
Report for the year 1989, File No. 1-1196, and incorporated
herein by reference.
10.4(c)* Amendment No. 2 to Atlantic Richfield Company Executive
SupplementarySavings Plan II as amended and effective on July
1, 1994, filed herewith.
10.5* Atlantic Richfield Company Policy on Financial Counseling and
Individual Income Tax Service, as revised effective January 1,
1994, filed herewith.
10.6*
Annual Incentive Plan, as adopted by the Board of Directors of
the Company on November 26, 1984, and effective on that date,
as amended through February 28, 1994, filed herewith.
55
<PAGE>
10.7* Atlantic Richfield Company's 1985 Executive Long-Term Incen-
tive Plan, as adopted by the Board of Directors of the Company
on May 28, 1985, and effective on that date, as amended
through February 28, 1994, filed herewith.
10.8* Atlantic Richfield Company Executive Life Insurance Plan-Sum-
mary Plan Description, as in effect January 1, 1994, filed as
an exhibit bearing the same number, to the Company's Form 10-K
Report for the year 1993, File No. 1-1196, and incorporated
herein by reference.
10.9* Atlantic Richfield Company Executive Long-Term Disability
Plan--Summary Plan Description, as in effect January 1, 1994,
filed as an exhibit bearing the same number, to the Company's
Form 10-K Report for the year 1993, File No. 1-1196, and in-
corporated herein by reference.
10.10 Form of Indemnity Agreement adopted by the Board of Directors
on January 26, 1987 and executed in February 1987 by the Com-
pany and each of its directors and officers, included in Ex-
hibit A to the 1987 Proxy Statement (filed with the Commission
under File No. 1-1196) and incorporated herein by reference.
10.11 Exchange Agreement between Tosco Corporation and Atlantic
Richfield Company dated October 2, 1986, as amended by letter
dated November 5, 1986, filed as Exhibit 10.14, to the
Company's Form 10-K Report for the year 1986, File No. 1-1196,
and incorporated herein by reference.
10.12 Retirement Plan for Outside Directors effective October 1,
1990, as amended March 31, 1993, filed as Exhibit 10 to the
Company's Form 10-Q Report for the quarterly period ended
March 31, 1993, File No. 1-1196, and incorporated herein by
reference.
10.13(a) Stock Option Plan for Outside Directors effective December 17,
1990, filed as Exhibit 10.14 to the Company's Form 10-K Report
for the year 1990, File No. 1-1196, and incorporated herein by
reference.
10.13(b) Amendment No. 1 to Stock Option Plan for Outside Directors
effective June 22, 1992, filed as an exhibit, bearing the same
number, to the Company's Form 10-K Report for the year 1992,
File No. 1-1196, and incorporated herein by reference.
10.14 Special Incentive Plan, as adopted by the Board of Directors
of the Company on February 28, 1994, and effective on that
date, is included in Appendix C of Registrant's Proxy State-
ment filed with the Commission under File No. 1-1196 and in-
corporated herein by reference.
22 Subsidiaries of the Registrant.
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule.
Copies of exhibits will be furnished upon prepayment of 25 cents per page.
Requests should be addressed to the Corporate Secretary.
- --------
* Management compensatory plans filed as exhibits hereto pursuant to Item
14(c) of Form 10-K.
(b) REPORTS ON FORM 8-K:
No Current Reports on Form 8-K were filed during the quarter ended December
31, 1994, and thereafter through February 28, 1995.
56
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following registration
statements of Atlantic Richfield Company: Registration Statement on Form S-8
(No. 33-43830), Registration Statement on Form S-8 (No. 33-21558), Post-
Effective Amendment No. 4 to Registration Statement on Form S-8 (No. 33-
21160), Post-Effective Amendment No. 4 to Registration Statement on Form S-8
(No. 33-23639), Post-Effective Amendment No. 4 to Registration Statement on
Form S-8 (No. 33-21162), Post-Effective Amendment No. 4 to Registration
Statement on Form S-8 (No. 33-21553), Post-Effective Amendment No. 4 to
Registration Statement on Form S-8 (No. 33-23640), and Post-Effective
Amendment No. 4 to Registration Statement on Form S-8 (No. 33-21552), of our
report dated February 10, 1995, on our audits of the consolidated financial
statements and financial statement schedule of Atlantic Richfield Company as
of December 31, 1994 and 1993 and for each of the three years in the period
ended December 31, 1994, which report is included in this Annual Report on
Form 10-K.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 28, 1995
57
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 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
By /s/ Mike R. Bowlin
-------------------------------------
Mike R. Bowlin
President, Chief Executive
Officer
and Chief Operating Officer
FEBRUARY 27, 1995
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Lodwrick M. Cook Chairman of the February 27, 1995
- ------------------------------------- Board and Director
Lodwrick M. Cook
/s/ Mike R. Bowlin President, Chief February 27, 1995
- ------------------------------------- Executive Officer,
Mike R. Bowlin Chief Operating
Principal executive officer Officer and
Director
/s/ Ronald J. Arnault Executive Vice February 27, 1995
- ------------------------------------- President, Chief
Ronald J. Arnault Financial Officer
Principal financial officer and Director
/s/ Anthony G. Fernandes Executive Vice February 27, 1995
- ------------------------------------- President and
Anthony G. Fernandes Director
/s/ William E. Wade, Jr. Executive Vice February 27, 1995
- ------------------------------------- President and
William E. Wade, Jr. Director
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Frank D. Boren Director February 27, 1995
- -------------------------------------
Frank D. Boren
/s/ Richard H. Deihl Director February 27, 1995
- -------------------------------------
Richard H. Deihl
/s/ John Gavin Director February 27, 1955
- -------------------------------------
John Gavin
/s/ Hanna H. Gray Director February 27, 1995
- -------------------------------------
Hanna H. Gray
/s/ Philip M. Hawley Director February 27, 1995
- -------------------------------------
Philip M. Hawley
/s/ Kent Kresa Director February 27, 1995
- -------------------------------------
Kent Kresa
/s/ David T. McLaughlin Director February 27, 1995
- -------------------------------------
David T. McLaughlin
/s/ John B. Slaughter Director February 27, 1995
- -------------------------------------
John B. Slaughter
/s/ Hicks B. Waldron Director February 27, 1995
- -------------------------------------
Hicks B. Waldron
/s/ Henry Wendt Director February 27, 1995
- -------------------------------------
Henry Wendt
/s/ Allan L. Comstock Vice President and February 27, 1995
- ------------------------------------- Controller
Allan L. Comstock
Principal accounting officer
</TABLE>
59
<PAGE>
SCHEDULE II
ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS OF DOLLARS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(COLUMN A) (COLUMN B) (COLUMN C) (COLUMN D) (COLUMN E)
- ------------------------------------------------------------------------------
ADDITIONS
----------------
BALANCE AT CHARGED CHARGED DEDUCTIONS BALANCE AT
BEGINNING TO TO OTHER FROM CLOSE OF
DESCRIPTION OF PERIOD INCOME ACCOUNTS RESERVES PERIOD
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR 1994
Amounts deducted from
applicable assets:
Accounts receivable....... $ 14 $ 2 $-- $ 1(a) $ 15
---- ---- --- ---- ----
Affiliated companies
accounted for on the
equity method............ $ 8 $ -- $-- $ -- $ 8
---- ---- --- ---- ----
Other investments and
long-term receivables.... $ 50 $ -- $-- $ -- $ 50
---- ---- --- ---- ----
Reserves included in other
deferred liabilities and
credits and other current
liabilities:
Dismantlement, restoration
and reclamation.......... $788 $ 87 $-- $ 27 $848
---- ---- --- ---- ----
Reduction in force........ $ 91 $179 $-- $ 93 $177
---- ---- --- ---- ----
Insurance ................ $185 $ 56 $-- $ 39 $202
---- ---- --- ---- ----
Environmental remediation. $648 $138 $-- $116 $670
---- ---- --- ---- ----
Other..................... $326 $132 $-- $209 $249
---- ---- --- ---- ----
YEAR 1993
Amounts deducted from
applicable assets:
Accounts receivable....... $ 15 $ 2 $-- $ 3(a) $ 14
---- ---- --- ---- ----
Affiliated companies
accounted for on the
equity method............ $ 8 $ -- $-- $ -- $ 8
---- ---- --- ---- ----
Other investments and
long-term receivables.... $ 43 $ 7 $-- $ -- $ 50
---- ---- --- ---- ----
Reserves included in other
deferred liabilities and
credits and other current
liabilities:
Dismantlement, restoration
and reclamation.......... $716 $136 $-- $ 64 $788
---- ---- --- ---- ----
Reduction in force........ $ 97 $ 57 $-- $ 63 $ 91
---- ---- --- ---- ----
Insurance ................ $196 $ 35 $-- $ 46 $185
---- ---- --- ---- ----
Environmental remediation. $682 $172 $-- $206 $648
---- ---- --- ---- ----
Other..................... $308 $109 $-- $ 91 $326
---- ---- --- ---- ----
</TABLE>
(See footnotes on following page.)
60
<PAGE>
SCHEDULE II (CONTINUED)
ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS OF DOLLARS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(COLUMN A) (COLUMN B) (COLUMN C) (COLUMN D) (COLUMN E)
- ------------------------------------------------------------------------------
ADDITIONS
----------------
BALANCE AT CHARGED CHARGED DEDUCTIONS BALANCE AT
BEGINNING TO TO OTHER FROM CLOSE OF
DESCRIPTION OF PERIOD INCOME ACCOUNTS RESERVES PERIOD
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR 1992
Amounts deducted from
applicable assets:
Accounts receivable....... $ 17 $ -- $-- $ 2(a) $ 15
---- ---- --- ---- ----
Affiliated companies
accounted for on the
equity method............ $ 8 $ -- $-- $ -- $ 8
---- ---- --- ---- ----
Other investments and
long-term receivables.... $ 51 $ -- $-- $ 8 $ 43
---- ---- --- ---- ----
Reserves included in other
deferred liabilities and
credits and other current
liabilities:
Dismantlement, restoration
and reclamation.......... $692 $ 98 $-- $ 74 $716
---- ---- --- ---- ----
Reduction in force........ $150 $ 26 $-- $ 79 $ 97
---- ---- --- ---- ----
Insurance ................ $219 $ 20 $-- $ 43 $196
---- ---- --- ---- ----
Environmental remediation. $729 $160 $-- $207 $682
---- ---- --- ---- ----
Other..................... $261 $104 $19 $ 76 $308
---- ---- --- ---- ----
</TABLE>
- --------
(a) Write-off for uncollectible accounts, net of recoveries.
61
<PAGE>
EXHIBIT INDEX
EXHIBIT: DESCRIPTION
3.1 Restated Certificate of Incorporation of Atlantic Rich-
field Company as of June 27, 1994, filed as Exhibit 3 to
the Company's Quarterly Report on Form 10-Q for the quar-
terly period ended June 30, 1994, filed with the Securi-
ties and Exchange Commission (the "Commission") under
File No. 1-1196 and incorporated herein by reference.
3.2 By-Laws of Atlantic Richfield Company as amended through
January 23, 1989, filed as an exhibit, bearing the same
number, to the Company's Form 10-K Report for the year
1993, File No. 1-1196, and incorporated herein by refer-
ence.
4.1 Rights Agreement dated as of May 27, 1986 between the
Company and Morgan Guaranty Trust Company of New York, as
Rights Agent, filed as Exhibit 2.1 to the Company's Form
8-A filed with the Commission under File No. 1-1196 on
June 3, 1986, and incorporated herein by reference.
4.2 Indenture dated as of May 15, 1985 between the Company
and The Chase Manhattan Bank, N.A., filed as Exhibit 4.4
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1985, File No. 1-1196,
and incorporated herein by reference.
4.3 Indenture, dated as of January 1, 1992, between the Com-
pany and The Bank of New York, filed as an exhibit, bear-
ing the same number, to the Company's Registration State-
ment on Form S-3 (No. 33-44925), filed with the Commis-
sion on January 6, 1992, and incorporated herein by ref-
erence.
4.4 Instruments defining the rights of holders of long-term
debt which is not registered under the Securities Ex-
change Act of 1934 are not filed because the total amount
of securities authorized under any such instrument does
not exceed 10 percent of the consolidated total assets of
the Company. The Company agrees to furnish a copy of any
such instrument to the Commission upon request.
10.1(a) Atlantic Richfield Company Supplementary Executive Re-
tirement Plan, as adopted by the Board of Directors of
the Company on March 26, 1990, and effective on October
1, 1990, filed as Exhibit 10.2 to the Company's Form 10-K
Report for the year 1990, File No. 1-1196, and incorpo-
rated herein by reference.
10.1(b) Amendment No. 1 to Atlantic Richfield Company Supplemen-
tary Executive Retirement Plan effective March 22, 1993,
filed as Exhibit 10 to the Company's Form 10-Q Report for
the quarterly period ended June 30, 1993, File No.
1-1196, and incorporated herein by reference.
10.2(a) Atlantic Richfield Company Executive Deferral Plan, as
adopted by the Board of Directors of the Company on March
26, 1990 and effective on October 1, 1990, filed as Ex-
hibit 10.3 to the Company's Form 10-K Report for the year
1990, File No. 1-1196, and incorporated herein by refer-
ence.
10.2(b) Amendment No. 1 to Atlantic Richfield Company Executive
Deferral Plan effective July 27, 1992, filed as an exhib-
it, bearing the same number, to the Company's Form 10-K
Report for the year 1992, File No. 1-1196, and incorpo-
rated herein by reference.
<PAGE>
EXHIBIT: DESCRIPTION
10.3 Atlantic Richfield Executive Medical Insurance Plan-Sum-
mary Plan Description, as in effect January 1, 1994,
filed as an exhibit, bearing the same number, to the
Company's Form 10-K Report for the year 1993, File No.
1-1196, and incorporated herein by reference.
10.4(a) Atlantic Richfield Company Executive Supplementary Sav-
ings Plan II, as amended, restated and effective on July
1, 1988, filed as Exhibit 10.6 to the Company's Form 10-K
Report for the year 1988, File No. 1-1196, and incorpo-
rated herein by reference.
10.4(b) Amendment No. 1 to Atlantic Richfield Company Executive
Supplementary Savings Plan II as amended and effective on
January 1, 1989, filed as Exhibit 10.6(b) to the
Company's Form 10-K Report for the year 1989, File No.
1-1196, and incorporated herein by reference.
10.4(c) Amendment No. 2 to Atlantic Richfield Company Executive
Supplementary Savings Plan II as amended and effective on
July 1, 1994, filed herewith.
10.5 Atlantic Richfield Company Policy on Financial Counseling
and Individual Income Tax Service, as revised effective
January 1, 1994, filed herewith.
10.6 Annual Incentive Plan, as adopted by the Board of Direc-
tors of the Company on November 26, 1984, and effective
on that date, as amended through February 28, 1994, filed
herewith.
10.7 Atlantic Richfield Company's 1985 Executive Long-Term In-
centive Plan, as adopted by the Board of Directors of the
Company on May 28, 1985, and effective on that date, as
amended through February 28, 1994, filed herewith.
10.8 Atlantic Richfield Company Executive Life Insurance
Plan-Summary Plan Description, as in effect January 1,
1994, filed as an exhibit bearing the same number, to the
Company's Form 10-K Report for the year 1993, File No.
1-1196, and incorporated herein by reference.
10.9 Atlantic Richfield Company Executive Long-Term Disability
Plan-Summary Plan Description, as in effect January 1,
1994, filed as an exhibit bearing the same number, to the
Company's Form 10-K Report for the year 1993, File No.
1-1196, and incorporated herein by reference.
10.10 Form of Indemnity Agreement adopted by the Board of Di-
rectors on January 26, 1987 and executed in February 1987
by the Company and each of its directors and officers,
included in Exhibit A to the 1987 Proxy Statement (filed
with the Commission under File No. 1-1196) and incorpo-
rated herein by reference.
10.11 Exchange Agreement between Tosco Corporation and Atlantic
Richfield Company dated October 2, 1986, as amended by
letter dated November 5, 1986, filed as Exhibit 10.14, to
the Company's Form 10-K Report for the year 1986, File
No. 1-1196, and incorporated herein by reference.
<PAGE>
EXHIBIT: DESCRIPTION
10.12 Retirement Plan for Outside Directors effective October
1, 1990, as amended March 31, 1993, filed as Exhibit 10
to the Company's Form 10-Q Report for the quarterly pe-
riod ended March 31, 1993, File No. 1-1196, and incorpo-
rated herein by reference.
10.13(a) Stock Option Plan for Outside Directors effective Decem-
ber 17, 1990, filed as Exhibit 10.14 to the Company's
Form 10-K Report for the year 1990, File No. 1-1196, and
incorporated herein by reference.
10.13(b) Amendment No. 1 to Stock Option Plan for Outside
Directors effective June 22, 1992, filed as an exhibit,
bearing the same number, to the Company's Form 10-K
Report for the year 1992, File No. 1-1196, and
incorporated herein by reference.
10.14 Special Incentive Plan, as adopted by the Board of
Directors of the Company on February 28, 1994, and
effective on that date, is included in Appendix C of
Registrant's Proxy Statement filed with the Commission
under File No. 1-1196 and incorporated herein by
reference.
22 Subsidiaries of the Registrant.
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 10.4(c)
AMENDMENT NO. 2
TO
ATLANTIC RICHFIELD COMPANY
EXECUTIVE SUPPLEMENTARY SAVINGS PLAN II
Pursuant to the power of amendment reserved therein, the following amendment is
hereby made to the Atlantic Richfield Company Executive Supplementary Savings
Plan II (the "Plan") effective as of the dates indicated.
1. Effective July 1, 1994, Subparagraph 3.5(b)(ii) of the Plan is amended to
read as follows:
"(ii) Has an annual Base Pay which is not less than $150,000; or"
2. Effective October 1, 1990, Section 8 of the Plan is amended to read as
follows:
"Section 8. Time of Payment of Benefit
8.1 Each benefit to which an Employee is entitled for a Plan Year shall be
paid in a single cash payment to the Employee, except as provided in the
following paragraph.
8.2 Prior to the commencement of each Plan Year, prospective participants
shall be offered the right to elect irrevocably to defer all or a portion or
portions of the payment of their awards for the Plan Year pursuant to the
terms and conditions of the Atlantic Richfield Executive Deferral Plan."
3. Effective October 1, 1990, Section 9 of the Plan is deleted and Sections 10,
11, 12, 13 and 14 are designated as Sections 9, 10, 11, 12 and 13, respectively.
4. Effective October 1, 1990, Subsections 12.2, 12.3, and 12.4 are renumbered
as Subsections 12.3, 12.4 and 12.5 and a new Subsection 12.2 is added to the
Plan to read as follows:
1
<PAGE>
"12.2 Grantor Trust. The Company has established a grantor
trust to aid in accumulating the amounts necessary to pay any amount
awarded to any participant for any Plan Year, or any award deferred
pursuant to Section 8 or any interest credited thereon. All awards, and
any interest credited thereon, shall be paid from the general funds of the
Company to the extent not paid from the grantor trust. Under no
circumstances shall a participant or other person have any interest
whatsoever in any particular property or assets of the Company as a result
of this Plan or any award made thereunder."
Executed this 27th day of January, 1995.
ATTEST ATLANTIC RICHFIELD COMPANY
/s/ ARMINEH SIMONIAN /s/ JOHN H. KELLY
BY:_________________________ BY:_________________________
JOHN H. KELLY
Vice President
Human Resources
2
<PAGE>
EXHIBIT 10.5
CONFIDENTIAL
------------
COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX
SERVICE FOR EXECUTIVES IN SALARY GRADES 64E0 AND 64E1
A. ELIGIBILITY
-----------
This policy shall be applicable to the executives in salary grades 64E0 and
64E1.
B. EFFECTIVE DATE
--------------
This policy first became effective January 1, 1987. The provisions herein
reflect all modifications made through January 1, 1994, the effective date
of this current statement.
C. DEFINITIONS
-----------
Financial counseling service as used in this statement means professional
(financial, legal and tax) counseling in the broad area of estate building
and estate conservation including, but not necessarily limited to:
. Effective utilization of Company benefit programs;
. Individual capital building methods and tools;
. Income tax planning guideposts and tax shelters;
. Estate conservation and insurance planning;
. Preparation of personal wills and trust agreements;
. Cash flow, commercial banking, leverage and liquidity analysis, and
. Problem analysis and financial trade-offs.
Individual income tax service as used in this statement is specifically
limited to professional assistance in the preparation of the executive's
individual federal, state and/or local income tax returns and support of
such return upon audit.
D. COVERED SERVICES AND ALLOWANCES
-------------------------------
1. The Company will provide the following to eligible executives upon
request to the Manager, Executive Relations:
a. Information regarding the kinds of financial counseling services
provided by nationally known organizations.
b. Information regarding nationally known organizations which provide
professional assistance in the preparation of individual income
tax returns.
c. Information regarding the executive's Company benefits for use by
the selected counseling organization, including a statement of the
extent to which the Company will reimburse the executive for
services of financial and tax counseling organizations.
Page 1
<PAGE>
COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX
SERVICE FOR EXECUTIVES IN SALARY GRADES 64E0 AND 64E1
2. The Company will reimburse eligible executives in accordance with the
following provisions for the services of the organizations they
select:
a. Reimbursement for all financial counseling and individual income
tax service rendered during the initial calendar year of the
executive's participation under this policy will generally not
exceed $11,000.
b. Reimbursement for all financial counseling service and individual
income tax service during the calendar year of a participating
executive's retirement will generally not exceed $11,000.
c. Reimbursement for follow-up financial counseling and individual
income tax services in any calendar year other than the initial
calendar year of participation or the calendar year immediately
preceding the executive's retirement will generally not exceed
$7,300.
d. Any allowance unused in a calendar year may be carried forward to
the next calendar year for use during that period as necessary.
However, no more than the maximum allowance for a given year is
subject to carry forward, i.e., $11,000 for the initial year and
$7,300 for succeeding years.
e. If necessary, the allowance for the year following the current
year may be carried back to cover expenses in the current year
assuming the executive's expected continued eligibility. No more
than one year forward is available for carry back. If an executive
has received reimbursement under the carry back provisions of the
plan at the time of termination of employment, the Company may, at
its discretion, request reimbursement from the executive for any
such amount.
f. A one-time allowance of up to $4,000 for reimbursement of legal
services provided in preparation/updating of personal wills and
trusts is available. However, if an eligible executive relocates
to a different state, an additional allowance of up to $2,000 for
reimbursement of legal services provided in updating personal
wills and trusts to reflect the laws of the new state is
available.
g. The first year allowance of $11,000 will also be available to
change counseling organizations one time during the entire
eligibility period at the executive's discretion, not including
the provisions of f. above. This allowance would include
individual income tax service for that year.
h. If an executive retires or dies while a participant under this
policy, an allowance of $1,500 will apply with respect to
individual income tax returns for the last calendar year in which
the executive was in the active service of the Company.
Page 2
<PAGE>
COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX
SERVICE FOR EXECUTIVES IN SALARY GRADES 64E0 AND 64E1
i. If an executive's employment with the Company ceases other than by
retirement with an immediate retirement allowance, death, or by
agreement with the Company, reimbursement will not be made for any
financial counseling or income tax services performed for the
executive after the date employment terminates.
3. Brokers' fees or promoters' fees are not reimbursable.
4. To obtain reimbursement under this policy, a participating executive
will forward the service organization's invoices with covering
memorandum to the Manager, Executive Relations. The Company's check
will be payable to the executive. The executive is responsible for
payment of the service organization's invoices.
5. Reimbursements will be grossed up in consideration of federal and
state income taxes.
6. The total reimbursement made by the Company will be reported to the
Internal Revenue Service and to other applicable tax jurisdictions as
supplemental payment of compensation. Each reimbursement will be
subject to FICA and withholding at the standard federal and state tax
rates at the time payment is made.
E. NON-ENDORSEMENT
---------------
It is the Company's policy that the decision whether or not to use
financial counseling service and/or income tax service as well as the
selection of organizations to render such services is an individual one.
Therefore, representatives of the Company will not suggest whether or not
an eligible executive should use such services, and will not encourage or
discourage use of any particular organization by an eligible executive.
By application for information outlined in "D" above, and by acceptance and
receipt thereof, any eligible executive shall release and discharge the
Company and any employee or other person who furnishes such information
from any and all liability and responsibility for loss or damage which said
applying executive may suffer as a consequence of receipt or use of such
information.
F. ADMINISTRATION
--------------
All decisions regarding this policy rest entirely with the Company and such
decisions shall be final. The Company reserves the right to modify or
terminate this policy at any time.
Effective: January 1, 1994
Page 3
<PAGE>
CONFIDENTIAL
------------
COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX
SERVICE FOR EXECUTIVES IN SALARY GRADES 64E2 AND 64E3
A. ELIGIBILITY
-----------
This policy shall be applicable to the executives in salary grades 64E2 and
64E3.
B. EFFECTIVE DATE
--------------
This policy first became effective January 1, 1987. The provisions herein
reflect all modifications made through January 1, 1994, the effective date
of this current statement.
C. DEFINITIONS
-----------
Financial counseling service as used in this statement means professional
(financial, legal and tax) counseling in the broad area of estate building
and estate conservation including, but not necessarily limited to:
. Effective utilization of Company benefit programs;
. Individual capital building methods and tools;
. Income tax planning guideposts and tax shelters;
. Estate conservation and insurance planning;
. Preparation of personal wills and trust agreements;
. Cash flow, commercial banking, leverage and liquidity analysis, and
. Problem analysis and financial trade-offs.
Individual income tax service as used in this statement is specifically
limited to professional assistance in the preparation of the executive's
individual federal, state and/or local income tax returns and support of
such return upon audit.
D. COVERED SERVICES AND ALLOWANCES
-------------------------------
1. The Company will provide the following to eligible executives upon
request to the Manager, Executive Relations:
a. Information regarding the kinds of financial counseling services
provided by nationally known organizations.
b. Information regarding nationally known organizations which provide
professional assistance in the preparation of individual income
tax returns.
c. Information regarding the executive's Company benefits for use by
the selected counseling organization, including a statement of the
extent to which the Company will reimburse the executive for
services of financial and tax counseling organizations.
Page 1
<PAGE>
COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX
SERVICE FOR EXECUTIVES IN SALARY GRADES 64E2 AND 64E3
2. The Company will reimburse eligible executives in accordance with the
following provisions for the services of the organizations they
select:
a. Reimbursement for all financial counseling and individual income
tax service rendered during the initial calendar year of the
executive's participation under this policy will generally not
exceed $9,700.
b. Reimbursement for all financial counseling service and individual
income tax service during the calendar year of a participating
executive's retirement will generally not exceed $9,700.
c. Reimbursement for follow-up financial counseling and individual
income tax services in any calendar year other than the initial
calendar year of participation or the calendar year immediately
preceding the executive's retirement will generally not exceed
$5,700.
d. Any allowance unused in a calendar year may be carried forward to
the next calendar year for use during that period as necessary.
However, no more than the maximum allowance for a given year is
subject to carry forward, i.e., $9,700 for the initial year and
$5,700 for succeeding years.
e. If necessary, the allowance for the year following the current
year may be carried back to cover expenses in the current year
assuming the executive's expected continued eligibility. No more
than one year forward is available for carry back. If an executive
has received reimbursement under the carry back provisions of the
plan at the time of termination of employment, the Company may, at
its discretion, request reimbursement from the executive for any
such amount.
f. A one-time allowance of up to $3,000 for reimbursement of legal
services provided in preparation/updating of personal wills and
trusts is available. However, if an eligible executive relocates
to a different state, an additional allowance of up to $1,500 for
reimbursement of legal services provided in updating personal
wills and trusts to reflect the laws of the new state is
available.
g. The first year allowance of $9,700 will also be available to
change counseling organizations one time during the entire
eligibility period at the executive's discretion, not including
the provisions of f. above. This allowance would include
individual income tax service for that year.
h. If an executive retires or dies while a participant under this
policy, an allowance of $1,200 will apply with respect to
individual income tax returns for the last calendar year in which
the executive was in the active service of the Company.
Page 2
<PAGE>
COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX
SERVICE FOR EXECUTIVES IN SALARY GRADES 64E2 AND 64E3
i. If an executive's employment with the Company ceases other than by
retirement with an immediate retirement allowance, death, or by
agreement with the Company, reimbursement will not be made for any
financial counseling or income tax services performed for the
executive after the date employment terminates.
3. Brokers' fees or promoters' fees are not reimbursable.
4. To obtain reimbursement under this policy, a participating executive
will forward the service organization's invoices with covering
memorandum to the Manager, Executive Relations. The Company's check
will be payable to the executive. The executive is responsible for
payment of the service organization's invoices.
5. Reimbursements will be grossed up in consideration of federal and
state income taxes.
6. The total reimbursement made by the Company will be reported to the
Internal Revenue Service and to other applicable tax jurisdictions as
supplemental payment of compensation. Each reimbursement will be
subject to FICA and withholding at the standard federal and state tax
rates at the time payment is made.
E. NON-ENDORSEMENT
---------------
It is the Company's policy that the decision whether or not to use
financial counseling service and/or income tax service as well as the
selection of organizations to render such services is an individual one.
Therefore, representatives of the Company will not suggest whether or not
an eligible executive should use such services, and will not encourage or
discourage use of any particular organization by an eligible executive.
By application for information outlined in "D" above, and by acceptance and
receipt thereof, any eligible executive shall release and discharge the
Company and any employee or other person who furnishes such information
from any and all liability and responsibility for loss or damage which said
applying executive may suffer as a consequence of receipt or use of such
information.
F. ADMINISTRATION
--------------
All decisions regarding this policy rest entirely with the Company and such
decisions shall be final. The Company reserves the right to modify or
terminate this policy at any time.
Effective: January 1, 1994
Page 3
<PAGE>
CONFIDENTIAL
------------
COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX
SERVICE FOR EXECUTIVES IN SALARY GRADE 64E4
A. ELIGIBILITY
-----------
This policy shall be applicable to the executives in salary grade 64E4.
B. EFFECTIVE DATE
--------------
This policy first became effective January 1, 1987. The provisions herein
reflect all modifications made through January 1, 1994, the effective date
of this current statement.
C. DEFINITIONS
-----------
Financial counseling service as used in this statement means professional
(financial, legal and tax) counseling in the broad area of estate building
and estate conservation including, but not necessarily limited to:
. Effective utilization of Company benefit programs;
. Individual capital building methods and tools;
. Income tax planning guideposts and tax shelters;
. Estate conservation and insurance planning;
. Preparation of personal wills and trust agreements;
. Cash flow, commercial banking, leverage and liquidity analysis, and
. Problem analysis and financial trade-offs.
Individual income tax service as used in this statement is specifically
limited to professional assistance in the preparation of the executive's
individual federal, state and/or local income tax returns and support of
such return upon audit.
D. COVERED SERVICES AND ALLOWANCES
-------------------------------
1. The Company will provide the following to eligible executives
upon request to the Manager, Executive Relations:
a. Information regarding the kinds of financial counseling services
provided by nationally known organizations.
b. Information regarding nationally known organizations which provide
professional assistance in the preparation of individual income
tax returns.
c. Information regarding the executive's Company benefits for use by
the selected counseling organization, including a statement of the
extent to which the Company will reimburse the executive for
services of financial and tax counseling organizations.
Page 1
<PAGE>
COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX
SERVICE FOR EXECUTIVES IN SALARY GRADE 64E4
2. The Company will reimburse eligible executives in accordance with the
following provisions for the services of the organizations they
select:
a. Reimbursement for all financial counseling and individual income
tax service rendered during the initial calendar year of the
executive's participation under this policy will generally not
exceed $5,400.
b. Reimbursement for all financial counseling service and individual
income tax service during the calendar year of a participating
executive's retirement will generally not exceed $5,400.
c. Reimbursement for follow-up financial counseling and individual
income tax services in any calendar year other than the initial
calendar year of participation or the calendar year immediately
preceding the executive's retirement will generally not exceed
$3,900.
d. Any allowance unused in a calendar year may be carried forward to
the next calendar year for use during the period as necessary.
However, no more than the maximum allowance for a given year is
subject to carry forward, i.e., $5,400 for the initial year and
$3,900 for succeeding years.
e. If necessary, the allowance for the year following the current
year may be carried back to cover expenses in the current year
assuming the executive's expected continued eligibility. No more
than one year forward is available for carry back. If an executive
has received reimbursement under the carry back provisions of the
plan at the time of termination of employment, the Company may, at
its discretion, request reimbursement from the executive for any
such amount.
f. A one-time allowance of up to $3,000 for reimbursement of legal
services provided in preparation/updating of personal wills and
trusts is available. However, if an eligible executive relocates
to a different state, an additional allowance of up to $1,500 for
reimbursement of legal services provided in updating personal
wills and trusts to reflect the laws of the new state is
available.
g. The first year allowance of $5,400 will also be available to
change counseling organizations one time during the entire
eligibility period at the executive's discretion, not including
the provisions of f. above. This allowance would include
individual income tax service for that year.
h. If an executive retires or dies while a participant under this
policy, an allowance of $900 will apply with respect to individual
income tax returns for the last calendar year in which the
executive was in the active service of the Company.
Page 2
<PAGE>
COMPANY POLICY ON FINANCIAL COUNSELING & INDIVIDUAL INCOME TAX
SERVICE FOR EXECUTIVES IN SALARY GRADE 64E4
i. If an executive's employment with the Company ceases other than by
retirement with an immediate retirement allowance, death, or by
agreement with the Company, reimbursement will not be made for any
financial counseling or income tax services performed for the
executive after the date employment terminates.
3. Brokers' fees or promoters' fees are not reimbursable.
4. To obtain reimbursement under this policy, a participating executive
will forward the service organization's invoices with covering
memorandum to the Manager, Executive Relations. The Company's check
will be payable to the executive. The executive is responsible for
payment of the service organization's invoices.
5. Reimbursements will be grossed up in consideration of federal and
state income taxes.
6. The total reimbursement made by the Company will be reported to the
Internal Revenue Service and to other applicable tax jurisdictions as
supplemental payment of compensation. Each reimbursement will be
subject to FICA and withholding at the standard federal and state tax
rates at the time payment is made.
E. NON-ENDORSEMENT
---------------
It is the Company's policy that the decision whether or not to use
financial counseling service and/or income tax service as well as the
selection of organizations to render such services is an individual one.
Therefore, representatives of the Company will not suggest whether or not
an eligible executive should use such services, and will not encourage or
discourage use of any particular organization by an eligible executive.
By application for information outlined in "D" above, and by acceptance and
receipt thereof, any eligible executive shall release and discharge the
Company and any employee or other person who furnishes such information
from any and all liability and responsibility for loss or damage which said
applying executive may suffer as a consequence of receipt or use of such
information.
F. ADMINISTRATION
--------------
All decisions regarding this policy rest entirely with the Company and
such decisions shall be final. The Company reserves the right to modify or
terminate this policy at any time.
Effective: January 1, 1994
Page 3
<PAGE>
EXHIBIT 10.6
ARCO
_______________________________________________________________________________
ANNUAL INCENTIVE PLAN
AS AMENDED THROUGH
FEBRUARY 28, 1994
<PAGE>
ATLANTIC RICHFIELD COMPANY
ANNUAL INCENTIVE PLAN
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<C> <S> <C>
Section 1. Purpose............................................... 1
Section 2. Definitions........................................... 1
Section 3. Administration........................................ 3
Section 4. Eligibility and Participation......................... 4
Section 5. Determination of Awards Fund.......................... 4
Section 6. Allocation and Granting of Awards..................... 6
Section 7. Non-Assignability and Forfeiture...................... 7
Section 8. General Provisions.................................... 7
Section 9. Amendment, Suspension or Termination.................. 7
Section 10. Effective Date........................................ 7
</TABLE>
<PAGE>
ANNUAL INCENTIVE PLAN
(AS AMENDED THROUGH FEBRUARY 28, 1994)
SECTION 1. PURPOSE
The purpose of this Plan is to provide annual cash Awards to those
executives who make substantial contributions to the success of the Company by
their ability, industry and exceptional service. It is intended that the Plan
will thereby facilitate the Company in attracting and motivating management
employees of high caliber and potential.
SECTION 2. DEFINITIONS
When used in the Plan, the following terms shall have the following
meanings:
(a) Adjusted Net Income means after-tax income as adjusted to exclude the
following non-routine or "special" items:
. Accounting changes, extraordinary items, gain or loss on disposal of
a discontinued operation and/or unusual items as reported under
Accounting Principles Board Opinion No. 30.
. LIFO profits and/or the elimination of inter-division profits.
. Gains or losses from the issuance or retirement of financial
instruments.
. Gain or loss from the sale and/or write-down or write-off of assets.
. Legal settlements, judgments, and/or tax audit claims.
. Deferred tax effect of statutory tax rate changes.
. Environmental remediation costs associated with nonoperating sites.
. Reorganization or restructuring charges.
. Out-of-period adjustments in excess of $5 million (after-tax).
. Other non-routine items having a cumulative income impact of $1
million or more for the year (after-tax).
(b) Average Return on Shareholders' Equity or Average ROSE means the
simple average of a corporation's Return on Shareholders' Equity during the
immediately three preceding fiscal years.
1
<PAGE>
(c) Average Shareholders' Equity means, for a corporation, the average of
shareholders equity at the end of the year in question and at the end of the
immediately preceding year.
(d) Award means an annual award to a participant pursuant to Section 6 of
the Plan.
(e) Awards Fund means the aggregate amount of money determined by the
Committee to be available for Awards under the Plan for a Plan Year pursuant to
Section 5 of the Plan.
(f) Base Salary means the annualized amount of a Participant's regular
biweekly wages, effective as of December 31 of the year immediately preceding
the calendar year immediately prior to the calendar year in which the Award Date
occurs, paid by the Company for the Participant's personal service, excluding
all extra pay such as overtime, premiums, bonuses and other allowances.
(g) Board means the Board of Directors of Atlantic Richfield Company.
(h) Committee means the Compensation Committee of the Board of Directors
of the Company.
(i) Company means Atlantic Richfield Company, its successors and assigns,
and its Subsidiaries.
(j) Comparison Corporations or Comparison Group means AMOCO Corporation,
Chevron Corporation, Exxon Corporation, Mobil Corporation, Occidental
Corporation, Phillips Petroleum Company, Texaco Inc. and Unocal Corporation.
(k) Comparison Group Average Return on Shareholders' Equity or Comparison
Group Average ROSE means the simple average of the Average Return on
Shareholders' Equity for each member of the group of Comparison Corporations
during the immediately three preceding fiscal years.
(l) Employee means an employee of the Company.
(m) Participant means, with respect to a Plan Year, an Employee who has
been granted an Award under the Plan for such Plan Year.
2
<PAGE>
(n) Plan means the Annual Incentive Plan as set forth herein and as may be
amended from time to time.
(o) Plan Year means the calendar year ending December 31, 1984, and each
subsequent calendar year during the continuance of the Plan.
(p) Return on Shareholders' Equity or ROSE means, with respect to a
corporation, the percentage computed by dividing Adjusted Net Income by Average
Shareholders' Equity.
(q) Subsidiary means any corporation, the majority of the voting stock of
which, or any partnership or joint venture, the majority of the profits interest
or capital interest of which, is owned directly or indirectly by the Company.
SECTION 3. ADMINISTRATION
(a) The Committee shall have full power and authority to construe,
interpret and administer the Plan and to make rules and regulations subject to
the provisions of the Plan. All decisions, actions, determinations, or
interpretations of the Committee shall be made in its sole discretion and shall
be final, conclusive and binding on all parties. No officer, employee or
beneficiary shall have any right to participate in the Plan or to receive
payment of any Award, or portion of an Award, except, and subject to such terms
and conditions, as the Committee may have determined in accordance with the
provisions of the Plan.
(b) The Committee shall consist of at least three members, each of whom
shall be appointed by, and remain in office for the term specified by, the
Board. Any member of the Committee may resign at any time.
(c) No member of the Committee shall be personally liable by reason of any
contract or other instrument executed by him, or on his behalf, in his capacity
as a member of the Committee nor for any mistake of judgment made in good faith,
and the Company shall indemnify and hold harmless each member of the Committee,
and each other officer, employee or director of the Company to whom any duty or
power relating to the administration or interpretation of the Plan has been
delegated, against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim with the approval of the
Committee) arising out of any act or omission in connection with the Plan unless
arising out of such person's own fraud or bad faith.
3
<PAGE>
SECTION 4. ELIGIBILITY FOR PARTICIPATION
(a) Any Employee who has served as a director, officer or in another key
position at any time during a Plan Year is eligible for selection by the
Committee to receive an Award with respect to that Plan Year. No member of the
Committee may be selected to receive an Award under the Plan.
(b) All questions regarding eligibility shall be resolved by the Committee
in its sole discretion.
(c) The Committee may make an Award to an Employee (or his or her
beneficiary or estate) who has terminated service with the Company prior to the
end of a Plan Year if the Committee determines that such Employee has made an
outstanding contribution to the Company during the Plan Year.
SECTION 5. DETERMINATION OF AWARDS FUND
(a) CORPORATE PERFORMANCE CRITERIA. As soon as possible following the
close of each Plan Year the Committee shall compare the Company's Average ROSE
with the Comparison Group Average ROSE for the Plan Year. Subject to the
additional performance criteria described under Subparagraphs (b) and (c),
Awards described under the schedule in Subparagraph (b)(2) shall be paid as
follows:
(1) If the Company's Average ROSE equals the Comparison Group Average
ROSE, an Award equal to the percentage of Base Salary described in Subparagraph
(b)(2), under the column entitled "Applicable Percentage" shall be paid to each
executive in the grade level described in Subparagraph (b)(2), under the column
entitled "Salary Grade" opposite such percentage.
(2) If the Company's Average ROSE exceeds the comparison Group Average
ROSE, the Award determined under Subparagraph (1) of this paragraph shall be
increased by an amount equal to the percent by which the ARCO Average ROSE
exceeds the Comparison Group Average ROSE.
(3) If the Company's Average ROSE is less than the Comparison Group
Average ROSE but at least seventy-five percent (75%) of the Comparison Group
Average ROSE, the Award determined under Subparagraph (1) of this paragraph
shall be decreased by an amount equal to the percent by which the Comparison
Group Average ROSE exceeds the Company's Average ROSE.
4
<PAGE>
(4) If the Company's Average ROSE is less than seventy-five percent
(75%) of the Comparison Group Average ROSE, no Awards will be payable under the
Plan with respect to that Plan Year.
(b) INDIVIDUAL AWARD LEVELS:
(1) Subject to any modifications pursuant to Subparagraphs (a), (c)
and/or (d), each Participant shall be granted an Award equal to the percent of
Base Salary listed opposite the Salary Grade Level which he or she holds, as
described under the Schedule of Award Levels under Subparagraph (2) of this
paragraph.
(2) Schedule of Award Levels:
<TABLE>
<CAPTION>
SALARY APPLICABLE
GRADE LEVEL PERCENTAGE
----------- ----------
<S> <C>
Chief Executive Officer (E0) 65
Chief Operating Officer (E0) 60
Executive Vice President (E1) 55
E2 35
E3 25
E4 20
10 15
9 15
</TABLE>
(3) Award Levels as determined in Subparagraph (2) of this paragraph
are based upon the 50th percentile of bonuses paid by the Comparison
Corporations. The Applicable Percentage will be modified, as necessary, to
achieve this objective.
(c) AWARDS FUND LIMITATION. In no event may the aggregate dollar amount of
Awards granted during a Plan Year exceed two percent (2%) of the Company's
Adjusted Net Income for the immediately preceding Plan Year. To the extent that
the determination of Awards under Subparagraphs (a) and (b) would result in an
amount exceeding two percent (2%) of the Company's Adjusted Net Income, each
individual Award shall be reduced proportionately, with the result that the
total Awards Fund shall be an amount equal to two percent (2%) of Adjusted Net
Income.
5
<PAGE>
(d) INDIVIDUAL AWARD MODIFICATIONS:
(1) In addition to reductions resulting from the application of
Subparagraphs (a) and/or (c), the Award of any Participant may be reduced from
the amount determined under the Applicable Percentage described in Subparagraph
(b)(2), as determined to be appropriate by the Committee based on the
individual's performance or any other criteria deemed relevant by the Committee.
The amount of any such reduction shall be forfeited to the Company.
(2) The Award of each named executive officer in the Summary
Compensation Table of the Company's Proxy Statement relating to the immediately
preceding calendar year may not exceed the amount determined pursuant to
Subparagraph (b), as limited by application of Subparagraphs (a) and/or (c).
(3) The Award of any Participant other than a Participant described
under Subparagraph (2) of this paragraph may be increased, in the sole
discretion of the Committee, from the amount determined pursuant to Subparagraph
(b), as limited by application of Subparagraphs (a) and/or (c).
(4) In no event may the Award of any Participant exceed an amount
equal to two hundred percent (200%) of the amount determined by application of
the Schedule of Award levels under Subparagraph (b)(2).
(e) BASIS FOR CALCULATIONS. All calculations described in this Section 5
shall be based on the audited financial statements of each of the Comparison
Corporations, to the extent these are publically available, or on the income
statement and balance sheet and dividend payments as reported to stockholders,
or otherwise publicly available.
SECTION 6. ALLOCATION AND GRANTING OF AWARDS
(a) All Awards shall be paid in cash in a single payment in the year in
which granted, except as provided in the following subparagraph.
(b) Prior to the commencement of each Plan Year, prospective Participants
shall be afforded the right to elect irrevocably to defer all or a portion or
portions of the payment of their Awards for the Plan Year pursuant to the terms
and conditions of the Atlantic Richfield Executive Deferral Plan.
6
<PAGE>
SECTION 7. NON-ASSIGNABILITY AND FORFEITURE
All Awards are contingent in nature until paid and shall not be
assignable or transferable voluntarily or by operation of law.
SECTION 8. GENERAL PROVISIONS
(a) The Company intends to establish a grantor trust to aid in accumulating
the amounts necessary to pay any amount awarded to any Participant for any Plan
Year, or any Award deferred pursuant to Section 6 or any interest credited
thereon. All Awards, and any interest credited thereon, shall be paid from the
general funds of the Company to the extent not paid from the grantor trust.
Under no circumstances shall a Participant or other person have any interest
whatsoever in any particular property or assets of the Company as a result of
this Plan or any Award made thereunder.
(b) Nothing in this Plan shall confer upon an Employee any right to
continue in the employ of the Company or shall interfere with or restrict in any
way the right of the Company to discharge an Employee at any time for any reason
whatsoever, with or without good cause.
(c) Awards will not be considered as compensation for the purpose of any
other benefit plans maintained by the Company, except as provided in the
Atlantic Richfield Supplementary Executive Retirement Plan and the Atlantic
Richfield Executive Long-Term Disability Plan.
(d) The Company shall have the right to withhold from salary or otherwise,
any federal, state, local or foreign taxes required to be withheld with respect
to payment of any Award or interest credited thereon.
SECTION 9. AMENDMENT, SUSPENSION OR TERMINATION
The Board may suspend, terminate or amend the Plan. Amendment,
suspension or termination of the Plan shall not alter the amount or payment of
any Award made prior to such amendment, suspension or termination.
SECTION 10. EFFECTIVE DATE
The effective date of the Plan is November 26, 1984, and the first
Plan Year under the Plan shall be calendar year 1984.
7
<PAGE>
EXHIBIT 10.7
ARCO
_______________________________________________________________________________
1985 EXECUTIVE LONG-TERM
INCENTIVE PLAN
AS AMENDED THROUGH
FEBRUARY 28, 1994
<PAGE>
ARCO
1985 EXECUTIVE LONG-TERM INCENTIVE PLAN
TABLE OF CONTENTS
------------------
<TABLE>
<CAPTION>
PAGE
NO
<C> <S> <C>
ARTICLE I. GENERAL PROVISIONS
Section 1. Purposes of the Plan................................. 1
Section 2. Definitions.......................................... 1
Section 3. Administration of the Plan........................... 2
ARTICLE II. STOCK OPTIONS
Section 1. Grant of Stock Options............................... 4
Section 2. Terms and Conditions of Stock Options................ 4
ARTICLE III. RESTRICTED STOCK
Section 1. Grant of Restricted Stock............................ 6
Section 2. Waiver of Restrictions............................... 6
ARTICLE IV. PERFORMANCE-BASED DIVIDEND SHARE CREDITS
Section 1. Cancellation of Credits Upon Exercise, Expiration
or Surrender of Stock Option........................ 7
Section 2. Performance-Based Criterion for Dividend
Share Credits....................................... 7
Section 3. Calculation For Cash Payment......................... 7
ARTICLE V. MISCELLANEOUS PROVISIONS
Section 1. Option and Restricted Stock Limits................... 9
Section 2. Adjustment in Terms of Award......................... 9
Section 3. Governmental Regulations............................. 10
Section 4. No Guaranty of Employment............................ 10
Section 5. Assignment or Transfer............................... 10
Section 6. Rights as Shareholder................................ 10
Section 7. Withholding Taxes.................................... 11
Section 8. Amendment and Discontinuance of the Plan............. 11
Section 9. Effective Date....................................... 12
Section 10. Term of Plan......................................... 12
</TABLE>
<PAGE>
ARTICLE I
GENERAL PROVISIONS
SECTION 1. PURPOSES OF THE PLAN
The purposes of this plan are to provide a select group of management
and other key employees with a specific incentive to work for the long-range
growth and success of the Company and to facilitate the attraction and retention
of employees of superior capability.
SECTION 2. DEFINITIONS
As used herein, the following terms shall have the following meanings:
(a) COMMITTEE shall mean the Compensation Committee of the Board of
Directors of the Company.
(b) COMMON STOCK shall mean the common stock of the Company having a
par value of $2.50 per share.
(c) COMPANY shall mean Atlantic Richfield Company.
(d) DIVIDEND RIGHTS means, as of any date (i) the total number of
shares of Common Stock subject to all outstanding and unexercised Stock Options
held by an optionee pursuant to the Plan, and (ii) the total number of Dividend
Share Credits credited to an optionee on such date.
(e) DIVIDEND SHARE CREDITS means the total number of credits
allocated to an optionee on any date. The number of Dividend Share Credits
credited as of any record date for cash dividends declared on Common Stock shall
be the aggregate number derived by (i) multiplying the dividend rate declared
per share of Common Stock by the number of Dividend Rights held by an optionee
as of the dividend record date, and then (ii) dividing the resulting figure by
the Fair Market Value of a share of Common Stock on such record date. Dividend
Share Credits attributable to exercised, expired or surrendered Stock Options
shall be canceled upon such exercise, expiration or surrender and their
treatment shall be as provided in Article IV of the Plan.
1
<PAGE>
(f) ELIGIBLE EMPLOYEES shall mean members of a select group of
management and other key employees of the Company or a Subsidiary who, in the
opinion of the Committee, are in a position to contribute significantly to long-
term profit and growth objectives; provided, however, that no member of the
Committee nor any person owning stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company shall be
an Eligible Employee.
(g) FAIR MARKET VALUE of a share of Common Stock shall be the mean
between the highest and lowest sales prices, or the closing sales price of a
share of Common Stock, whichever is higher, on the date in question as reported
on the composite tape for issues listed on the New York Stock Exchange. If no
transaction was reported on the composite tape in the Common Stock on such date,
the prices used shall be the prices reported on the nearest day preceding the
date in question. If the Common Stock should not then be listed or admitted to
trading on such Exchange, "Fair Market Value" shall be the mean between the
closing bid and asked prices on the date in question as furnished by any member
firm of the New York Stock Exchange selected from time to time by the Committee
for that purpose.
(h) PLAN shall mean this 1985 Executive Long-Term Incentive Plan
including any amendments hereof and rules and regulations hereunder.
(i) RESTRICTED STOCK shall mean Common Stock awarded under this Plan
which is subject to certain forfeiture and transferability restrictions as
provided in the Plan, in regulations of the Committee promulgated thereunder,
and in the agreement evidencing the grant of such Restricted Stock.
(j) STOCK OPTIONS shall consist of options to purchase the Common
Stock of the Company under the terms and conditions set forth in Article II.
Such options shall not be Incentive Stock Options as defined in Section 422(b)
of the Internal Revenue Code of 1986, as amended.
(k) SUBSIDIARY shall mean any corporation in which the Company
and/or one or more Subsidiaries own or control directly or indirectly stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock of such corporation, and any partnership or joint venture in
which the Company and/or one or more Subsidiaries own or control directly or
indirectly fifty percent (50%) or more of the profits interest or capital
interest in such a partnership or joint venture.
As used herein, masculine pronouns shall refer to men or women or
both.
2
<PAGE>
SECTION 3. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee, which is authorized
to interpret the Plan, to adopt such rules and regulations as it may from time
to time deem necessary for the effective operation of the Plan, and to act upon
all matters relating to the granting of awards under the Plan. Any
determination, interpretation, construction or other action made or taken
pursuant to the provisions of the Plan by or on behalf of the Committee shall be
final, binding and conclusive for all purposes and upon all persons including,
without limitation, the Company, its Subsidiaries, their respective
shareholders, Eligible Employees and their respective successors in interest.
3
<PAGE>
ARTICLE II
STOCK OPTIONS
SECTION 1. GRANT OF STOCK OPTIONS
The Committee may grant Stock Options to Eligible Employees on the
terms and conditions set forth in the Plan and on such other terms and
conditions as are not inconsistent with the purposes and provisions of the Plan.
SECTION 2. TERMS AND CONDITIONS OF STOCK OPTIONS
All Stock Options granted under the Plan shall be subject to the
following terms and conditions:
(a) OPTION PRICE. The Option Price per share with respect to each
Stock Option shall be fixed by the Committee, but shall not be less than the
Fair Market Value of the Common Stock on the date the Stock Option is granted.
(b) PERIOD OF OPTION. A Stock Option shall expire and all rights
thereunder shall end at the expiration of such period (not exceeding ten years)
after the date the Stock Option is granted as shall be fixed by the Committee at
the time it grants the Stock Option.
(c) EXERCISE OF OPTION. Stock Options may be exercised at such time
or times, in whole or in part, as the Committee shall prescribe when it grants
such Stock Options, or by amending an outstanding Stock Option. In no event,
however, may a Stock Option be exercised until at least one year has expired
following the date the Stock Option is granted.
(d) TERMINATION OF EMPLOYMENT. If an optionee's employment is
terminated prior to the expiration of one year from the date of grant of Stock
Options, such Stock Options, and accumulated Dividend Share Credits pertaining
thereto, shall be canceled unless the optionee's termination is due to (i)
death, (ii) total and permanent disability, (iii) termination of employment with
a right to an immediate allowance under a retirement plan of the Company or a
Subsidiary or (iv) any other termination of employment in connection with which
the Committee, in its sole discretion, has determined that the optionee's Stock
Options shall not be canceled. If an optionee's employment is terminated
following the expiration of one year from the date of grant of Stock Options,
such Stock Options, and accumulated Dividend Share Credits pertaining thereto,
shall be canceled if the termination is due to (i) discharge for
4
<PAGE>
cause, (ii) resignation without approval of the Company (except in conjunction
with a right to an immediate allowance under a retirement plan of the Company or
a Subsidiary) or (iii) resignation at the initiation of the Company (except in
conjunction with a right to an immediate allowance under a retirement plan of
the Company or a Subsidiary).
(e) DEATH. If an optionee dies, his Stock Options may be exercised
during the period specified in the grant by the executor or administrator of his
estate, or by a person who acquired the right to exercise such Stock Options by
bequest or inheritance or by reason of his death.
(f) PAYMENT FOR SHARES. Every share purchased through the exercise of
a Stock Option shall be paid for in full, in cash, within ten business days
following the time of exercise or, unless the Stock Option expressly provides
otherwise, at the time of exercise in shares of Common Stock valued at their
Fair Market Value on the date on which such Stock Option is exercised, or in a
combination of cash and such shares.
5
<PAGE>
ARTICLE III
RESTRICTED STOCK
SECTION 1. GRANT OF RESTRICTED STOCK
The Committee may grant Restricted Stock under this Plan to Eligible
Employees, and the Committee shall in each case determine the number of shares
of Restricted Stock to be awarded and the terms or duration of the restrictions
to be imposed upon those shares.
SECTION 2. WAIVER OF RESTRICTIONS
Restrictions upon vesting and transferability of Restricted Stock may
be permitted to lapse as originally provided by the Committee at the time of
grant or otherwise as the Committee may determine in its sole discretion.
6
<PAGE>
ARTICLE IV
PERFORMANCE-BASED DIVIDEND SHARE CREDITS
SECTION 1. CANCELLATION OF CREDITS UPON EXERCISE, EXPIRATION OR SURRENDER OF
STOCK OPTION
Dividend Share Credits shall be credited as provided in Article 1,
Section 2(e) of the Plan. Upon exercise of any Stock Option, in whole or in
part, the credited Dividend Share Credits attributable to the exercised Stock
Options shall be canceled. Upon expiration of any Stock Option at the end of
its original maximum term, the credited Dividend Share Credits attributable to
the expired Stock Options shall be canceled. An optionee may elect to surrender
for cancellation exercisable Stock Options in whole or in part. Upon surrender
and cancellation of any such Stock Options, the Dividend Share Credits
attributable to the surrendered Stock Options shall also be canceled.
The shares of Common Stock underlying Stock Options exercised,
surrendered or expired pursuant to this Section shall be referred to as the
"affected shares" for purposes of the application of the performance criterion
set forth in Section 2 below. For purposes of the application of such
criterion, the date of exercise, surrender or expiration shall be referred to as
the "determination date."
SECTION 2. PERFORMANCE-BASED CRITERION FOR DIVIDEND SHARE CREDITS
Upon the exercise, expiration or surrender of any Stock Option, the
Committee shall apply the following performance-based criterion to the Dividend
Share Credits allocable to the affected shares:
In order for the performance criterion to be attained, the aggregate
Fair Market Value of the canceled Dividend Share Credits must exceed
the aggregate option price of the affected shares less their aggregate
Fair Market Value on the determination date.
The criterion shall be applied independently to each grant in the
event of the exercise, cancellation or surrender of Stock Options attributable
to multiple grants on the same date.
7
<PAGE>
SECTION 3. CALCULATION FOR CASH PAYMENT
If the performance criterion set forth in Section 2 above is attained,
a cash payment shall be made to the optionee in an amount equal to the Fair
Market Value of a Share of Common Stock multiplied by the total number of any
canceled Dividend Share Credits, less the amount by which the aggregate option
price of the affected shares exceeds the aggregate Fair Market Value of
underlying such shares related to such Stock Options on the determination date.
No payment may be made to any covered employee [as defined in proposed
Treasury Regulations Section 1.162(m)] unless the Compensation Committee of the
Board of Directors has certified in writing that the performance criterion set
forth in Section 2 above has been attained.
8
<PAGE>
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 1. OPTION AND RESTRICTED STOCK LIMITS
Under the Plan as in effect at the date hereof the number of shares of
Common Stock which may be issued upon award of Restricted Stock or exercise of
Stock Options shall not exceed 3,250,000 in the aggregate. Effective upon
stockholder approval of the amendments to the Plan, to be solicited at the
annual meeting of the Company's stockholders, to be held on May 4, 1992 (the
"Approval Date"), for each calendar year, or any portion thereof, during which
this Plan is in effect, beginning on the Approval Date, the number of shares of
Common Stock upon which Stock Options may be granted or which may be the subject
of a grant of Restricted Stock shall be eight-tenths of one percent (0.8%) of
the total issued and outstanding shares of Common Stock as of December 31 of the
next preceding year, cumulative from the Approval Date until May 27, 2000. Any
shares of Common Stock available for grant that are not made the subject of a
grant during a calendar year, or portion thereof, will be available for grant in
any subsequent year, or portion thereof, until May 27, 2000. The number of
available shares described in the preceding sentences is subject to adjustment
as provided in Section 2 of this Article V. The shares shall be made available
from authorized but unissued Common Stock or from Common Stock issued and held
in the treasury of the Company as shall be determined by the Committee.
Effective on the Approval Date, any shares of Common Stock remaining available
under the Plan as in effect on the date hereof for grants immediately prior to
the Approval Date shall be canceled. Shares of Common Stock subject to Stock
Options that are canceled pursuant to Article II, Section 2(d) may be
reallocated under the Plan.
SECTION 2. ADJUSTMENT IN TERMS OF AWARD
In the event of a reorganization, recapitalization, stock split, stock
dividend, distribution of assets other than pursuant to a normal cash dividend,
combination of shares, merger, consolidation, rights offering, split-up, split-
off, spin-off or any other change in the corporate structure or shares of the
Company, the Committee may, in its discretion, after consultation with the
Chairman of the Board and the President, make appropriate adjustments to reflect
such event in (a) the limitation in Section 1 of this Article V on the maximum
number of shares of Common Stock upon which Stock Options may be granted or
which may be the subject of a grant of Restricted Stock, (b) the formula for
allocating future Dividend Share Credits, (c) the number of shares of Common
Stock covered by, and the exercise price per
9
<PAGE>
share applicable to, outstanding Stock Options, (d) the number of shares of
Common Stock covered by outstanding awards of Restricted Stock, and (e) the
number of outstanding Dividend Share Credits allocated to optionees' accounts.
In the event that the Committee, after consultation with the Chairman of the
Board and the President, determines that, because of a change in the Company's
business, operations, corporate structure, capital structure, assets or manner
in which it conducts business, which it deems to be extraordinary and material,
the terms of awards theretofore made are no longer suitable to the objectives
which the Committee sought to achieve when it made such awards, it may modify
the terms of any or all of such awards in such manner as it may decide is
advisable; provided, however, that no award may be modified in a manner which
would be inconsistent with the intent of Section 8 of this Article V.
SECTION 3. GOVERNMENTAL REGULATIONS
The Plan and the grant and exercise of Stock Options, the crediting
and payment of Dividend Share Credits and the award of Restricted Stock
hereunder, shall be subject to all applicable rules and regulations of
governmental or other authorities.
SECTION 4. NO GUARANTY OF EMPLOYMENT
The grant of a Stock Option, credit of a Dividend Share Credit, or
award of Restricted Stock under the Plan shall not constitute an assurance of
continued employment for any period.
SECTION 5. ASSIGNMENT OR TRANSFER
No Stock Option, Dividend Share Credit or share of Restricted Stock
shall be assignable or transferable by an Eligible Employee otherwise than by
will or the laws of descent and distribution.
SECTION 6. RIGHTS AS SHAREHOLDER
(a) An Eligible Employee under the Plan shall have no rights of a
holder of Common Stock by virtue of any award of Stock Options hereunder, unless
and until certificates for shares of Common Stock are issued to him pursuant to
the Plan.
10
<PAGE>
(b) Dividend Share Credits shall not be considered as dividends on
Common Stock for any purpose, nor as any kind of right to Common Stock.
(c) An Eligible Employee who has received an award of Restricted Stock
shall have all the rights of a shareholder with respect to the shares of
Restricted Stock, including, without limitation, the right to vote such
Restricted Stock and the right to receive all dividends paid with respect to
such Restricted Stock (net of withholding, if applicable), but shall hold such
Restricted Stock subject to such restrictions upon its transfer for such period
or periods as the Committee may determine and subject to such other terms and
conditions deemed appropriate by the Committee. Stock received with respect to
an award of Restricted Stock pursuant to a stock split, stock dividend or other
change in the capitalization of the Company will be held subject to the same
restrictions on transferability that are applicable to such shares of Restricted
Stock.
SECTION 7. WITHHOLDING TAXES
(a) The Company shall have the right to withhold from salary or
otherwise or to cause the employee (or the executor or administrator of his
estate or his distributee) to make payment of any Federal, State, local or
foreign taxes required to be withheld with respect to any exercise of any Stock
Option, cash settlement of any Dividend Share Credit, or award or vesting or
deemed vesting of Restricted Stock.
(b) In the case of an exercise of Stock Options or the vesting or
deemed vesting of Restricted Stock, an employee may elect to have the
withholding obligation satisfied by having the Company withhold shares of Common
Stock received upon the exercise of Stock Option or the vesting or deemed
vesting of Restricted Stock, as the case may be.
SECTION 8. AMENDMENT AND DISCONTINUANCE OF THE PLAN
The Board of Directors of the Company may amend or discontinue the
Plan as it shall from time to time consider desirable, provided that:
(a) No amendment shall, without further approval by the holders of a
majority of the shares which are represented in person or by proxy and entitled
to vote on the subject at a meeting of shareholders of the Company, change the
terms of the Plan so as to increase the maximum number of shares upon which
Stock Options may be granted or which may be issued upon award of Restricted
Stock from the number described in Section 1 of this Article V, reduce the
minimum option price, or extend the maximum option period; and
11
<PAGE>
(b) No amendment, discontinuance or termination shall deprive persons
who hold shares of Restricted Stock, or who are entitled to exercise Stock
Options, or to receive a cash settlement of any Dividend Share Credits pursuant
to the terms and provisions of the Plan, of their rights with respect thereto.
SECTION 9. EFFECTIVE DATE
The effective date of the Plan is May 28, 1985.
SECTION 10. TERM OF PLAN
No Stock Options or awards of Restricted Stock may be granted after
May 27, 1995; provided, however, effective on the Approval Date, described in
Article V, Section 1 of the Plan, no Stock Options or awards of Restricted Stock
may be granted after May 27, 2000.
12
<PAGE>
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
PERCENTAGE OF
VOTING
SECURITIES
OWNED BY
ORGANIZED IMMEDIATE
NAME OF COMPANY UNDER LAWS OF PARENT
- --------------- ------------- -------------
<S> <C> <C>
Atlantic Richfield Company (Registrant)........... Delaware
Significant subsidiaries of Registrant in
consolidated financial statements,
as of December 31, 1994:
ARCO Alaska, Inc................................ Delaware 100.0
ARCO Chemical Company........................... Delaware 83.3
ARCO Transportation Alaska, Inc................. Delaware 100.0
Vastar Resources, Inc........................... Delaware 82.3
</TABLE>
The subsidiaries whose names are not listed above, if considered in the
aggregate as a single subsidiary, would not constitute a significant
subsidiary.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following registration
statements of Atlantic Richfield Company: Registration Statement on Form S-8
(No. 33-43830), Registration Statement on Form S-8 (No. 33-21558), Post-
Effective Amendment No. 4 to Registration Statement on Form S-8 (No. 33-
21160), Post-Effective Amendment No. 4 to Registration Statement on Form S-8
(No. 33-23639), Post-Effective Amendment No. 4 to Registration Statement on
Form S-8 (No. 33-21162), Post-Effective Amendment No. 4 to Registration
Statement on Form S-8 (No. 33-21553), Post-Effective Amendment No. 4 to
Registration Statement on Form S-8 (No. 33-23640), and Post-Effective
Amendment No. 4 to Registration Statement on Form S-8 (No. 33-21552), of our
report dated February 10, 1995, on our audits of the consolidated financial
statements and financial statement schedule of Atlantic Richfield Company as
of December 31, 1994 and 1993 and for each of the three years in the period
ended December 31, 1994, which report is included in this Annual Report on
Form 10-K.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 28, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,394
<SECURITIES> 2,991
<RECEIVABLES> 1,446
<ALLOWANCES> 0
<INVENTORY> 797
<CURRENT-ASSETS> 6,813
<PP&E> 32,248
<DEPRECIATION> 16,526
<TOTAL-ASSETS> 24,563
<CURRENT-LIABILITIES> 4,488
<BONDS> 7,198
<COMMON> 402
0
1
<OTHER-SE> 5,875
<TOTAL-LIABILITY-AND-EQUITY> 24,563
<SALES> 16,552
<TOTAL-REVENUES> 17,199
<CGS> 13,024
<TOTAL-COSTS> 13,479
<OTHER-EXPENSES> 347
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 759
<INCOME-PRETAX> 1,368
<INCOME-TAX> 387
<INCOME-CONTINUING> 919
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 919
<EPS-PRIMARY> 5.63
<EPS-DILUTED> 5.63
</TABLE>
