<PAGE>
1995
---------------
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, 1995
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 Identification No.)
incorporation or organization)
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
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, 1995, based on the closing price on the New York
Stock Exchange composite tape on that date, was $18,048,493,017.
Number of shares of Common Stock, $2.50 par value, outstanding as of December
31, 1995: 160,831,190.
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,
1995 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.................................................... 6
Refining and Marketing........................................ 6
Transportation................................................ 8
Intermediate Chemicals and Specialty Products................. 8
Equity Interest in Lyondell................................... 10
Capital Program............................................... 11
Patents....................................................... 11
Competition................................................... 11
Human Resources............................................... 12
Research and Development...................................... 12
Environmental Matters......................................... 12
3. Legal Proceedings............................................. 15
4. Submission of Matters to a Vote of Security Holders........... 17
----------------
Executive Officers of the Registrant.......................... 18
Description of Capital Stock.................................. 21
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters...................................................... 24
6. Selected Financial Data....................................... 24
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 25
8. Financial Statements and Supplementary Data................... 33
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 53
PART III
10. Directors and Executive Officers of the Registrant............ 53
11. Executive Compensation........................................ 53
12. Security Ownership of Certain Beneficial Owners and
Management................................................... 53
13. Certain Relationships and Related Transactions................ 53
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.......................................................... 53
</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% of its common stock to the
public in October 1987; ARCO currently owns 82.9% of ARCO Chemical. Vastar was
formed in September 1993, and in July 1994 sold under 20% of its common stock
to the public; ARCO currently owns 82.3% of Vastar. Vastar is the primary
vehicle through which ARCO conducts natural gas and, to a lesser extent oil,
exploration, production and marketing 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% equity interest in Lyondell Petrochemical Company
("Lyondell"), which operates petrochemical processing and petroleum refining
businesses. ARCO originally sold just over 50% 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 5 of Notes to Consolidated Financial Statements on
page 39 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, Indonesia and
China.
Reserves
Estimated net quantities of ARCO's proved oil and gas reserves at December
31, 1995 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................... 2,163(a) 206 4,666(c) 3,683
Proved developed reserves......... 1,896(b) 92 4,294(d) 1,806
</TABLE>
- --------
(a) Includes 107 million barrels ("MMB") attributable to Vastar.
(b) Includes 82 MMB attributable to Vastar.
(c) Includes 2,081 billion cubic feet ("BCF") attributable to Vastar.
(d) Includes 1,738 BCF attributable to Vastar.
Reference is made to Supplemental Information, Oil and Gas Producing
Activities, beginning on page 50, for additional information concerning oil
and gas producing activities and estimates of proved oil and gas reserves.
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>
1995............................... 583,100 66,800 999 557
1994............................... 591,300 72,800 960 511
1993............................... 604,700 79,700 911 321
</TABLE>
- --------
(a) Includes 45,300, 43,500, and 44,700 barrels per day produced by Vastar in
1995, 1994, and 1993, respectively.
(b) Includes 810, 782, and 695 million cubic feet per day ("MMCFD") produced
by Vastar in 1995, 1994, and 1993, 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,
--------------------------------------------------------------
1995 1994 1993
-------------------- -------------------- --------------------
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....... $12.17 $15.96 $10.43 $14.56 $11.67 $16.05
Average lifting cost per
equivalent barrel of
production............. 3.73 3.98 4.05 3.52 4.78 3.99
Average sales price per
thousand
cubic feet ("MCF") of
natural gas produced... 1.35 2.56 1.76 2.51 1.93 2.69
</TABLE>
Delivery Commitments
ARCO has various long-term natural gas sales contracts covering the majority
of its production in Indonesia, the United Kingdom North Sea, and China,
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 716 MMCFD in 1996.
Such obligation is presently the maximum requirement and declines to less than
112 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 natural gas production was 810 MMCFD in
1995. 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,
-----------------------------------------------------------------
1995 1994 1993
--------------------- --------------------- ---------------------
U.S.(A) INTERNATIONAL U.S.(B) INTERNATIONAL U.S.(C) INTERNATIONAL
------- ------------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net productive
exploratory wells
drilled................ 17 8 12 3 13 8
Net dry exploratory
wells drilled.......... 37 13 29 5 65 13
Net productive
development wells
drilled................ 315 12 245 11 228 31
Net dry development
wells drilled.......... 30 -- 27 1 21 2
</TABLE>
- --------
(a) Includes 15, 26, 133, and 23 wells, respectively, drilled by Vastar.
(b) Includes 11, 25, 89, and 11 wells, respectively, drilled by Vastar.
(c) Includes 11, 46, 90, and 11 wells, respectively, drilled by Vastar.
The Company's current activities, as of December 31, 1995, were as follows:
<TABLE>
<CAPTION>
U.S. INTERNATIONAL
---- -------------
<S> <C> <C>
Gross wells in process of drilling (including wells
temporarily suspended)..................................... 43 7
Net wells in process of drilling (including wells
temporarily suspended)..................................... 27 4
Waterflood projects in process.............................. 2 --
Pressure maintenance and waterflood operations.............. 15 1
</TABLE>
3
<PAGE>
The following table shows the approximate number of productive wells at
December 31, 1995:
<TABLE>
<CAPTION>
OIL GAS
--------------------------- ---------------------
U.S.(A)(B) INTERNATIONAL(C) U.S.(D) INTERNATIONAL
---------- ---------------- ------- -------------
<S> <C> <C> <C> <C>
Total gross productive
wells.................. 11,459 481 3,009 206
Total net productive
wells.................. 5,665 201 1,410 52
</TABLE>
- --------
(a) Includes approximately 1,511 gross and 277 net multiple completions for
ARCO, of which there are 240 gross and 104 net multiple completions for
Vastar.
(b) Includes approximately 1,339 gross and 656 net wells, respectively,
attributable to Vastar.
(c) Includes approximately 85 gross and 39 net multiple completions.
(d) Includes approximately 2,336 gross and 1,141 net wells, respectively,
attributable to Vastar.
As of December 31, 1995, 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.............................................. 206 368 747 985
Lower 48(a)......................................... 1,281 2,243 2,773 4,066
----- ----- ------ ------
Total U.S......................................... 1,487 2,611 3,520 5,051
International......................................... 121 350 31,842 47,305
----- ----- ------ ------
Total............................................. 1,608 2,961 35,362 52,356
===== ===== ====== ======
</TABLE>
- --------
(a) Includes 953,000 net developed acreage, 1,569,000 gross developed acreage,
2,578,000 net undeveloped acreage and 3,618,000 gross undeveloped acreage,
respectively, held by Vastar.
Alaska
Approximately 64% 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 1995 decreased to 413,600 barrels per
day. ARCO's interests in Alaska included net proved reserves of 1,910 million
barrels of oil equivalent at December 31, 1995.
ARCO operates the eastern half of the Prudhoe Bay field and has a 21.78%
working interest in the oil produced from the field, a 42.56% working interest
in the condensate produced and, in 1995, a 40.6% working interest in the NGLs
produced. ARCO's net petroleum liquids production from the Prudhoe Bay field
averaged 226,600 barrels per day in 1995, compared to 236,600 barrels per day
in 1994.
ARCO is the sole operator of the Kuparuk River field and holds a 55.2%
working interest in the field. Its share of production from the field was
140,700 net barrels per day of petroleum liquids during 1995, compared to
147,200 net barrels per day during 1994. During 1995, ARCO and its partners
began a large scale enhanced oil recovery project. NGLs, obtained from the
Prudhoe Bay field, are injected into existing wells in the Kuparuk field in
order to recover additional barrels of oil and offset natural field decline.
ARCO estimates that this project will result in an additional 190 million
gross barrels (92 million net barrels to ARCO) of incremental oil from the
Kuparuk River field.
ARCO operates four of the five Greater Point McIntyre Area fields and holds
working interests as follows: 30.1% in Point McIntyre, 40.0% in Lisburne,
50.0% in both West Beach and North Prudhoe Bay State. All five of the fields
are produced through the Lisburne Production Facility, which ARCO operates.
During 1995, liquids produced through the Lisburne Production Facility
averaged 178,600 gross barrels per day, and 46,300 net barrels per day.
All of ARCO's 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 ARCO's ocean-going tankers.
4
<PAGE>
Lower 48
During 1995, ARCO's consolidated Lower 48 operations had net production of
359 BCF of natural gas and 62 MMB of petroleum liquids as compared to 347 BCF
and 62 MMB in 1994, respectively. Reserves were reduced by 3 MMB of oil
equivalent, primarily due to production. Development and exploration
activities replaced 98% of 1995 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%. 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 Basin/Rockies and the Midcontinent areas. For additional information
about Vastar, a copy of Vastar's 1995 Annual Report to Stockholders and 1995
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, 1995
of 577 MMB of oil equivalent, of which 86% were petroleum liquids. In 1995 net
production from ARCO's other Lower 48 interests was 55 MMB of oil equivalent,
down from 56 MMB in 1994, the result of natural field decline.
International
ARCO's international operations include both exploration and production.
ARCO's 1995 international production of petroleum liquids averaged 66,800
barrels per day, and came primarily from Indonesia and the United Kingdom.
Natural gas production averaged 557 MMCFD. The Pagerungan and the Offshore
Northwest Java natural gas fields in Indonesia accounted for 48% of ARCO's
1995 international natural gas production. Natural gas production from the
United Kingdom sector of the North Sea accounted for 48%.
ARCO's net proved reserves from international interests at December 31, 1995
were 820 MMB of oil equivalent.
ARCO's principal development activities in 1995 were conducted offshore
China and the United Kingdom. Natural gas production from ARCO's Yacheng 13-1
field, situated in the South China Sea, began on January 1, 1996. This gross
$1.1 billion project, developed with two partners, consists of two offshore
production platforms, onshore receiving facilities, the world's second longest
subsea pipeline, the 480-mile pipeline to Black Point, near Hong Kong, and a
60-mile pipeline to Sanya on Hainan Island. Of the ultimate production of more
than 300 gross MMCFD, most will be sold to Castle Peak Power Company in Hong
Kong, a joint venture between China Light and Power and Exxon. ARCO is the
operator of, and has a 34.3% interest in, the Yacheng 13-1 field production.
In 1995 ARCO began production from the Blenheim oil field, its first
operated oil field in the United Kingdom, and from the Gawain gas field. ARCO
began development of the Trent and Tyne gas fields and expects production to
come onstream in late 1996.
On February 15, 1996, ARCO announced the signing of an agreement with
Sonatrach, the Algerian state oil company, to undertake a major enhanced oil
recovery ("EOR") project in the Rhourde El Baguel Oil Field. The agreement
provides for a $225 million bonus payment to Sonatrach, followed by an
investment of over $1.3 billion in the project. Under the production sharing
contract, ARCO will receive up to 49% of the project's annual production. ARCO
believes its EOR efforts should yield over 500 million incremental barrels of
crude oil equivalent over the 25-year life of the project and increase
production rates from the current 25,000 barrels per day to a peak of 125,000
barrels per day sometime early in the next century.
5
<PAGE>
WORLDWIDE COAL OPERATIONS
ARCO has interests in six 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 1995 were 45.8 million tons of coal.
During 1995, ARCO acquired 40 million tons of low sulfur coal reserves
adjacent to the West Elk Mine.
In Queensland, Australia, ARCO has interests in three mines in the Bowen
Basin: Curragh, Gordonstone and Blair Athol. ARCO operates and holds an
effective 87% interest in Curragh, a surface mine that produces high-grade
coking and steam coal. ARCO operates and has an 80% interest in Gordonstone, an
underground mine that uses longwall technology to produce its high-grade coking
and steam coal. ARCO holds a non-operating 31.4% interest in Blair Athol, a
surface mine that produces steam coal. ARCO's net share of total shipments in
1995 from Australian operations was 11.8 million tons.
As of December 31, 1995, 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 contract
extending to December 31, 2017. It is anticipated that these contracts will
require approximately 85% of planned production from Black Thunder, Coal Creek
and West Elk in 1996. Approximately 85% of planned 1996 production in Australia
is committed under long-term arrangements. Future revenues from these contracts
in the U.S. and Australia can be affected by periodic reopeners that adjust
sales prices based on prevailing market conditions.
In total, ARCO shipped 57.6 million tons of coal during 1995 and had 1,481
million tons of recoverable coal reserves as of December 31, 1995. Reference is
made to Supplemental Information, Coal Operations on page 52 for further
information concerning reserves and shipments of coal.
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.
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)
-----------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Los Angeles Refinery.................................... 237,000 237,000 237,000
Cherry Point Refinery................................... 185,000 185,000 181,000
------- ------- -------
Total................................................. 422,000 422,000 418,000
======= ======= =======
</TABLE>
6
<PAGE>
ARCO's crude oil refinery runs and petroleum products manufactured at its
refining facilities were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------
1995 1994 1993
------- ------- -------
(EQUIVALENT BARRELS PER
DAY)
<S> <C> <C> <C>
Crude oil refinery runs................................. 438,800 408,300 425,800
======= ======= =======
Petroleum products manufactured:
Gasoline.............................................. 217,400 206,700 221,600
Jet fuels............................................. 101,300 88,800 84,600
Distillate fuels...................................... 70,700 71,900 79,500
Other (a)............................................. 82,700 66,600 69,400
------- ------- -------
Total (b)........................................... 472,100 434,000 455,100
======= ======= =======
</TABLE>
- --------
(a) Includes chemical products, petroleum coke (green and calcined) 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.
During 1996, ARCO notified Tosco Corporation that ARCO was not renewing the
long-term crude oil supply agreement that expires in 1996. In addition, ARCO
negotiated a decrease in the amount of gasoline it was required to take from
Tosco's refinery for the last nine months of 1996.
In connection with its refining operations, ARCO 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 Washington.
ARCO also sells gasoline to unbranded resellers. NGLs are sold directly to
end-use customers and the Watson Cogeneration Facility, which is 51% 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, 1995, there were 1,516 branded retail outlets, which
included franchisee and Company-operated am/pm(R) convenience stores and
SMOGPROS(R) Service Centers, and traditional service stations.
Effective January 1, 1995, ARCO began selling reformulated gasolines that
meet Environmental Protection Agency ("EPA") specifications. By June 1996,
ARCO and the other California gasoline marketers will also be required to meet
California Air Resources Board ("CARB") specifications standards for
automobile gasolines available for retail sale in California. In order to meet
the more stringent CARB standards with 100% of the gasoline produced at the
Los Angeles Refinery, ARCO completed in 1995 the necessary modifications at
the refinery. The cost to meet both EPA and CARB standards was approximately
$500 million. As a result of these modifications, ARCO's gasoline production
at the Los Angeles Refinery is expected to increase from an average of 140,000
barrels a day in 1995 to at least 150,000 barrels a day in 1996.
7
<PAGE>
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,
-----------------------
1995 1994 1993
------- ------- -------
(EQUIVALENT BARRELS PER
DAY)
<S> <C> <C> <C>
Petroleum product sales:
U.S.:
Gasoline............................................ 256,800 253,800 252,500
Jet fuels........................................... 106,200 97,600 97,100
Distillate fuels.................................... 69,100 73,500 78,700
Other(a)............................................ 61,800 53,000 53,200
------- ------- -------
Total............................................. 493,900 477,900 481,500
Brazil................................................ -- -- 94,400
------- ------- -------
Total............................................. 493,900 477,900 575,900
======= ======= =======
</TABLE>
- --------
(a) Includes heavy fuel oils, NGLs, calcined and green coke.
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.
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.
In Alaska, ARCO has a 21.3% 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% 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 1995 total throughput averaged approximately 1,523,000 barrels
per day.
In the Lower 48, ARCO manages facilities for transportation and terminalling
of petroleum liquids, refined petroleum products, petrochemicals and natural
gas. In 1995 ARCO and Phillips Petroleum Company formed the Seaway Pipeline
Company ("Seaway"), a joint venture. Seaway combines a crude oil pipeline that
ARCO has operated between its Gulf of Mexico port at Texas City, Texas, and
Cushing, Oklahoma, and Phillips' pipeline stretching from Freeport, Texas to
Cushing. This combined pipeline system will have an ultimate capacity to move
800,000 barrels per day. ARCO has ownership interests in petroleum liquids
pipeline systems that 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. These pipelines moved petrochemicals and refined petroleum
products for all shippers (including ARCO) that properly tendered these
materials for transportation. 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 82.9% of
the outstanding shares.
8
<PAGE>
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 methyl tertiary butyl ether ("MTBE") and ethyl tertiary butyl ether
("ETBE")), and SM derivatives (including polystyrenics). Beginning in 1995,
ARCO Chemical has marketed toulene di-isocyanate ("TDI"), obtained under long-
term supply agreements with Rhone-Poulenc. TDI and polyols are combined to
manufacture polyurethanes.
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, Netherlands (PO, TBA and various
derivatives including PG, propylene glycol ethers and MTBE); Fos-sur-Mer,
France (PO, TBA and various derivatives including PG, polyols and MTBE); and a
joint venture in Chiba, Japan (PO and SM). Other production facilities include
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. In July
1995, ARCO Chemical announced the commencement of engineering studies for the
construction of a new PO/SM plant at Rotterdam, scheduled for start-up in the
year 2000, and to expand its Channelview, Texas plant capacity to produce more
PO by early 1998. Final approval of these projects by ARCO Chemical's Board of
Directors will be based on the results of the engineering studies, permitting
approvals, and successful conclusion of certain commercial arrangements.
The following table shows ARCO Chemical's worldwide production capacity (in
millions of pounds per year, except where otherwise noted) for PO, SM and
certain key derivatives:
<TABLE>
<CAPTION>
PRODUCT U.S. INTERNATIONAL
------- ------ -------------
<S> <C> <C>
PO 2,335 1,335
Polyols 720 580
PG 565 345
SM 2,570 790
MTBE--Bbls/day 30,000 28,500
</TABLE>
Capacities shown are the production capacities that, as of December 31,
1995, 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 a
third party facility pursuant to which it has the capacity to produce an
additional 12,000 barrels per day of MTBE or ETBE.
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,
-----------------
1995 1994 1993
----- ----- -----
(MILLIONS)
<S> <C> <C> <C>
PO and derivatives (pounds)................................... 3,476 3,699 3,356
SM and derivatives (pounds)................................... 2,579 2,496 2,084
TBA and derivatives (gallons)................................. 1,140 1,004 1,164
</TABLE>
Total sales and other operating revenues for ARCO's intermediate chemicals
and specialty products segment for the years ended December 31, 1995, 1994 and
1993 were $4,282 million, $3,423 million, and $3,192 million, respectively,
including immaterial amounts for sales and services to Lyondell.
9
<PAGE>
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 supplies and services 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
1995 Annual Report to Stockholders and 1995 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.
EQUITY INTEREST IN LYONDELL
ARCO owns a 49.9% 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 Note 21 of Notes to Consolidated Financial
Statements on page 48.
Lyondell is a manufacturer and marketer of petrochemicals and, through its
participation 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 (polypropylene and high and low density
polyethylene), methanol and MTBE. Lyondell's refining business is conducted
through its approximately 90% 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% interest in LCR. LCR also produces fuel oil, aromatics and lubricants.
For the year ended December 31, 1995, Lyondell recorded total revenues of
approximately $321 million from sales to ARCO Chemical. Lyondell also provides
certain plant services at ARCO Chemical's Texas facilities. ARCO Chemical in
turn provides certain supplies and services 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.
During 1995, Lyondell paid ARCO and its consolidated subsidiaries an aggregate
of $28 million under these agreements, arrangements and transactions and
received an aggregate of $325 million, principally from sales of product to
ARCO Chemical.
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. The upgrade project is anticipated to be operational in
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%. 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%.
10
<PAGE>
For additional information about Lyondell, a copy of Lyondell's 1995 Annual
Report to Stockholders and 1995 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.
CAPITAL PROGRAM
The Company's capital expenditures for additions to fixed assets (including
dry hole costs) totaled approximately $1.7 billion in 1995 and are budgeted at
$2 billion for 1996. In addition, 1995 capital expenditures included $0.7
billion for various investments, including LUKoil and Seaway. 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 as the sixth largest U.S. based oil company based on
revenues in the most recent Fortune 500 list of U.S. industrial companies.
11
<PAGE>
HUMAN RESOURCES
As of December 31, 1995, ARCO had approximately 22,000 full-time equivalent
employees, of whom approximately 15% 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 two facilities located at Newtown
Square, Pennsylvania and Plano, Texas. Total research and development expenses
were $104 million, $109 million and $109 million in 1995, 1994 and 1993,
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 $658 million at December
31, 1995 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 113 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 $700 million.
Approximately 40% 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
12
<PAGE>
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 10% 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. The
EPA wintertime oxygenate gasoline program became effective in the fall of
1993. The EPA reformulated gasoline requirements became effective January 1,
1995 for the nine U.S. cities, including Los Angeles and San Diego, and other
areas with the worst ozone pollution. The CARB's specifications for
reformulated gasoline, which are stricter than the EPA requirements, become
effective for retail sales on and after June 1, 1996. To comply with the EPA
air quality requirements and CARB standards, in 1995 ARCO completed major
modifications at its Los Angeles Refinery. 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 1993 the South Coast Air Quality Management District ("AQMD"), which sets
air quality standards for a five county area of southern California, including
Los Angeles County, adopted regulations requiring phased reductions of certain
pollutants. By 2003 the Los Angeles Refinery will be required to achieve
cumulative reductions from 1992 levels of oxides of nitrogen (NOx) of 63% and
oxides of sulfur (SOx) of 83%. As part of the regulations, AQMD created a
Regional Clean Air Incentives Market ("RECLAIM") program under which regulated
firms can earn "credits" for achieving emission reductions below targeted
levels. Those credits may then be bought and sold. The Los Angeles Refinery
plans to achieve the requisite levels of emission reductions by a combination
of reductions and acquisitions of credits, substantial amounts of which have
already been purchased. The AQMD is currently considering modifications to the
RECLAIM program, but nothing has yet been finalized.
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 $315 million per year. The Company
anticipates environment-related capital expenditures of approximately $125
million and $140 million for 1996 and 1997, 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
$140 million per year. Cash payments for site remediation have averaged
$145 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 $250 million per year.
In addition to the reserve for environmental remediation costs, the Company
has also accrued, as of December 31, 1995, $882 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.
13
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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 Section 9607. These
alleged damages, arising out of ARCO's or its predecessors' alleged
activities, include restoration and compensable damages, assessment costs, and
prejudgment interest. A lawsuit, styled Montana v. ARCO, ex rel., (Case No.
CV-83-317-HLN-PGH) was filed on December 12, 1983, in the United States
District Court for the District of Montana. In October 1995, ARCO received
from the State a second revised demand for damages of $713.3 million for
alleged injuries to natural resources resulting from mining and mineral
processing operations. ARCO is contesting this demand. 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 alleged trustees, have asserted claims
against ARCO for alleged injury 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.)
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 are named as
defendants in a consolidated complaint in the United States District Court for
the Eastern District of Washington, titled In re Hanford Nuclear Reservation
Litigation (CY-91-3015-AAM). 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.
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%). Alyeska and its owner companies have
settled the civil damage claims by federal and state governments and the
lawsuits by 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), 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. ARCO has settled with most of the
insurance company defendants. ARCO expects that a trial against the remaining
defendants will begin in 1996.
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 14 of Notes to Consolidated Financial
Statements on page 43, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
14
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ITEM 3. LEGAL PROCEEDINGS
THE COMPANY
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 trial court has dismissed all of
plaintiffs' claims other than their fraud claim. Plaintiffs have appealed the
dismissal of their claims for restitution and indemnification.
On January 24, 1996, ARCO (as successor to IS&R) was added as a defendant to
a class action suit pending in the United States District Court for the
Southern District of New York, German, et al. v. Federal Home Loan Mortgage
Corp., et al. (Case No. 93 Civ 6941) by plaintiff intervenors Naquan and Naiya
Thomas, minors, and their mother and guardian Kaii Henry. The complaint in
intervention names as defendants, in addition to ARCO, eight alleged former
processors of lead pigment and lead paint, the LIA, the City of New York and
its Housing Authority, and the owner of the building where plaintiffs reside.
Plaintiffs seek on behalf of themselves, and a purported class of children
under seven and pregnant women residing in dwellings in the City of New York
containing or presumed to contain lead paint, injunctive relief from all
defendants including orders to abate lead paint and to contribute to court-
administered funds to pay for abatement and medical monitoring and treatment.
The complaint alleges causes of action against the lead pigment defendants and
the LIA for negligence, strict products liability, fraud and
misrepresentation, breach of express and implied warranty, nuisance,
conspiracy, concert of action, and enterprise and market share liability.
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. The trial court dismissed the complaint. The Court of
Appeals reversed and remanded the case to the Court of Common Pleas.
On August 29, 1995, a purported class action was filed in the United States
District Court for the Eastern District of Louisiana, Jefferson v. Lead
Industries Association, Inc. (Case No. 95-2885), which seeks compensatory and
punitive damages on behalf of the named plaintiff and all Louisiana parents of
children who attained a blood lead level equal to or greater than 25
micrograms per deciliter before the age of six. The named defendants are ARCO
(as successor to IS&R), the LIA, NL Industries, Inc., Sherwin-Williams Co.,
SCM Corporation, Glidden Co., and Fuller-O'Brien Corporation. The complaint
states as theories of recovery strict liability, negligence, failure to warn,
fraud, and breach of express and implied warranty. The complaint also asserts
that the manufacturer of the lead pigment in any particular paint cannot be
determined by chemical analysis or any other means, and that plaintiff,
therefore, may rely upon market share and civil conspiracy to establish
defendants' liability.
In addition, the Company is a defendant in several lawsuits brought by
individuals that allege injury from exposure to lead paint. Such cases, in the
aggregate, are not material to the financial condition of the Company.
On June 27, 1995, three former ARCO Alaska, Inc. employees filed an action
in the Alaska Superior Court in Anchorage, titled Tesch, et al. v. ARCO
Alaska, Inc. (Case No. 3AN-95-3320-CI), purporting to represent a class
15
<PAGE>
of all ARCO Alaska, Inc. employees classified as exempt from overtime pay
requirements within the preceding three years. The plaintiffs claim that they
and other exempt employees were not actually exempt under Alaska law from
overtime pay and are entitled to pay for unpaid overtime and penalties in an
unstated amount. Employees of Alyeska Pipeline Service Company ("Alyeska"), in
which ARCO Transportation Alaska, Inc. owns approximately 21%, have filed two
other purported class actions making similar claims against Alyeska.
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. The Company commenced a feasibility study to determine the
technology required to remedy the conditions at the 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 and $63,000 in 1995. 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%
of the cost of the remediation.
In January 1994, the 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. In May 1995, the
Company negotiated a settlement with CARB for a total of $461,000.
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.
On October 11, 1995, Vastar, on behalf of, and with ARCO's knowledge and
full cooperation, met with the United States Environmental Protection Agency
("EPA") to apprise the EPA of certain results obtained from Vastar's internal
self-evaluation and audit program. The results conveyed to EPA concern the
Prevention of Significant Deterioration ("PSD") permit program under the
federal Clean Air Act at Vastar's Ignacio Blanco Fruitland ("IBF") coal
degasification facilities. Through its self-evaluation and audit program,
Vastar recently determined that a PSD permit may have been required for
construction and operation of certain equipment at the IBF operations due to
unanticipated levels of carbon monoxide emissions. Under federal law, EPA has
the power to seek injunctive relief and civil penalties for violations of the
federal Clean Air Act. Liability for failure to obtain a PSD permit under the
Clean Air Act can be imposed without
16
<PAGE>
regard to willfulness or negligence. Vastar has sought the benefits of EPA's
"Voluntary Environmental Self-Policing and Self-Disclosure Interim Policy
Statement," which may allow Vastar to avoid any punitive penalties, although
EPA may seek to recover what it considers to be the economic benefit of
noncompliance. Vastar has advised ARCO that it believes that any ultimate
liability resulting from the above-described issue will not have a material
adverse effect on Vastar's financial position or results of operations or cash
flows.
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
In 1994, the Internal Revenue Service issued a Notice of Deficiency for
income tax relating to tax years 1983 through 1988. The aggregate amount of
income tax asserted on the face of the Notice was $537 million plus interest.
ARCO has paid to the Internal Revenue Service the amount of tax (and interest)
that it believes is due under the Notice and timely filed a petition in the
U.S. Tax Court challenging the balance.
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 1995.
----------------
17
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the executive officers of Registrant as of February 26,
1996.
<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>
Mike R. Bowlin, 53 Mr. Bowlin has been Chairman of the Board since July 1, 1995,
Chairman of the Board, Chief Executive Officer since July 1994, President of ARCO
Chief Executive Officer since June 1993 and a director since June 1992. He served as
and President Executive Vice President (June 1992-May 1993) and Senior Vice
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),
Senior 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 Company (April 1981-December 1984).
He has been an officer of the Company since 1984.
Ronald J. Arnault, 52 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, 50 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
officer of the Company since 1987.
William E. Wade, Jr., 53 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
Alaska, 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.
H. L. Bilhartz, 49 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.
</TABLE>
18
<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>
John B. Cheatham IV, 47 Mr. Cheatham has been a Senior Vice President of ARCO and
Senior Vice President President of ARCO International Oil and Gas Company since De-
cember 1, 1995. He was Senior Vice President, Operations and
New Business Development (November 1993-November 1995)
and Senior Vice President, New Business Ventures (November
1992-November 1993) of ARCO International Oil and Gas
Company and Senior Vice President, Eastern District
(August 1991-November 1992) and Vice President, Southeastern
District (November 1989-August 1991) of ARCO Oil and Gas Com-
pany. He has been an officer of the Company since 1995.
E. Kent Damon, Jr., 53 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, 60 Mr. Dickerson has been Senior Vice President, External
Senior Vice President Affairs of 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 of ARCO Oil and Gas Com-
pany (September 1982-September 1983). He has been an officer
of the Company since 1985.
Marlan W. Downey, 64 Mr. Downey has been a Senior Vice President of ARCO since
Senior Vice President June 1992. He served as President (June 1992-November 1995)
and a Senior Vice President (1990-1992) of ARCO International
Oil and Gas Company. He has been an officer of the Company
since 1992.
Marie L. Knowles, 49 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, 45 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 of ARCO International Oil and
Gas Company (1991-1994). He has been an officer of the Com-
pany since 1994.
William C. Rusnack, 51 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.
</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>
J. Kenneth Thompson, 44 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, 62 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 1994.
Bruce G. Whitmore, 51 Mr. Whitmore has been the Senior Vice President, General
Senior Vice President, Counsel and Corporate Secretary of ARCO since December 31,
General Counsel and 1994. He served as Vice President and General Counsel of ARCO
Corporate Secretary Chemical Company (October 1990-December 1994) and as Associ-
ate General Counsel, Finance and Corporate Affairs of ARCO
(June 1986-September 1990). He has been an officer of the
Company since 1995.
Allan L. Comstock, 52 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, 45 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
Treasurer, Corporate Finance of ARCO (1990-1993) and
Manager, Finance, Control and Planning, ARCO British,
Ltd. (1988-1990). He has been an officer of the Company
since 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.
20
<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
Restated Certificate of Incorporation of ARCO, dated June 27, 1994, and do not
purport to be complete. 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,
1995.
<TABLE>
<CAPTION>
SHARES SHARES
AUTHORIZED OUTSTANDING
----------- -----------
<S> <C> <C>
$3.00 Preference Stock.......................... 78,089 66,376
$2.80 Preference Stock.......................... 833,776 731,055
Preferred Stock................................. 75,000,000 --
Common Stock.................................... 600,000,000 160,831,190*
</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.
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.
21
<PAGE>
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
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% 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% 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
22
<PAGE>
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 July 24, 1995, the Board of Directors of
the Company declared a dividend of one common share purchase right (a "Right")
for each outstanding share of Common Stock, par value $2.50 per share (the
"Common Shares"), of the Company. The dividend was paid on August 18, 1995 to
the stockholders of record on that date. Each Right entitled the registered
holder to purchase from the Company one Common Share at a price of $400.00 per
share (the "Purchase Price"), subject to adjustment. The description and terms
of the Rights are set forth in a Rights Agreement between the Company and
First Chicago Trust Company of New York, as Rights Agent.
The Rights will be evidenced by and will be transferred with the Common
Share certificates until the Distribution Date. The Distribution Date is
defined as the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons has acquired
beneficial ownership of 15% or more of the outstanding Common Shares (an
"Acquiring Person") or (ii) 10 business days following the commencement of, or
announcement of an intention to make, a tender or exchange offer, the
consummation of which would result in a person or group becoming an Acquiring
Person. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights will be issued.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on August 18, 2005 unless redeemed prior to that date by the Company.
The Purchase Price payable, and the number of Common Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution.
In the event that any person becomes an Acquiring Person, each holder of a
Right, other than Rights beneficially owned by the Acquiring Person and its
affiliates and associates (which will thereafter be void), will have the right
to receive, upon exercise of each Right, that number of Common Shares having a
market value of two times the Purchase Price. If, after the Distribution Date,
the Company is acquired in a merger or other business combination with, or 50%
or more of its consolidated assets or earning power are sold to, the Acquiring
Person, each holder of a Right will have the right to receive, upon exercise
of each Right, that number of shares of common stock of the acquiring company
with a market value of two times the Purchase Price.
At any time after an Acquiring Person crosses the 15% threshold and prior to
the acquisition by such person of 50% or more of the outstanding Common
Shares, the Board of Directors of the Company may exchange the Rights (other
than Rights owned by the Acquiring Person), in whole or in part, at an
exchange ratio of one Common Share per Right.
The Board of Directors of the Company may redeem the Rights in whole, but
not in part, at a price of $.01 per Right prior to the acquisition by an
Acquiring Person of 15% or more of the outstanding Common Shares. The terms of
the Rights may be amended by the Board of Directors of the Company without the
consent of the holders of the Rights, except that after any person becomes an
Acquiring Person no such amendment may adversely affect the interests of the
other holders of the Rights.
Effective August 18, 1995, the Board of Directors ordered the redemption of
outstanding Common Stock Purchase Rights issued to stockholders of record on
June 9, 1986 (the "1986 Rights"). The redemption payment of $0.10 per 1986
Right was paid to stockholders of record on August 18, 1995.
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.
23
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
<TABLE>
<CAPTION>
1995 1994
-------------------------------------- -----------------------------------
4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST
-------- -------- -------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock:
Market price per share
High................. $115 3/8 $116 5/8 $117 7/8 $115 19/64 $108 3/4 $109 1/2 $104 1/2 $112 3/8
Low.................. $104 1/4 $106 3/8 $109 $100 1/2 $ 97 5/8 $ 99 5/8 $ 92 1/2 $ 93 1/2
Cash dividends per
share................. $1.375 $1.475(1) $1.375 $1.375 $1.375 $1.375 $1.375 $1.375
$3.00 Cumulative Con-
vertible Preference
Stock:
Market price per share
High................. $745 $771 $778 1/2 $761 5/8 $717 1/2 $736 $697 $731
Low.................. $744 1/2 $738 $765 $708 $675 3/4 $711 $648 1/2 $648 1/2
Cash dividends per
share................. $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75
$2.80 Cumulative Con-
vertible Preference
Stock:
Market price per share
High................. $274 1/2 $276 $280 $274 $259 3/4 $259 3/4 $247 1/4 $263 1/2
Low.................. $249 1/8 $256 $266 3/4 $242 $234 1/2 $241 $226 1/2 $228
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 26, 1996 the high price per share was $114 1/8 and the low
price per share was $111 3/4.
As of December 31, 1995, the approximate number of holders of record of
Common Stock of ARCO was 94,000. 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 22, 1996, a dividend of $1.375 per share was
declared on Common Stock, payable on March 15, 1996 to stockholders of record
on February 16, 1996. 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,
------------------------------------------
1995(1) 1994(2)(3) 1993(2) 1992(4) 1991(5)
------- ---------- ------- ------- -------
(MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales and other operating revenues
(including excise taxes)........... $17,337 $16,552 $18,487 $18,668 $18,191
Income before changes in accounting
principles......................... 1,376 919 269 1,193 709
Net income.......................... 1,376 919 269 801 709
Earned per share before changes in
accounting principles.............. 8.42 5.63 1.66 7.39 4.39
Earned per share.................... 8.42 5.63 1.66 4.96 4.39
Cash dividends per common share..... 5.60 5.50 5.50 5.50 5.50
Total assets........................ 23,999 24,563 23,894 24,256 24,492
Long-term debt and capital lease
obligations........................ 6,708 7,198 7,089 6,227 5,989
</TABLE>
- --------
(1) Dividends include a $0.10 per share redemption payment for Common Stock
purchase rights.
(2) See Note 2 of Notes to Consolidated Financial Statements regarding unusual
items on page 38.
(3) Includes after-tax gain of $273 million from issuance of stock by Vastar
Resources, Inc.
(4) Includes a net after-tax benefit of $211 million related to a settlement
with Iran, the recognition of a portion of the gain from the sale of
Lyondell Petrochemical Company common stock, partially offset by a charge
resulting from ARCO Chemical Company's withdrawal from a joint venture.
(5) 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.
24
<PAGE>
ARCO
Management's discussion and analysis of
financial condition and results of operations
ARCO's operating results in 1995 were the highest since its record earnings in
1990. Operations benefited from higher ARCO Chemical Company earnings, higher
crude oil prices, continued cost savings resulting from the restructurings ARCO
undertook in 1993 and 1994, and higher earnings from ARCO's equity interest in
Lyondell Petrochemical Company. These benefits were partially offset by lower
refining and marketing margins and lower domestic natural gas prices. Cost
savings totaled $330 million after tax, compared to the benchmark year of 1993.
Earnings from Operations
<TABLE>
<CAPTION>
Millions 1995 1994 1993
------ ----- -----
<S> <C> <C> <C>
Net income $1,376 $ 919 $ 269
Special items (benefit) charge (45) (40) 545
------ ----- -----
Operating results $1,331 $ 879 $ 814
====== ===== =====
Special items after tax
<CAPTION>
Millions 1995 1994 1993
------ ----- -----
<S> <C> <C> <C>
Insurance settlements $ 82 $ -- $ --
Restructuring charges -- (210) (404)
Gain on issuance of subsidiary stock -- 273 --
Future environmental remediation (30) (48) (52)
Deferred tax impact of rate change -- -- (65)
Other, net (7) 25 (24)
------ ----- -----
Total benefit (charge) $ 45 $ 40 $(545)
====== ===== =====
</TABLE>
25
<PAGE>
ARCO
The 1994 improvements resulted from approximately $250 million after tax in
savings from ARCO's restructuring and related cost reduction program, higher
earnings from its chemicals business and increased natural gas sales volumes.
These improvements were partially offset by lower crude oil and natural gas
prices and lower refining and marketing margins.
Results of Consolidated Operations
Revenues
<TABLE>
<CAPTION>
Millions 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Sales and other operating revenues
Upstream $ 8,898 $ 8,632 $ 9,005
Downstream 12,029 10,879 12,701
Intersegment eliminations (3,590) (2,959) (3,219)
------- ------- -------
Total $17,337 $16,552 $18,487
======= ======= =======
</TABLE>
In 1995, increased operating revenues reflected higher prices and sales volumes
for chemical and refined products, higher crude oil prices and increased sales
volumes for coal. Decreased crude oil trading activity and lower domestic
natural gas prices partially offset these increases.
The sale of ARCO's Brazilian marketing operations in December 1993 reduced
operating revenues in 1994. At the same time, lower crude oil prices and volumes
and lower prices for refined products and natural gas were offset by increased
crude oil trading and natural gas marketing activity, higher chemical prices and
volumes, natural gas volumes, and excise taxes.
Income from equity investments in both 1995 and 1994 increased primarily
because of Lyondell Petrochemical Company's (Lyondell) higher earnings. ARCO has
a 49.9% equity interest in Lyondell.
The increase in other revenues in 1995 primarily reflected insurance
settlements. Other revenues were lower in 1994 primarily because of asset sales
in 1993.
Expenses
<TABLE>
<CAPTION>
Millions 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Trade purchases $6,116 $5,961 $7,360
Operating expenses 3,025 3,095 3,157
SG&A expenses 1,794 1,705 1,828
Exploration expenses 523 455 667
</TABLE>
In 1995, trade purchases increased as a result of higher chemical feedstock
costs and crude oil prices, partially offset by decreased crude oil trading
activity. The sale of ARCO's Brazilian marketing operations reduced trade
purchases in 1994, while increased crude oil trading and natural gas marketing
activity was offset by lower crude oil and natural gas prices.
The 1995 operating expenses were lower in the following areas: domestic oil
and gas -- lease operating and other support; refining and marketing --
maintenance, outside services and personnel; transportation -- maintenance; and
insurance costs. The lower maintenance expense was related to the level of
scheduled refinery turnarounds and required work on the Trans Alaska Pipeline in
1995. ARCO Chemical Company (ACC) tolling costs associated with toluene di-
isocyanate sales, which began in 1995, partially offset the reductions.
ARCO's 1994 operating expenses reflected reduced oil and gas lease operating
and other support costs and refining and marketing maintenance and fuel costs.
These reductions were partially offset by higher operating costs related to
increased production volumes for coal operations and ARCO Chemical and by higher
operating costs associated with the response to findings of regulatory and owner
company reviews of the Trans Alaska Pipeline System.
Increased sales volumes for ARCO Chemical and coal operations resulted in
higher delivery costs that increased selling, general and administrative (SG&A)
expenses in 1995. 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.
26
<PAGE>
ARCO
Higher exploration expenses in 1995 primarily reflected dry hole costs
associated with South China Sea exploration, partially offset by decreased
activity in Alaska. The decline in 1994 reflected reduced activity as part of
ARCO's cost reduction program, particularly in Alaska and the Lower 48.
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 reduction in taxes other than excise and income taxes in 1995 primarily
reflected the absence of an accrual for certain tax issues recorded in 1994. The
reduction in 1994 primarily reflected the sale of ARCO's Brazilian marketing
operations.
Personnel reductions associated with ARCO's cost reduction program were
reported as unusual items in 1994. The 1993 reorganization of ARCO's Lower 48
oil and gas operations was reflected in unusual items 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.
Gain on Issuance of Stock by Vastar Resources, Inc.
In July 1994, Vastar Resources, Inc. (Vastar) consummated the sale of 17,250,000
shares of its common stock to the public at an initial offering price of $28 per
share. Vastar was a wholly owned subsidiary of ARCO prior to the offering. ARCO
realized an after-tax gain of $273 million as a result of the initial public
offering by Vastar. At December 31, 1995, ARCO owned 80,000,001 shares of
Vastar's common stock, which represented 82.3% of Vastar's outstanding common
stock. Vastar's results are included in ARCO's Lower 48 results in the oil and
gas segment.
3 PIE CHARTS SHOWING SEGMENT OPERATING RESULTS FOR 1993, 1994 AND 1995
Operating results (millions)
<TABLE>
<CAPTION>
Segment 1993 1994 1995
- ------- ---- ---- ----
<S> <C> <C> <C>
Oil and Gas..................... 435 480 660
ARCO Chemical................... 239 265 460
Refining & Marketing............ 387 275 200
Transportation.................. 189 192 190
Lyondell........................ 13 111 194
Coal............................ 97 70 85
</TABLE>
Income Taxes
The Company's effective tax rate was 31.6% in 1995, compared to 28.3% in 1994
and 51.6% in 1993. The higher effective tax rate in 1995 primarily reflected the
effect of higher pretax income, without an increase in tax credits in 1995. 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, compared to 1993. 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.
Results of Segment Operations
Oil and Gas
<TABLE>
<CAPTION>
Millions 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Net income $ 683 $ 405 $ 45
Special items (benefit) charge (23) 75 390
------ ------ ------
Operating results $ 660 $ 480 $ 435
====== ====== ======
Special items after tax
<CAPTION>
Millions 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Restructuring charges $ -- $ (66) $ (404)
Asset sales 9 6 82
Deferred tax impact of rate change -- -- (40)
Asset impairment (12) -- --
Tax-related and other, net 26 (15) (28)
------ ------ ------
Total benefit (charge) $ 23 $ (75) $ (390)
====== ====== ======
</TABLE>
27
<PAGE>
ARCO
Average Crude Oil Sales Prices
<TABLE>
<CAPTION>
Dollars/barrel 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
U.S., including Vastar $12.31 $10.44 $11.67
International $16.26 $15.16 $16.41
</TABLE>
In 1995, earnings reflected the effect of higher crude oil prices, particularly
on the West Coast, higher natural gas volumes and reduced operating expenses,
partially offset by lower domestic natural gas prices and higher exploration
expenses.
Average Natural Gas Sales Prices
<TABLE>
<CAPTION>
Dollars/thousand cubic feet 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
U.S., including Vastar $1.35 $1.76 $1.93
International $2.56 $2.51 $2.69
</TABLE>
In 1994, 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.
Petroleum Liquids Production
<TABLE>
<CAPTION>
Barrels/day -- net 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Prudhoe Bay 226,600 236,600 250,800
Kuparuk River 140,700 147,200 151,500
Point McIntyre Area 46,300 37,400 16,400
Lower 48, including Vastar 169,500 170,100 186,000
International 66,800 72,800 79,700
------- ------- -------
Total 649,900 664,100 684,400
======= ======= =======
</TABLE>
Worldwide petroleum liquids production decreased slightly in 1995 as a result
of natural field declines. In Alaska, increased production from the Point
McIntyre Area fields was more than offset by production declines in the Prudhoe
Bay and Kuparuk River fields. Internationally, new production volumes from the
Blenheim field in the United Kingdom were more than offset by production
declines in Indonesia.
In 1994, 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 more than offset by Lower 48 property
divestitures and natural field declines in Alaska from the Prudhoe Bay and
Kuparuk River fields.
Natural Gas Production
<TABLE>
<CAPTION>
Million cubic feet/day -- net 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
U.S., including Vastar 999 960 911
==== ==== ====
International
United Kingdom 265 286 278
Indonesia 270 206 25
Other 22 19 18
---- ---- ----
Total International 557 511 321
==== ==== ====
</TABLE>
U.S. natural gas production growth in 1995 and 1994 came primarily from
Vastar's fields in the Gulf of Mexico and the San Juan Basin.
Production from Indonesian natural gas fields in 1995 grew as a result of
greater contract takes by purchasers. Unseasonably warm weather in late 1995
contributed to the decline in United Kingdom natural gas sales. Production grew
in 1994 as a result of the new Pagerungan and Offshore Northwest Java fields in
Indonesia and a full year of production from the Orwell and Murdoch fields in
the United Kingdom North Sea.
In 1996, international natural gas production will be enhanced by the January
1 startup of the Yacheng 13-1 field in the South China Sea.
Coal
<TABLE>
<CAPTION>
Millions 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Net income $ 75 $ 70 $ 107
Special items (benefit) charge 10 -- (10)
----- ----- -----
Operating results $ 85 $ 70 $ 97
===== ===== =====
Worldwide shipments (tons) 57.6 49.6 47.7
</TABLE>
Worldwide production increases and higher coking and export steam coal prices
for Australian production were partially offset by lower U.S. prices in 1995.
Earnings included a net charge of $10 million, primarily related to the impact
of an Australian tax rate increase on deferred taxes.
Revenues from increased volumes in 1994 were more than offset by lower
international coal prices, the reopening to current market prices of a major
28
<PAGE>
ARCO
Refining and Marketing
<TABLE>
<CAPTION>
Millions 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Net income $ 177 $ 195 $ 307
Special items charge 23 80 80
----- ----- -----
Operating results $ 200 $ 275 $ 387
===== ===== =====
</TABLE>
sales contract in the U.S. and unfavorable foreign exchange rate movements. The
1993 results included a benefit of approximately $10 million after tax
associated with a change in an accrued estimated loss on the sale of an
Australian coal mine.
Higher crude oil costs more than offset increased sales prices and volumes and
lower operating expenses in 1995. The 1994 results were negatively impacted by
lower U.S. West Coast margins and the absence of earnings from Brazil, partially
offset by reduced operating costs. The 1995 special items included charges
related to terminating certain contractual agreements and future environmental
remediation. The 1994 special items included charges related to personnel
reductions and future environmental remediation. The 1993 special items
primarily comprised 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.
West Coast Petroleum Products Sales
<TABLE>
<CAPTION>
Volumes (thousand barrels/day) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Gasoline 256.8 253.8 252.5
Jet 106.2 97.6 97.1
Distillate 69.1 73.5 78.7
Other 61.8 53.0 53.2
----- ----- -----
Total 493.9 477.9 481.5
===== ===== =====
</TABLE>
ARCO's U.S. West Coast sales volumes increased 16,000 barrels per day in 1995
after a small decline in 1994. Jet fuel and gasoline sales volumes increased in
1995 because of an increase in refining capacity resulting from modifications
and debottlenecking projects necessary to make reformulated gasolines.
Transportation
<TABLE>
<CAPTION>
Millions 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Net income $ 193 $ 172 $ 189
Special items (benefit) charge (3) 20 --
----- ----- -----
Operating results $ 190 $ 192 $ 189
===== ===== =====
</TABLE>
The 1995 results reflected increased volumes and earnings from the commercial
pipeline and terminal businesses in the Lower 48 nearly offsetting declines in
earnings from the Trans Alaska Pipeline. The 1994 results included net 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.
Intermediate Chemicals and Specialty Products
<TABLE>
<CAPTION>
Millions 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
ARCO Chemical
Net income (reported) $ 508 $ 269 $ 214
ARCO's share* 460 265 239
</TABLE>
* Reflects ARCO's share of ACC net income after segment adjustments,
primarily for net interest expense and minority interest.
ARCO Chemical's earnings in 1995 reflected higher margins for propylene oxide
(PO) and its derivatives and styrene monomer (SM). Both prices and margins for
SM decreased in the second half of 1995. 1994 net income was higher, primarily
as a result of higher sales volumes in PO and derivatives and SM, and higher SM
margins, partially offset by the effects of a weaker methyl tertiary butyl ether
market.
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.
29
<PAGE>
ARCO
Lyondell Petrochemical Company
<TABLE>
<CAPTION>
Millions 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Net income (reported) $ 389 $ 223 $ 26
ARCO's share 194 111 13
</TABLE>
Lyondell's results in 1995 benefited from higher olefins margins and increases
in its polymers business following the acquisition of additional capacity in
1995 and strong aromatics performance at LYONDELL-CITGO refinery. The strong
performance in the petrochemical and polymers markets in the first nine months
of 1995 was followed by a sharp market decline in the latter part of the year.
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 approximately 90% participation interest in LYONDELL-CITGO Refining
Company Ltd., which was affected by poor industry conditions as well as downtime
for major maintenance turnarounds in the fourth quarter.
Unallocated Expenses and Other
<TABLE>
<CAPTION>
Millions 1995 1994 1993
---- ---- -----
<S> <C> <C> <C>
Unallocated net benefit (expense) $94 $(57) $(140)
</TABLE>
Insurance settlements, the absence of 1994 personnel reduction charges and the
1994 money market loss reimbursement, and lower insurance and corporate staff
expense resulted in the net after-tax benefit in 1995. Reductions in corporate
staff expense, increased foreign tax credits and a tax refund resulted in lower
unallocated expenses in 1994, compared to 1993. 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.
2 PIE CHARTS SHOWING 1995 CASH INFLOWS AND 1995 CASH OUTFLOWS
1995 Cash Inflows (Millions)
<TABLE>
<S> <C>
Operations $2,919
Short-term Investments 1,500
Other 244
</TABLE>
1995 Cash Outflows (Millions)
<TABLE>
<S> <C>
Additions to fixed assets $1,699
Long-term debt 1,138
Dividends 902
Short-term debt 293
Investment in LUKoil convertible bonds 252
Other 235
</TABLE>
Financial Position and Liquidity
Cash and cash equivalents and short-term investments totaled $3.1 billion at
year-end 1995 and short-term borrowings were $1.2 billion. Working capital was
$400 million lower at the end of 1995, primarily reflecting a decrease in short-
term investments, partially offset by an increase in accounts receivable and a
decrease in long-term debt due within one year and short-term borrowings. At
December 31, 1995, ARCO had unused committed bank credit facilities totaling
$3.2 billion and ARCO Chemical had an unused bank credit facility totaling $300
million, while Vastar had utilized $610 million under its $1.1 billion revolving
credit facility with an effective interest rate of 6.9% during the year.
ARCO's 1996 capital spending program includes $2.0 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.
30
<PAGE>
ARCO
Environmental Matters
ARCO is subject to federal, state and local environmental laws and regulations
that 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. ARCO is currently participating in environmental assessments and
cleanups at numerous sites under these laws and may in the future be involved in
additional environmental assessments and cleanups.
Environmental Reserves
<TABLE>
<CAPTION>
Millions 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Beginning balance $ 670 $ 648 $ 682
Charges 101 138 172
Payments (113) (116) (206)
----- ----- -----
Ending balance $ 658 $ 670 $ 648
===== ===== =====
</TABLE>
The amount accrued represents the estimated undiscounted costs that 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 accrued by as much as $700 million. See Note 14 to
Consolidated Financial Statements regarding environmental matters.
In addition to the provision for environmental remediation costs, $882 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
To minimize the effects of interest rate and foreign currency fluctuations, ARCO
enters into the following transactions using derivatives: 1) foreign currency
forward, option 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.
ARCO and its subsidiaries also engage in hedging strategies involving forward
and futures contracts, swaps and options to hedge part of its natural gas and
crude oil production and to minimize the effects of commodity price
fluctuations. Vastar has entered into a series of commodity swaps covering
approximately 35% of its natural gas production for January through December
1996 at an average price of $1.85 per Mcf (on a Henry Hub basis).
The Company uses simple, non-leveraged derivative instruments that are placed
with major institutions whose creditworthiness is continually monitored. Risk
management strategies are reviewed and approved by senior management before
being implemented. Policy controls limit the maximum amount of positions that
can be taken in any given instrument.
Effects of Inflation
While the annual rate of inflation remained moderate during the three-year
period ended December 31, 1995, ARCO continued to experience certain
inflationary effects. ARCO will achieve some benefits by using
31
<PAGE>
ARCO
current, inflated dollars to satisfy its debt obligations and other monetary
liabilities, because the Company's monetary assets are less than its monetary
liabilities at December 31, 1995.
In addition, ARCO estimates that the replacement cost of its property, plant,
equipment and inventory is greater than the historical cost reflected in the
financial statements.
Statement of Financial Accounting Standards Not Yet Adopted
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 requires companies to adopt its provisions for
fiscal years beginning after December 15, 1995. SFAS No. 123 encourages a fair
value-based method of accounting for an employee stock option or similar equity
instrument, but allows continued use of the intrinsic value-based method of
accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." Companies electing to continue to
use APB No. 25 must make pro forma disclosures of net income and earnings per
share as if the fair value- based method of accounting had been applied. ARCO is
evaluating the provisions of SFAS No. 123, but has not yet determined whether it
will continue to follow the provisions of APB No. 25 or change to the fair
value-based method of SFAS No. 123.
32
<PAGE>
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
SCHEDULE
NO. PAGE
--- ----
<C> <S> <C>
Report of Independent Accountants.............................. 34
Financial Statements:
Consolidated Statement of Income and Retained Earnings........ 35
Consolidated Balance Sheet.................................... 36
Consolidated Statement of Cash Flows.......................... 37
Notes to Consolidated Financial Statements.................... 38
Supplemental Information...................................... 50
Supporting Financial Statement Schedule Covered by the
Foregoing Report of Independent Accountants:
II Valuation and Qualifying Accounts............................. 59
</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%
owned companies are omitted per Rule 3-09(a) of Regulation S-X.
33
<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, 1995 and 1994, 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, 1995 and the related
financial statement schedule listed in the index on page 33 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, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1995, 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.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 12, 1996
34
<PAGE>
ARCO
Consolidated Statement of Income and Retained Earnings
<TABLE>
<CAPTION>
For the year ended December 31,
Millions, except per share amounts 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
REVENUES
Sales and other operating revenues (including
excise taxes) $17,337 $16,552 $18,487
Income from equity investments 243 141 40
Interest 212 201 164
Other revenues 465 305 492
------- ------- -------
Total revenues 18,257 17,199 19,183
------- ------- -------
EXPENSES
Trade purchases 6,116 5,961 7,360
Operating expenses 3,025 3,095 3,157
Selling, general and administrative expenses 1,794 1,705 1,828
Depreciation, depletion and amortization 1,641 1,671 1,718
Exploration expenses (including undeveloped lease
amortization) 523 455 667
Excise taxes 1,518 1,517 1,298
Taxes other than excise and income taxes 717 780 1,147
Interest 750 759 715
Unusual items -- 347 659
------- ------- -------
Total expenses 16,084 16,290 18,549
------- ------- -------
Income before gain on issuance of stock by subsidiary 2,173 909 634
Gain on issuance of stock by subsidiary -- 459 --
------- ------- -------
Income before income taxes and minority interest 2,173 1,368 634
Provision for taxes on income 687 387 327
Minority interest in earnings of subsidiaries 110 62 38
------- ------- -------
Net income $ 1,376 $ 919 $ 269
======= ======= =======
EARNED PER SHARE
Net income per share $8.42 $5.63 $1.66
======= ======= =======
RETAINED EARNINGS
Balance, January 1 $ 5,342 $ 5,308 $ 5,918
Net income 1,376 919 269
Cash dividends:
Preference stocks (2) (3) (3)
Common stock (900) (882) (876)
------- ------- -------
Balance, December 31 $ 5,816 $ 5,342 $ 5,308
======= ======= =======
</TABLE>
See Notes on pages 38 through 49.
35
<PAGE>
ARCO
Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31,
Millions 1995 1994
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,537 $ 1,394
Short-term investments 1,569 2,991
Accounts receivable 1,684 1,446
Inventories 877 797
Prepaid expenses and other current assets 221 185
------- -------
Total current assets 5,888 6,813
------- -------
Investments and long-term receivables:
Investments accounted for on the equity method 711 348
Other investments and long-term receivables 550 297
------- -------
1,261 645
------- -------
Fixed assets:
Property, plant and equipment 32,544 32,248
Less accumulated depreciation, depletion and amortization 17,189 16,526
------- -------
15,355 15,722
Deferred charges and other assets 1,495 1,383
------- -------
Total assets $23,999 $24,563
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,174 $ 1,478
Accounts payable 1,145 986
Long-term debt due within one year 184 630
Taxes payable, including excise taxes 303 253
Accrued interest 153 183
Other 1,004 958
------- -------
Total current liabilities 3,963 4,488
------- -------
Long-term debt 6,708 7,198
Deferred income taxes 2,637 2,721
Other deferred liabilities and credits 3,456 3,471
Minority interest 477 407
Stockholders' equity:
Preference stocks 1 1
Common stock, $2.50 par value;
shares issued 160,879,765 (1995), 160,800,137 (1994)
shares outstanding 160,831,190 (1995), 160,753,966 (1994) 402 402
Capital in excess of par value of stock 632 647
Retained earnings 5,816 5,342
Pension liability adjustment (60) (20)
Foreign currency translation (17) (51)
Net unrealized loss on investments (11) (38)
Treasury stock, at cost (5) (5)
------- -------
Total stockholders' equity 6,758 6,278
------- -------
Total liabilities and stockholders' equity $23,999 $24,563
======= =======
</TABLE>
The Company follows the successful efforts method of accounting for oil and gas
producing activities.
See Notes on pages 38 through 49.
36
<PAGE>
ARCO
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
For the year ended December 31,
Millions 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,376 $ 919 $ 269
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 1,641 1,671 1,718
Dry hole expense and undeveloped leasehold
amortization 317 251 419
Minority interest in earnings of subsidiaries 110 62 38
Net gain on asset sales (16) (3) (204)
Gain on issuance of stock by subsidiary -- (459) --
Income from equity investments (243) (141) (40)
Dividends from equity investments 89 71 97
Noncash provisions greater (less) than cash
payments (183) 88(a) 513(a)
Deferred income taxes 26 118 (157)
Changes in accounts receivable, inventories
and accounts payable (155) (169) 55
Changes in other working capital accounts (49) (287) 53
Other 6 (24) 1
------- ------- -------
Net cash provided by operating activities 2,919 2,097 2,762
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets, including dry hole
costs (1,699) (1,658) (2,070)
Net cash provided (used) by short-term
investments 1,500 (768) (789)
Investment in LUKoil convertible bonds (252) -- --
Proceeds from asset sales 66 167 582
Investments and long-term receivables (73) (79) (6)
Other (92) 169 46
------- ------- -------
Net cash used by investing activities (550) (2,169) (2,237)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (1,138) (796) (886)
Proceeds from issuance of long-term debt 178 1,275 1,255
Proceeds from issuance of stock by subsidiary -- 453 --
Net cash provided (used) by notes payable (293) (69) 30
Dividends paid (902) (885) (879)
Treasury stock purchases (39) -- --
Treasury stock contributed to benefit plans -- 56 81
Other (31) (36) (27)
------- ------- -------
Net cash used by financing activities (2,225) (2) (426)
------- ------- -------
Effect of exchange rate changes on cash (1) 10 (55)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents 143 (64) 44
Cash and cash equivalents at beginning of year 1,394 1,458 1,414
------- ------- -------
Cash and cash equivalents at end of year $ 1,537 $ 1,394 $ 1,458
======= ======= =======
</TABLE>
(a) Includes noncash unusual items of $347 and $659 in 1994 and 1993,
respectively.
See Notes on pages 38 through 49.
37
<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, 1995, ARCO Chemical Company (ACC), of which ARCO owned
82.9% 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 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 liability and financial wherewithal of other responsible parties. Estimated
liabilities are not discounted to present value.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain previously reported amounts have been restated to conform to
classifications adopted in 1995.
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.
Of the $347 million, approximately $155 million related to severance and other
ancillary costs that will be paid from Company funds through 1996. Approximately
$110 million related to enhanced pension benefits that 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.
38
<PAGE>
ARCO
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 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, 1995, approximately 3,700 employees have been terminated
under the two programs. Approximately $170 million of severance and ancillary
benefits have been paid and charged against the accruals. Payments do not
necessarily correlate with the number of terminations due to the ability of
employees to defer receipt of certain payments.
Note 3 Accounting Changes
In the fourth quarter of 1995, ARCO adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires the review
of long-lived assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The effect of adopting SFAS No. 121 resulted in
a charge of $12 million after tax to 1995 net income.
Effective January 1, 1994, ARCO adopted 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.
Note 4 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,
production and marketing 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.
Note 5 Segment Information
ARCO operates primarily in the Resources (upstream) and Products (downstream)
segments. The Resources segment includes worldwide 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 primarily from the North Slope of Alaska;
the marketing of petroleum products in the West Coast region of the United
States; and the worldwide manufacture and sale of intermediate chemicals and
specialty products, including propylene oxide and derivatives, styrene monomer,
and methyl tertiary butyl ether.
Segment information for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
Millions 1995 1994 1993
------ ------- -------
<S> <C> <C> <C>
SALES AND OTHER OPERATING REVENUES
Resources:
Oil and gas $ 8,136 $ 7,969 $ 8,357
Coal 762 663 648
Products:
Refining and marketing 6,898 6,529 8,603
Transportation 821 897 878
Intermediate chemicals and specialty products 4,282 3,423 3,192
Other 28 30 28
Elimination of intersegment amounts (3,590) (2,959) (3,219)
------- ------- -------
Total $17,337 $16,552 $18,487
======= ======= =======
</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 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Resources:
Oil and gas $2,909 $2,338 $2,592
Products:
Refining and marketing 21 21 19
Transportation 438 416 385
Intermediate chemicals and specialty products 195 154 195
Other 27 30 28
------ ------ ------
Total $3,590 $2,959 $3,219
====== ====== ======
</TABLE>
39
<PAGE>
ARCO
<TABLE>
<CAPTION>
Millions 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
PRETAX SEGMENT EARNINGS
Resources:
Oil and gas $ 1,061 $ 608 $ 114
Coal 105 95 160
Products:
Refining and marketing 285 303 569
Transportation 297 239 327
Intermediate chemicals and specialty products 838 502 412
Equity in earnings from Lyondell 194 111 13
Gain on issuance of stock by subsidiary -- 459 --
Unallocated expenses and other 143 (190) (246)
Interest (750) (759) (715)
Income taxes (687) (387) (327)
Minority interest (110) (62) (38)
------- ------- -------
Net income $ 1,376 $ 919 $ 269
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Millions 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
AFTER-TAX SEGMENT EARNINGS
Resources:
Oil and gas(a) $ 683 $ 405 $ 45
Coal 75 70 107
Products:
Refining and marketing 177 195 307
Transportation 193 172 189
Intermediate chemicals and specialty products(a) 460 265 239
Equity in earnings from Lyondell 194 111 13
Gain on issuance of stock by subsidiary -- 273 --
Unallocated expenses and other 94 (57) (140)
Interest (500) (515) (491)
------- ------- -------
Net income $ 1,376 $ 919 $ 269
======= ======= =======
</TABLE>
(a) Net of minority interest.
<TABLE>
<CAPTION>
Millions 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
TOTAL ASSETS
Resources:
Oil and gas $ 9,127 $ 9,192 $ 9,349
Coal 1,330 1,381 1,320
Products:
Refining and marketing 2,901 2,841 2,789
Transportation 2,074 2,046 2,145
Intermediate chemicals and specialty products 4,135 3,737 3,502
Other 4,432 5,366 4,789
------- ------- -------
Total $23,999 $24,563 $23,894
======= ======= =======
ADDITIONS TO FIXED ASSETS
Resources:
Oil and gas $ 1,179 $ 989 $ 1,383
Coal 43 57 94
Products:
Refining and marketing 207 376 345
Transportation 64 48 59
Intermediate chemicals and specialty products 195 186 181
Other 11 2 8
------- ------- -------
Total $ 1,699 $ 1,658 $ 2,070
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Millions 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
DEPRECIATION, DEPLETION AND AMORTIZATION
Resources:
Oil and gas $ 996 $ 1,043 $ 1,092
Coal 85 76 59
Products:
Refining and marketing 204 191 200
Transportation 103 104 104
Intermediate chemicals and specialty products 233 235 223
Other 20 22 40
------- ------- -------
Total $ 1,641 $ 1,671 $ 1,718
======= ======= =======
</TABLE>
International operations are conducted principally in the following geographic
regions: Oil and gas -- United Kingdom, Asia Pacific and Middle East; Coal --
Australia; Intermediate chemicals and specialty products -- Europe and Asia
Pacific. Brazilian refined products marketing operations were sold in December
1993.
<TABLE>
<CAPTION>
Millions 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
INTERNATIONAL OPERATIONS
Sales and other operating revenues:
Oil and gas $1,169 $1,027 $ 998
Coal 378 336 304
Refining and marketing -- 2 1,920
Intermediate chemicals and specialty products 1,777 1,210 1,122
Other 30 30 29
------ ------ ------
Total $3,354 $2,605 $4,373
====== ====== ======
Net income (loss):
Oil and gas $ (43) $ 26 $ (17)
Coal 34 29 59
Refining and marketing -- 2 2
Intermediate chemicals and specialty products(a) 147 70 58
Other (24) (23) (25)
------ ------ ------
Total $ 114 $ 104 $ 77
====== ====== ======
Total assets:
Oil and gas $2,931 $2,792 $2,691
Coal 846 892 821
Intermediate chemicals and specialty products 1,845 1,580 1,424
Other 564 299 230
------ ------ ------
Total $6,186 $5,563 $5,166
====== ====== ======
</TABLE>
(a) Includes income (losses) of equity affiliates, principally Asian joint
ventures, of $14, $2, and $(2), in 1995, 1994 and 1993, respectively.
Note 6 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, 1995, 1994 and 1993 were 163.4 million, 163.2 million and 162.4 million,
respectively.
40
<PAGE>
ARCO
Note 7 Taxes
Taxes other than excise and income taxes for the years ended December 31
comprised the following:
<TABLE>
<CAPTION>
Millions 1995 1994 1993
----- ----- ------
<S> <C> <C> <C>
Property $ 180 $ 189 $ 198
Production/severance 343 306 331
Value added -- -- 349
Other 194 285 269
----- ----- ------
Total $ 717 $ 780 $1,147
===== ===== ======
</TABLE>
The income tax provision for the years ended December 31 comprised the
following:
<TABLE>
<CAPTION>
Millions 1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
Federal:
Current $ 497 $ 176 $ 382
Deferred 42 128 (159)
----- ----- ------
539 304 223
----- ----- ------
Foreign:
Current 108 62 69
Deferred (40) (19) 13
----- ----- ------
68 43 82
----- ----- ------
State:
Current 56 31 33
Deferred 24 9 (11)
----- ----- ------
80 40 22
----- ----- ------
Total provision for taxes on income $ 687 $ 387 $ 327
===== ===== ======
Total income taxes paid in cash $ 785 $ 447 $ 510
===== ===== ======
</TABLE>
The 1993 deferred tax benefit primarily resulted from book accruals associated
with the Lower 48 reorganization. Major components of the net deferred tax
liability at December 31 were as follows:
<TABLE>
<CAPTION>
Millions 1995 1994
------ ------
<S> <C> <C>
Depreciation, depletion and amortization $ (3,688) $(3,648)
Other (341) (356)
-------- -------
Total deferred tax liabilities (4,029) (4,004)
-------- -------
Dismantlement and environmental 528 522
Postretirement benefits 331 325
Foreign excess tax basis/loss carryforwards 299 208
Other 347 332
-------- -------
Total deferred tax assets 1,505 1,387
-------- -------
Valuation allowance (113) (104)
-------- -------
Net deferred income tax liability $ (2,637) $(2,721)
======== =======
</TABLE>
ARCO has foreign loss carryforwards of $428 million which begin expiring in
1996. The valuation allowance was $127 million at December 31, 1993.
The domestic and foreign components of income before income taxes and minority
interest, and a reconciliation of income tax expense with tax at the effective
federal statutory rate for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
Percent
of Pretax
Millions Amount Income
------ ---------
<S> <C> <C>
1995
Income before income taxes:
Domestic $1,896 87.3
Foreign 277 12.7
------ -----
Total $2,173 100.0
====== =====
Tax at 35% $ 761 35.0
Increase (reduction) in taxes resulting from:
Dividend exclusion (54) (2.5)
Taxes on foreign income in excess of statutory rate 46 2.1
Foreign deferred tax asset recognition (30) (1.4)
State income taxes (net of federal effect) 52 2.4
Tax credits (81) (3.7)
Other (7) (0.3)
------ -----
Provision for taxes on income $ 687 31.6
====== =====
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
====== =====
</TABLE>
Note 8 Inventories
Inventories are recorded when purchased, produced or manufactured and are stated
at the lower of cost or market. In 1995, approximately 85% of inventories,
excluding 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.
41
<PAGE>
ARCO
Total inventories at December 31 comprised the following categories:
<TABLE>
<CAPTION>
Millions 1995 1994
----- -----
<S> <C> <C>
Crude oil and petroleum products $ 184 $ 172
Chemical products 423 351
Other products 32 46
Materials and supplies 238 228
----- -----
Total $ 877 $ 797
===== =====
</TABLE>
The excess of the current cost of inventories over book value was
approximately $297 million and $253 million at December 31, 1995 and 1994,
respectively.
Note 9 Long-term Debt
Long-term debt at December 31 comprised the following:
<TABLE>
<CAPTION>
Millions 1995 1994
----- -----
<S> <C> <C>
5-5/8%, due in 1997 $ 10 $ 14
6-1/8%, due in 1996 102 102
8-1/4%, due in 2022 250 250
8-1/2%, due in 2012 178 194
8-3/4%, due in 2032 198 203
9% exchangeable notes, due in 1997 988 988
9%, due in 2021 286 286
9%, due in 2031 136 136
9-1/8%, due in 2011 300 300
9-1/8%, due in 2031 345 350
9-7/8%, due in 2016 450 450
10-1/4%, due in 2000 250 250
10-3/8%, due in 1995 -- 500
10-7/8%, due in 2005 500 500
Third Series Medium-Term Notes -- 75
Medium-Term Notes -- A Series, 8.65%(a) 197 198
Medium-Term Notes -- B Series, 8.34%(a) 250 250
ARCO Tresop Notes, 5.82%(a) 278 311
Variable rate, due in 2031, 4.15%(a) 265 265
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, 7.4%(a) 76 84
Dutch bank loans 187 172
Vastar:
Revolving credit agreements, 6.3%(a) 610 1,050
8-3/4%, due in 2005 149 --
Capitalized lease obligations 25 26
Other 244 261
------ ------
Total, including debt due within one year 6,898 7,839
------ ------
Less:
Debt due within one year 184 630
Bonds held in sinking fund 6 11
------ ------
Long-term debt $6,708 $7,198
====== ======
</TABLE>
(a) Weighted average of interest rates at December 31, 1995.
Maturities and sinking fund obligations for the five years subsequent to
December 31, 1995, are as follows (millions): 1996 -- $184; 1997 -- $1,294; 1998
- -- $176; 1999 -- $133; 2000 -- $1,068. No material amounts of long-term debt are
collateralized by ARCO assets.
In 1993, Vastar borrowed $1.25 billion under an unsecured revolving credit
agreement. This agreement was renegotiated into two facilities in 1995. At
December 31, 1995, commitments under these facilities totalled $1.1 billion,
comprised of an $800 million, five-year credit agreement and a $300 million,
364-day credit agreement. At December 31, 1995, $610 million was borrowed under
the $800 million facility; the $300 million facility was unused. The $300
million revolving credit facility has a "Term Loan Election," under which the
maturity date may be extended to May 2000, at Vastar's election. The credit
facilities are not guaranteed by ARCO. The agreement contains covenants, the
most restrictive of which require Vastar to maintain minimum levels of tangible
stockholders' equity and certain financial ratios and restrict the encumbrance
of assets.
In August 1994, ARCO sold 39.9 million 9% Exchangeable Notes (Notes), due
September 15, 1997, at an issue price of $24.75 per note. At maturity of the
Notes, holders will receive, in exchange for the principal amount, 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, 1995 and 1994, approximately $365 million and $360 million,
respectively, of long-term debt was denominated in foreign currencies. To reduce
exposure to 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. All interest rate swaps
are intended to be held until maturity. At December 31, 1995, ACC had
outstanding interest rate swaps on two loans totalling 300 million Dutch
guilders (approximately $187 million) due in 1997. Both swaps mature when the
related debt becomes due. The swaps effectively changed both loans' floating
interest rates to fixed rates of 5.7% and 6.7%. At December 31, 1995, Vastar had
outstanding interest rate swaps covering two $50 million tranches of the
variable rate credit agreement. The swaps effectively changed both floating
interest rate tranches to fixed rates of 5.45% and 5.33%, respectively.
42
<PAGE>
ARCO
Note 10 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, 1995 and 1994 was 6.3% and 6.1%, respectively.
In 1995, ARCO and certain wholly owned subsidiaries had committed bank credit
facilities of approximately $3.2 billion. At December 31, 1995, there were no
borrowings 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, 1995, there were no borrowings
against the ACC credit facility.
At December 31, 1995, ARCO had unused letters of credit totalling
approximately $300 million.
Note 11 Interest Expense
Interest expense for the years ended December 31 comprised the following:
<TABLE>
<CAPTION>
Millions 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Long-term debt $ 637 $ 634 $ 573
Short-term debt 90 82 92
Other 72 80 106
----- ----- -----
799 796 771
Capitalized interest (49) (37) (56)
----- ----- -----
Total interest expense $ 750 $ 759 $ 715
===== ===== =====
Total interest paid in cash $ 780 $ 766 $ 749
===== ===== =====
</TABLE>
Note 12 Foreign Currency Transactions
Foreign currency transactions resulted in net losses of $15 million and $12
million in 1995 and 1994, respectively, and a net gain of $22 million in 1993.
Note 13 Fixed Assets
Property, plant and equipment at December 31 was as follows:
<TABLE>
<CAPTION>
1995 1994
Millions Gross Net Gross Net
----- ----- ----- -----
<S> <C> <C> <C> <C>
Resources:
Oil and gas $19,306 $ 7,634 $19,355 $ 7,817
Coal 1,424 1,005 1,418 1,052
Products:
Refining and marketing 4,179 2,517 4,000 2,519
Transportation 3,397 1,706 3,568 1,898
Intermediate chemicals and specialty
products 3,812 2,293 3,524 2,221
Other 426 200 383 215
------- ------- ------- -------
Total $32,544 $15,355 $32,248 $15,722
======= ======= ======= =======
</TABLE>
Expenses for maintenance and repairs for 1995, 1994 and 1993 were $475
million, $525 million and $509 million, respectively.
Note 14 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, 1995 and 1994, there were contingent liabilities primarily
with respect to guarantees of securities of other issuers of approximately $29
million and $75 million, respectively.
Following the March 1989 EXXON VALDEZ oil spill, Alyeska Pipeline Service
Company (Alyeska) and Alyeska's owner companies were the subject of numerous
lawsuits by the State of Alaska, the United States and private plaintiffs. ARCO
Transportation Alaska, Inc. owns approximately 21% of Alyeska. Alyeska and its
owner companies have settled the federal and state claims and the lawsuits by
private plaintiffs. Certain issues relating to the liability for the spill
remain unresolved between the Exxon companies and Alyeska and its owner
companies.
ARCO and former producers of lead pigments have been named as defendants in
cases filed by a municipal housing authority, three purported classes and
several individuals seeking damages and injunctive relief as a consequence of
the presence of lead-based paint in certain housing units. ARCO is also the
subject of or party to a number of other pending or threatened legal actions.
In October 1995, the State of Montana presented to ARCO a second revised
demand for damages of $713 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 this demand.
ARCO is subject to other loss contingencies pursuant to federal, state and
local environmental laws and regulations. These include possible obligations to
remove or mitigate the effects on the environment of the disposal or release of
certain chemical, mineral and petroleum substances at various sites, including
the restoration of natural resources located at these sites and damages for loss
of use and non-use values. ARCO is currently participating in environmental
assessments and cleanups under these laws at federal Superfund and state-managed
sites, as well as other clean-up sites. ARCO may in the future
43
<PAGE>
ARCO
be involved in additional environmental assessments and cleanups, including the
restoration of natural resources and damages for loss of use and non-use values.
The amount of such future costs will depend on such factors as the unknown
nature and extent of contamination, the unknown timing, extent and method of
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, 1995, the environmental remediation reserve
was $658 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 reserve 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 113 sites. The number of PRP sites in and of itself is not a
relevant measure of liability, because the nature and extent of environmental
concerns varies by site and ARCO's share of responsibility varies from sole
responsibility to very little responsibility. ARCO reviews all PRP sites, along
with other sites as to which no claims have been asserted, in estimating the
amount of the reserve. ARCO's future costs at these sites could exceed the
amount accrued by as much as $700 million.
Approximately 40% of the reserve related to sites associated with ARCO's
discontinued operations, primarily mining activities in the states of Montana,
Utah and New Mexico. Another significant component related to currently and
formerly owned chemical, nuclear processing, and refining and marketing
facilities, and other sites which received wastes from these facilities. The
remainder related to other sites with reserves ranging from $1 million to $10
million per site. No one site represents more than 10% of the total reserve.
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. Many of these claims have been resolved. ARCO has neither
recorded any asset nor reduced any liability in connection with unresolved
claims.
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 15 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.
44
<PAGE>
ARCO
The following table sets forth the plans' funded status and amounts recognized
in the balance sheet at December 31:
<TABLE>
<CAPTION>
Assets Exceed Accumulated
Accumulated Benefits
Millions Benefits Exceed Assets
------------- -------------
<S> <C> <C>
1995
Actuarial present value of benefit obligations:
Vested benefit obligation $1,965 $ 238
------ -----
Accumulated benefit obligation $2,103 $ 245
------ -----
Projected benefit obligation $2,480 $ 322
Plan assets at fair value, primarily stocks
and bonds 2,637 --
------ -----
Projected benefit obligation (in excess of)
or less than plan assets 157 (322)
Unrecognized net loss 291 169
Prior service cost not yet recognized in net
periodic pension cost 143 23
Remaining unrecognized (asset) obligation
from January 1, 1986 (290) 7
Adjustment for minimum liability -- (124)
------ -----
Prepaid pension cost (liability) recognized
in the balance sheet $ 301 $(247)
====== =====
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 for minimum liability -- (63)
------ -----
Prepaid pension cost (liability) recognized
in the balance sheet $ 223 $(173)
====== =====
</TABLE>
Pension costs related to ARCO-sponsored plans, on a pretax basis, including
amortization of unfunded projected benefit obligations for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
Millions 1995 1994 1993
----- ------ -----
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 62 $ 81 $ 59
Interest cost on projected benefit obligation 195 183 173
Actual (return) loss on plan assets (517) 65 (483)
Net amortization and deferral 272 (344) 220
----- ----- -----
Net periodic pension (income) cost $ 12 $ (15) $ (31)
===== ===== =====
</TABLE>
In 1994 and 1993 ARCO also 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 in determining the pension cost and
pension liability were as follows:
<TABLE>
<CAPTION>
Percent 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.0 8.25 7.25
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 16 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 plans 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 plans' combined postretirement benefit liability at December 31 was as
follows:
<TABLE>
<CAPTION>
Health Life
Millions Care Insurance Total
------ --------- -----
<S> <C> <C> <C>
1995
Accumulated postretirement benefit obligation
(APBO):
Retirees $579 $160 $739
Employees fully eligible 22 6 28
Other active participants 136 32 168
---- ---- ----
Total 737 198 935
Unrecognized gain (loss) (75) 5 (70)
---- ---- ----
Accrued postretirement benefit cost recognized
in the balance sheet $662 $203 $865
==== ==== ====
1994
APBO:
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
==== ==== ====
</TABLE>
45
<PAGE>
ARCO
ARCO accrues postretirement benefit costs based on actuarial calculations for
each plan. Net annual postretirement benefit costs for the years ended December
31 included the following:
<TABLE>
<CAPTION>
Health Life
Millions Care Insurance Total
------ --------- -----
<S> <C> <C> <C>
1995
Service cost-benefits earned during the period $ 8 $ 2 $10
Interest cost on APBO 49 13 62
Net amortization -- (1) (1)
--- --- ---
Net postretirement benefit cost $57 $14 $71
=== === ===
1994
Service cost-benefits earned during the period $17 $ 4 $21
Interest cost on APBO 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 APBO 47 15 62
--- --- ---
Net postretirement benefit cost $62 $18 $80
=== === ===
</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 work force reductions.
The significant assumptions used in determining postretirement benefit cost
and the accumulated postretirement benefit obligation were as follows:
<TABLE>
<CAPTION>
Percent 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.0 8.25 7.25
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 9% for
1995 and 1996, 7% for 1997 to 2001, and 5% thereafter. The assumed trend rate
for 1994 and 1993 was 10% to 1996; 8% for 1997 to 2001, and 6% thereafter.
The effect of a one-percentage-point increase in the assumed trend rate would
increase the accumulated postretirement benefit obligation as of December 31,
1995, by approximately 11%, and the aggregate of the service and interest cost
components of net annual postretirement benefit cost by approximately 12%.
Note 17 Stockholders' Equity
Detail of ARCO's capital stock as of December 31 was as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
$3.00 Cumulative convertible preference stock, par $1:
Shares authorized 78,089 78,089
Shares issued and outstanding 66,376 73,721
Aggregate value in liquidation -- (thousands) $ 5,310 $ 5,898
$2.80 Cumulative convertible preference stock, par $1:
Shares authorized 833,776 833,776
Shares issued and outstanding 731,055 794,796
Aggregate value in liquidation -- (thousands) $ 51,174 $ 55,636
Common stock, par $2.50:
Shares authorized 600,000,000 600,000,000
Shares issued 160,879,765 160,800,137
Shares outstanding 160,831,190 160,753,966
Shares held in treasury 48,575 46,171
</TABLE>
Changes in preference stocks outstanding in 1995, 1994 and 1993 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, 1995.
The balance in ARCO's common stock at December 31, 1995, 1994 and 1993 was $402
million.
Detail of changes in treasury stock in 1995, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
Millions
<S> <C>
Balance, January 1, 1993 $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
----
Purchases 39
Conversions (39)
----
Balance, December 31, 1995 $ 5
====
</TABLE>
46
<PAGE>
ARCO
The net decrease in capital in excess of par value of stock in 1995, 1994 and
1993 of $15 million, $14 million and $15 million, respectively, was due
primarily to the conversion of preference stock to common stock.
At December 31, 1995, shares of ARCO's authorized and unissued common stock
were reserved as follows:
<TABLE>
<CAPTION>
Conversions:
<S> <C>
$3.00 Preference stock 451,357
$2.80 Preference stock 1,754,532
Stock option plans 7,421,582
Employee benefit plans 9,974,482
----------
Total 19,601,953
==========
</TABLE>
Under ARCO's incentive compensation plans, awards of ARCO's common stock may
be made to officers, outside directors and key employees.
Note 18 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 10 years after the date of grant.
Transactions during 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, January 1, 1993 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
---------
Granted 486,598
Exercised (average option price per share: $87.31) (221,086)
Cancelled (1,118)
---------
Balance, December 31, 1995 3,838,136
=========
At December 31, 1995:
Shares exercisable 3,074,876
Shares available for option 3,583,446
(2,779,723 at December 31, 1994)
Average option price per share:
Shares under option $105.84
Shares exercisable $105.77
</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, 1995, future minimum rental payments due under leases were as
follows:
<TABLE>
<CAPTION>
Capital Operating
Millions Leases Leases
------- ---------
<S> <C> <C>
1996 $ 3 $ 142
1997 3 115
1998 3 99
1999 3 74
2000 3 63
Later years 70 340
----- -----
Total minimum lease payments 85 $ 833
=====
Imputed interest (rates ranging from 9.75% to 12.00%) 60
-----
Present value of minimum lease payments included in long-term debt $ 25
=====
</TABLE>
Minimum future rental income under noncancellable subleases at December 31,
1995, amounted to $95 million.
Operating lease net rental expense for the years ended December 31 was as
follows:
<TABLE>
<CAPTION>
Millions 1995 1994 1993
---- ----- ----
<S> <C> <C> <C>
Minimum rentals $ 225 $ 218 $ 220
Contingent rentals 10 2 1
Sublease rental income (12) (12) (15)
----- ----- -----
Net rental expense $ 223 $ 208 $ 206
===== ===== =====
</TABLE>
No restrictions on dividends or on additional debt or lease financing exist
under ARCO's lease commitments. Under certain conditions, options exist to
purchase certain leased properties.
Note 20 Supplemental Cash Flow Information
The following is supplemental cash flow information for the years ended December
31:
<TABLE>
<CAPTION>
Millions 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Short-term investments:
Gross sales and maturities $ 4,216 $ 5,952 $ 5,428
Gross purchases (2,716) (6,720) (6,217)
------- ------- -------
Net cash provided (used) $ 1,500 $ (768) $ (789)
======= ======= =======
Notes payable:
Gross proceeds $ 8,058 $ 9,516 $ 8,568
Gross repayments (8,351) (9,585) (8,538)
------- ------- -------
Net cash provided (used) $ (293) $ (69) $ 30
======= ======= =======
Gross noncash provisions charged to income $ 444 $ 888 $ 1,148
Cash payments of previously accrued items (627) (800) (635)
------- ------- -------
Noncash provisions greater (less) than
cash payments $ (183) $ 88 $ 513
======= ======= =======
</TABLE>
47
<PAGE>
ARCO
Note 21 Lyondell Petrochemical Company
Lyondell is engaged in the manufacture and marketing of basic commodity
chemicals, including ethylene, propylene, methanol and polymers, and, through
its approximately 90% interest in LYONDELL-CITGO Refining Company Ltd., the
refining and marketing of petroleum products.
At December 31, 1995, 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, 1995, was $913 million.
Summarized financial information for Lyondell was as follows:
<TABLE>
<CAPTION>
Millions 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Year ended December 31:
Revenues(a) $4,936 $3,857 $3,850
Operating income 706 424 93
Income before income taxes and cumulative
effect of accounting change 618 349 16
Cumulative effect of changes in accounting
principles -- -- 22
Net income 389 223 26
ARCO's equity in net income of Lyondell $ 194 $ 111 $ 13
------ ------ ------
Cash dividends received from Lyondell $ 36 $ 36 $ 54
------ ------ ------
At December 31:
Current assets $ 678 $ 697 $ 523
Noncurrent assets 1,928 966 708
Current liabilities 750 433 299
Long-term debt 807 707 717
Other liabilities 210 192 179
Minority interest 459 268 124
Stockholders' equity (deficit)(b) 380 63 (88)
</TABLE>
(a) Includes $325, $314 and $278 of sales to ARCO in 1995, 1994 and 1993,
respectively, which approximated 5%, 5% and 4% of ARCO's 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 22 Investments
At December 31, 1995 and 1994, investments were primarily composed of U.S.
Treasury securities, corporate debt instruments, and municipal securities and
were principally included in short-term investments. Maturities generally ranged
from one day to 26 months. Investments in debt securities classified as held-to-
maturity (HTM) are recorded at amortized cost while investments in debt
securities classified as available-for-sale (AFS) are reported at fair value,
with unrealized holding gains and losses, net of tax, reported in a separate
component of stockholders' equity.
The following summarizes investments in securities, principally debt
securities, at December 31:
<TABLE>
<CAPTION>
1995 1994
Millions AFS HTM AFS HTM
------ ------- ------ ------
<S> <C> <C> <C> <C>
Aggregate fair value $2,093 $ -- $1,939 $1,239
Gross unrealized holding losses 30 -- 62 --
Gross unrealized holding gains 23 -- -- --
------ ------- ------ ------
Amortized cost $2,100 $ -- $2,001 $1,239
====== ======= ====== ======
</TABLE>
Investment activity for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
1995 1994
Millions AFS HTM AFS HTM
------ ------- ------ ------
<S> <C> <C> <C> <C>
Gross purchases $4,175 $1,293 $5,360 $8,341
Gross sales 2,368 -- 4,714 --
Gross maturities 1,830 2,407 46 8,603
Gross transfers 125 (125) -- --
</TABLE>
Gross realized gains and losses were insignificant and were determined by the
specific identification method.
ARCO's investment in mandatorily convertible bonds issued by LUKoil, a Russian
oil company, is expected to be exchanged for LUKoil common stock in April 1996.
The bonds currently do not have readily determinable fair values. At December
31, 1995, the carrying value of these bonds totalled $252 million and is
included in Other Investments and Long-term Receivables in the Balance Sheet.
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, option and swap
contracts. Foreign currency forward and option contracts are used to minimize
foreign exchange exposures associated with U.S. dollar-denominated debt issued
by a foreign subsidiary, anticipated foreign currency commitments and
anticipated future cash flows from overseas operations. Foreign currency swap
contracts are used to minimize foreign exchange exposures related to yen-
denominated debt and foreign-denominated intercompany debt with maturities
exceeding one year.
At December 31, 1995, the notional amounts of foreign currency contracts
outstanding (principally involving European currencies, Australian dollars and
yen) were approximately $960 million, with various maturities ranging from 1996
to 2000. At December 31, 1994, the notional amounts of foreign currency
contracts outstanding were approximately $760 million.
Gains and losses on foreign currency forward contracts covering anticipatory
cash flows are recognized currently as other income or expense. Gains and losses
on foreign currency
48
<PAGE>
ARCO
swaps associated with intercompany debt are recognized currently in income and
offset foreign exchange gains and losses on the underlying intercompany loans.
Gains and losses on other foreign currency contracts are generally deferred and
offset the transactions being hedged.
ARCO periodically enters into interest rate swaps to manage interest rate
risk. Interest rate swaps are used both to convert certain variable rate debt to
a fixed rate (see Note 9) and to convert certain fixed rate short-term
investments to a variable rate. At December 31, 1995, the notional amount of
short-term investments covered under interest rate swaps totaled approximately
$300 million. Interest income is accrued at the variable rate through the term
of the interest rate swap. The interest rate swaps mature at various dates
through 1997 when the related investments mature. ARCO intends to hold the swaps
until maturity.
ARCO also uses various hedging arrangements to manage the exposure to price
risk for future natural gas and crude oil transactions. Gains and losses
resulting from these transactions are deferred and included in other assets or
accrued liabilities until realized in sales and other operating revenues as the
physical production required by the contracts is delivered. During 1995, Vastar
entered into a series of natural gas swap agreements which at December 31, 1995,
covered 290 million cubic feet per day of its 1996 natural gas production. These
swap agreements serve as a hedge which secures prices on these volumes at an
average price of $1.85 per thousand cubic feet (on a Henry Hub basis).
At December 31, the carrying value and estimated fair value of ARCO's
financial instruments are shown as assets (liabilities) in the table below:
<TABLE>
<CAPTION>
1995 1994
Carrying Fair Carrying Fair
Millions Value Value Value Value
-------- ------ -------- -----
<S> <C> <C> <C> <C>
Non-Derivatives:
Short-term investments $ 1,569 $ 1,569 $ 2,991 $ 2,991
Equity method investments 711 1,364 348 1,279
Other investments and long-term
receivables 550 550 297 297
Notes payable (1,174) (1,174) (1,478) (1,478)
Long-term debt, including current
maturities (6,892) (7,929) (7,828) (7,991)
Derivatives:
Foreign currency forwards $ (6) $ (6) $ (16) $ (16)
Foreign currency options 7 7 -- --
Foreign currency swaps 69 69 83 83
Interest rate swaps:
Debt (1) (5) -- (5)
Investments (11) (11) -- --
Oil & gas price swaps (21) (21) 5 5
</TABLE>
All derivative instruments are off-balance-sheet instruments; however, net
receivable or payable positions related to derivative instruments are carried on
the balance sheet.
Short-term investments are carried at fair value. The fair value of notes
payable approximates carrying value due to its short-term maturities. Equity
method investments and other investments and long-term receivables were valued
at quoted market prices if available. For unquoted investment securities, 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 was
estimated based on market quotes.
ARCO is exposed to credit risk in the event of nonperformance 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 ARCO; ARCO does not anticipate
nonperformance by the counterparties.
Note 24 Unaudited Quarterly Results
<TABLE>
<CAPTION>
Millions, except per share amounts 1995 1994
------- -------
<S> <C> <C>
Sales and other operating revenues (including excise taxes)
Quarter ended:
March 31 $ 4,244 $ 3,800
June 30 4,423 4,174
September 30 4,277 4,271
December 31 4,393 4,307
------- -------
Total $17,337 $16,552
======= =======
Income before gain on issuance of stock by subsidiary,
income taxes and minority interest
Quarter ended:
March 31 $ 534 $ 255
June 30 649 20(a)
September 30 511 277
December 31 479 357
------- -------
Total $ 2,173 $ 909
======= =======
Net income
Quarter ended:
March 31 $ 322 $ 149
June 30 391 24(a)
September 30 315 435
December 31 348 311
------- -------
Total $ 1,376 $ 919
======= =======
Earned per share
Quarter ended:
March 31 $ 1.97 $0.92
June 30 $ 2.39 $0.14(a)
September 30 $ 1.93 $2.67
December 31 $ 2.13 $1.90
</TABLE>
(a) See Note 2.
49
<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, 1993:
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
December 31, 1995:
Proved reserves 2,163 206 4,666 3,683
Proved developed reserves 1,896 92 4,294 1,806
</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, 1995. Vastar's reserves
comprised 5% and 45% of U.S. petroleum liquids and natural gas reserves,
respectively, at December 31, 1995.
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 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, 1993 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
Revisions of estimates 76 2 184 7
Improved recovery 15 -- 8 --
Purchases of minerals-in-place 16 1 78 89
Extensions and discoveries 33 5 252 302
Production (213) (24) (365) (203)
Consumed in production -- -- (93) (5)
Sales of minerals-in-place (10) -- (13) --
----- --- ----- -----
Reserves at December 31, 1995 2,163 206 4,666 3,683
===== === ===== =====
</TABLE>
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 13% of petroleum liquid proved reserves.
The sale of natural gas from the North Slope of Alaska, other than that 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,
there are a number of regulatory, financial, legal and marketing questions
regarding the projects that remain unresolved.
50
<PAGE>
ARCO
ARCO continues to study various options for marketing North Slope gas.
However, ARCO Alaska believes that market conditions continue to make
implementation of any large gas sales projects unlikely in the near 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 were as follows:
<TABLE>
<CAPTION>
Proved Properties Unproved Properties
Millions U.S. International U.S. International
------- ------------- ------ -------------
<S> <C> <C> <C> <C>
1995
Gross $14,355 $4,304 $182 $236
Accumulated depreciation,
depletion and amortization 9,215 2,285 42 17
------- ------ ---- ----
Net $ 5,140 $2,019 $140 $219
======= ====== ==== ====
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
======= ====== ==== ====
</TABLE>
Costs, both capitalized and expensed, incurred in oil and gas producing
activities during the three years ended December 31 were as follows:
<TABLE>
<CAPTION>
Millions U.S. International Total
---- ------------- -----
<S> <C> <C> <C>
1995
Property acquisition costs:
Proved properties $ 56 $ 34 $ 90
Unproved properties 24 15 39
Exploration costs 212 309 521
Development costs 389 328 717
1994
Property acquisition costs:
Proved properties $ -- $ 1 $ 1
Unproved properties 38 23 61
Exploration costs 180 237 417
Development costs 363 303 666
1993
Property acquisition costs:
Proved properties $ -- $ 3 $ 3
Unproved properties 59 2 61
Exploration costs 351 274 625
Development costs 435 465 900
</TABLE>
Results of operations from oil and gas producing activities (including
operating overhead) for the three years ended December 31 were as follows:
<TABLE>
<CAPTION>
Millions U.S. International Total
---- ------------- -----
<S> <C> <C> <C>
1995
Revenues:
Sales $1,460 $960 $2,420
Transfers 1,679 -- 1,679
Other 83 24 107
------ ---- ------
3,222 984 4,206
Production costs 1,021 232 1,253
Exploration expenses 212 311 523
Depreciation, depletion and amortization 713 251 964
Other operating expenses 218 221 439
------ ---- ------
1,058 (31) 1,027
Income tax expense (332) (7) (339)
------ ---- ------
Results of operations from production
activities $ 726 $(38) $ 688
====== ==== ======
1994
Revenues:
Sales $1,421 $879 $2,300
Transfers 1,456 -- 1,456
Other 74 22 96
------ ---- ------
2,951 901 3,852
Production costs 1,166 198 1,364
Exploration expenses 277 178 455
Depreciation, depletion and amortization 731 275 1,006
Other operating expenses 251 180 431
------ ---- ------
526 70 596
Income tax expense (143) (43) (186)
------ ---- ------
Results of operations from production
activities $ 383 $ 27 $ 410
====== ==== ======
1993
Revenues:
Sales $1,639 $815 $2,454
Transfers 1,616 -- 1,616
Other 48 23 71
------ ---- ------
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
====== ==== ======
</TABLE>
The difference between the above results of operations and the amounts
reported for after-tax oil and gas segment earnings in Note 5 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.
51
<PAGE>
ARCO
The standardized measure of discounted estimated future net cash flows related
to proved oil and gas reserves at December 31 was as follows:
<TABLE>
<CAPTION>
Billions U.S. International Total
----- ------------- -----
<S> <C> <C> <C>
1995
Future cash inflows $32.5 $12.1 $44.6
Future development and production costs 13.2 3.9 17.1
Future income tax expense 6.5 3.0 9.5
----- ----- -----
Future net cash flows 12.8 5.2 18.0
10% annual discount 5.7 2.4 8.1
----- ----- -----
Standardized measure of discounted future net
cash flows $ 7.1 $ 2.8 $ 9.9
===== ===== =====
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
===== ===== =====
</TABLE>
Primary changes in the standardized measure of discounted estimated future net
cash flows for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
Billions 1995 1994 1993
----- ------ ----
<S> <C> <C> <C>
Sales and transfers of oil and gas, net of
production costs $(2.9) $(2.3) $(2.5)
Extensions, discoveries and improved recovery,
less related costs .7 1.0 .4
Revisions of estimates of reserves proved in
prior years:
Quantity estimates .4 .2 --
Net changes in price and production costs 1.8 4.9 (4.2)
Purchases/sales .1 .1 (.3)
Other (.4) (.2) .1
Accretion of discount 1.3 .8 1.2
Development costs incurred during the period .7 .7 .9
Net change in income taxes (.7) (1.9) 1.6
----- ----- -----
Net change $ 1.0 $ 3.3 $(2.8)
===== ===== =====
</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 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Coal shipments -- thousand tons:
U.S. 45,853 38,322 37,499
International 11,772 11,235 10,246
------ ------ ------
Total 57,625 49,557 47,745
====== ====== ======
Coal reserves -- million tons recoverable:
U.S. 1,265 1,279 1,296
International 216 227 214
------ ------ ------
Total 1,481 1,506 1,510
====== ====== ======
Average market price per ton:
U.S. $ 8.38 $ 8.52 $ 9.12
International $ 32.09 $ 29.90 $ 29.69
Composite price $ 13.22 $ 13.37 $ 13.53
</TABLE>
52
<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 6, 1996, which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 1995,
and which is incorporated herein by reference, except for the material
included under the captions "Committee Report on Executive Compensation" 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 ("ARCO") as of June 27, 1994, filed with the Securi-
ties and Exchange Commission (the "Commission") as Exhibit 3
to ARCO's report on Form 10-Q for the quarterly period ended
June 30, 1994, under File No. 1-1196 and incorporated herein
by reference.
3.2 By-Laws of ARCO as amended through January 23, 1989, filed
with the Commission as Exhibit 3.2 to ARCO's report on Form
10-K for the year 1993, under File No. 1-1196 and incorporated
herein by reference.
4.1 Rights Agreement dated as of July 24, 1995 between ARCO and
First Chicago Trust Company of New York, as Rights Agent,
filed with the Commission as Exhibit 4 to ARCO's report on
Form 10-Q for the quarterly period ended June 30, 1995, under
File No. 1-1196 and incorporated herein by reference.
4.2 Indenture dated as of May 15, 1985 between ARCO and The Chase
Manhattan Bank, N.A., filed as Exhibit 4.4 to ARCO's report on
Form 10-Q for the quarterly period ended June 30, 1985, under
File No. 1-1196 and incorporated herein by reference.
4.3
Indenture, dated as of January 1, 1992, between ARCO and The
Bank of New York, filed with the Commission on January 6, 1992
as Exhibit 4.3 to ARCO's Registration Statement on Form S-3
(No. 33-44925) and incorporated herein by reference.
53
<PAGE>
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% 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 Retirement
Plan, as adopted by the Board of Directors of ARCO on March
26, 1990 and effective as of October 1, 1990, filed with the
Commission as Exhibit 10.2 to ARCO's report on Form 10-K for
the year 1990, under File No. 1-1196 and incorporated herein
by reference.
10.1(b)* Amendment No. 1 to the Atlantic Richfield Company Supplemen-
tary Executive Retirement Plan, effective as of March 22,
1993, filed with the Commission as Exhibit 10 to ARCO's report
on Form 10-Q for the quarterly period ended June 30, 1993, un-
der File No. 1-1196 and incorporated herein by reference.
10.1(c)* Amendment No. 2 to the Atlantic Richfield Company Supplemen-
tary Executive Retirement Plan, effective as of February 28,
1994, filed herewith.
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 as of October 1, 1990, filed with the Commission as
Exhibit 10.3 to ARCO's report on Form 10-K for the year 1990,
under File No. 1-1196 and incorporated herein by reference.
10.2(b)* Amendment No. 1 to the Atlantic Richfield Company Executive
Deferral Plan, effective as of July 27, 1992, filed with the
Commission as Exhibit 10.2(b) to ARCO's report on Form 10-K
for the year 1992, under File No. 1-1196 and incorporated
herein by reference.
10.2(c)* Amendment No. 2 to the Atlantic Richfield Company Executive
Deferral Plan, effective as of February 28, 1994, filed here-
with.
10.3* Atlantic Richfield Executive Medical Insurance Plan-Summary
Plan Description, effective as of January 1, 1994, filed with
the Commission as Exhibit 10.3 to ARCO's report on Form 10-K
for the year 1993, under 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 as of July 1,
1988, filed with the Commission as Exhibit 10.6 to ARCO's re-
port on Form 10-K for the year 1988, under File No. 1-1196 and
incorporated herein by reference.
10.4(b)* Amendment No. 1 to the Atlantic Richfield Company Executive
Supplementary Savings Plan II, as amended and effective as of
January 1, 1989, filed with the Commission as Exhibit 10.6(b)
to ARCO's report on Form 10-K for the year 1989, under File
No. 1-1196 and incorporated herein by reference.
10.4(c)* Amendment No. 2 to the Atlantic Richfield Company Executive
Supplementary Savings Plan II, as amended and effective as of
July 1, 1994, filed with the Commission as Exhibit 10.4(c) to
ARCO's report on Form 10-K for the year 1994, under File No.
1-1196 and incorporated herein by reference.
10.5* Atlantic Richfield Company Policy on Financial Counseling and
Individual Income Tax Service, as revised and effective Janu-
ary 1, 1994, filed with the Commission as Exhibit 10.5 to AR-
CO's report on Form 10-K for the year 1994, under File No. 1-
1196 and incorporated herein by reference.
10.6(a)* Annual Incentive Plan, as adopted by the Board of Directors of
ARCO on November 26, 1984, and effective as of that date, as
amended through February 28, 1994, filed with the Commission
as Exhibit 10.6 to ARCO's report on Form 10-K for the year
1994, under File No. 1-1196 and incorporated herein by refer-
ence.
54
<PAGE>
10.6(b)* Amendment No. 3 to the Annual Incentive Plan, effective as of
January 1, 1995, filed herewith.
10.7* Atlantic Richfield Company's 1985 Executive Long-Term Incen-
tive Plan, as adopted by the Board of Directors of ARCO on May
28, 1985, and effective as of that date, as amended through
February 28, 1994, filed with the Commission as Exhibit 10.7
to ARCO's report on Form 10-K for the year 1994, under File
No. 1-1196 and incorporated herein by reference.
10.8* Atlantic Richfield Company Executive Life Insurance Plan--Sum-
mary Plan Description, effective as of January 1, 1994, filed
with the Commission as Exhibit 10.8 to ARCO's report on Form
10-K for the year 1993, under File No. 1-1196 and incorporated
herein by reference.
10.9(a)* Atlantic Richfield Company Executive Long-Term Disability
Plan--Summary Plan Description, effective as of January 1,
1994, filed with the Commission as Exhibit 10.9 to ARCO's re-
port on Form 10-K for the year 1993, under File No. 1-1196 and
incorporated herein by reference.
10.9(b)* Amendment No. 1 to the Atlantic Richfield Company Executive
Long-Term Disability Plan, effective as of February 28, 1994,
filed herewith.
10.10 Form of Indemnity Agreement adopted by the Board of Directors
of ARCO on January 26, 1987 and executed in February 1987 by
ARCO 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* Retirement Plan for Outside Directors effective as of October
1, 1990, as amended March 31, 1993, filed with the Commission
as Exhibit 10 to ARCO's report on Form 10-Q for the quarterly
period ended March 31, 1993, under File No. 1-1196 and incor-
porated herein by reference.
10.12(a)* Stock Option Plan for Outside Directors effective as of Decem-
ber 17, 1990, filed with the Commission as Exhibit 10.14 to
ARCO's report on Form 10-K for the year 1990, under File No.
1-1196 and incorporated herein by reference.
10.12(b)* Amendment No. 1 to the Stock Option Plan for Outside
Directors, effective as of June 22, 1992, filed with the
Commission as Exhibit 10.13(b) to ARCO's report on Form 10-K
for the year 1992, under File No. 1-1196 and incorporated
herein by reference.
10.13(a)* Deferral Plan for Outside Directors, effective as of October
1, 1990, filed herewith.
10.13(b)* Amendment No. 1 to the Deferral Plan for Outside Directors,
effective as of July 27, 1992, filed herewith.
10.14* Special Incentive Plan, as adopted by the Board of Directors
of ARCO on February 28, 1994, and as 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.
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, 1995, and thereafter through February 27, 1996.
55
<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 12, 1996, on our audits of the consolidated financial
statements and financial statement schedule of Atlantic Richfield Company as
of December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995, which report is included in this Annual Report on
Form 10-K.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 27, 1996
56
<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
/s/ Mike R. Bowlin
By ___________________________________
Mike R. Bowlin
Chairman of the Board, Chief
Executive Officer and President
FEBRUARY 26, 1996
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.
SIGNATURE TITLE DATE
/s/ Mike R. Bowlin Chairman of the February 26,
- ------------------------------------- Board, Chief 1996
Mike R. Bowlin Principal executive Executive Officer
officer and President
/s/ Ronald J. Arnault Executive Vice February 26,
- ------------------------------------- President, Chief 1996
Ronald J. Arnault Principal Financial Officer
financial officer and Director
/s/ Anthony G. Fernandes Executive Vice February 26,
- ------------------------------------- President and 1996
Anthony G. Fernandes Director
/s/ William E. Wade, Jr. Executive Vice February 26,
- ------------------------------------- President and 1996
William E. Wade, Jr. Director
57
<PAGE>
SIGNATURE TITLE DATE
/s/ Frank D. Boren Director February 26,
- ------------------------------------ 1996
Frank D. Boren
/s/ Lodwrick M. Cook Director February 26,
- ------------------------------------ 1996
Lodwrick M. Cook
/s/ Richard H. Deihl Director February 26,
- ------------------------------------ 1996
Richard H. Deihl
/s/ John Gavin Director February 26,
- ------------------------------------ 1996
John Gavin
/s/ Hanna H. Gray Director February 26,
- ------------------------------------ 1996
Hanna H. Gray
/s/ Philip M. Hawley Director February 26,
- ------------------------------------ 1996
Philip M. Hawley
/s/ Kent Kresa Director February 26,
- ------------------------------------ 1996
Kent Kresa
/s/ David T. McLaughlin Director February 26,
- ------------------------------------ 1996
David T. McLaughlin
/s/ John B. Slaughter Director February 26,
- ------------------------------------ 1996
John B. Slaughter
/s/ Henry Wendt Director February 26,
- ------------------------------------ 1996
Henry Wendt
/s/ Allan L. Comstock Vice President and February 26,
- ------------------------------------ Controller 1996
Allan L. Comstock Principal
accounting officer
58
<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 1995
Amounts deducted from
applicable assets:
Accounts receivable....... $ 15 5 -- 4(a) $ 16
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.......... 848 65 -- 31 882
Reduction in force........ 177 -- -- 102 75
Insurance ................ 202 47 -- 48 201
Environmental remediation. 670 101 -- 113 658
Other..................... 249 15 -- 63 201
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>
- --------
(a) Write-off for uncollectible accounts, net of recoveries.
59
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
3.1 Restated Certificate of Incorporation of Atlantic Richfield Company
("ARCO") as of June 27, 1994, filed with the Securities and Exchange
Commission (the "Commission") as Exhibit 3 to ARCO's report on
Form 10-Q for the quarterly period ended June 30, 1994, under File No.
1-1196 and incorporated herein by reference.
3.2 By-Laws of ARCO as amended through January 23, 1989, filed with the
Commission as Exhibit 3.2 to ARCO's report on Form 10-K for the year
1993, under File No. 1-1196 and incorporated herein by reference.
4.1 Rights Agreement dated as of July 24, 1995 between ARCO and First Chi-
cago Trust Company of New York, as Rights Agent, filed with the Com-
mission as Exhibit 4 to ARCO's report on Form 10-Q for the quarterly
period ended June 30, 1995, under File No. 1-1196 and incorporated
herein by reference.
4.2 Indenture dated as of May 15, 1985 between ARCO and The Chase Manhat-
tan Bank, N.A., filed as Exhibit 4.4 to ARCO's report on Form 10-Q for
the quarterly period ended June 30, 1985, under File No. 1-1196 and
incorporated herein by reference.
4.3 Indenture, dated as of January 1, 1992, between ARCO and The Bank of
New York, filed with the Commission on January 6, 1992 as Exhibit 4.3
to ARCO's Registration Statement on Form S-3 (No. 33-44925) and incor-
porated 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 authorized under any such in-
strument does not exceed 10% 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 Retirement Plan, as
adopted by the Board of Directors of ARCO on March 26, 1990 and effec-
tive as of October 1, 1990, filed with the Commission as Exhibit 10.2
to ARCO's report on Form 10-K for the year 1990, under File No. 1-1196
and incorporated herein by reference.
10.1(b)* Amendment No. 1 to the Atlantic Richfield Company Supplementary Execu-
tive Retirement Plan, effective as of March 22, 1993, filed with the
Commission as Exhibit 10 to ARCO's report on Form 10-Q for the quar-
terly period ended June 30, 1993, under File No. 1-1196 and incorpo-
rated herein by reference.
10.1(c)* Amendment No. 2 to the Atlantic Richfield Company Supplementary Execu-
tive Retirement Plan, effective as of February 28, 1994, filed here-
with.
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 as
of October 1, 1990, filed with the Commission as Exhibit 10.3 to AR-
CO's report on Form 10-K for the year 1990, under File No. 1-1196 and
incorporated herein by reference.
10.2(b)* Amendment No. 1 to the Atlantic Richfield Company Executive Deferral
Plan, effective as of July 27, 1992, filed with the Commission as Ex-
hibit 10.2(b) to ARCO's report on Form 10-K for the year 1992, under
File No. 1-1196 and incorporated herein by reference.
10.2(c)* Amendment No. 2 to the Atlantic Richfield Company Executive Deferral
Plan, effective as of February 28, 1994, filed herewith.
10.3* Atlantic Richfield Executive Medical Insurance Plan-Summary Plan De-
scription, effective as of January 1, 1994, filed with the Commission
as Exhibit 10.3 to ARCO's report on Form 10-K for the year 1993, under
File No. 1-1196, and incorporated herein by reference.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
<C> <S>
10.4(a)* Atlantic Richfield Company Executive Supplementary Savings Plan II, as
amended, restated and effective as of July 1, 1988, filed with the
Commission as Exhibit 10.6 to ARCO's report on Form 10-K for the year
1988, under File No. 1-1196 and incorporated herein by reference.
10.4(b)* Amendment No. 1 to the Atlantic Richfield Company Executive Supplemen-
tary Savings Plan II, as amended and effective as of January 1, 1989,
filed with the Commission as Exhibit 10.6(b) to ARCO's report on Form
10-K for the year 1989, under File No. 1-1196 and incorporated herein
by reference.
10.4(c)* Amendment No. 2 to the Atlantic Richfield Company Executive Supplemen-
tary Savings Plan II, as amended and effective as of July 1, 1994,
filed with the Commission as Exhibit 10.4(c) to ARCO's report on Form
10-K for the year 1994, under File No. 1-1196 and incorporated herein
by reference.
10.5* Atlantic Richfield Company Policy on Financial Counseling and Individ-
ual Income Tax Service, as revised and effective January 1, 1994,
filed with the Commission as Exhibit 10.5 to ARCO's report on Form
10- K for the year 1994, under File No. 1-1196 and incorporated herein
by reference.
10.6(a)* Annual Incentive Plan, as adopted by the Board of Directors of ARCO on
November 26, 1984, and effective as of that date, as amended through
February 28, 1994, filed with the Commission as Exhibit 10.6 to ARCO's
report on Form 10-K for the year 1994, under File No. 1-1196 and in-
corporated herein by reference.
10.6(b)* Amendment No. 3 to the Annual Incentive Plan, effective as of January
1, 1995, filed herewith.
10.7* Atlantic Richfield Company's 1985 Executive Long-Term Incentive Plan,
as adopted by the Board of Directors of ARCO on May 28, 1985, and ef-
fective as of that date, as amended through February 28, 1994, filed
with the Commission as Exhibit 10.7 to ARCO's report on Form 10-K for
the year 1994, under File No. 1-1196 and incorporated herein by refer-
ence.
10.8* Atlantic Richfield Company Executive Life Insurance Plan--Summary Plan
Description, effective as of January 1, 1994, filed with the Commis-
sion as Exhibit 10.8 to ARCO's report on Form 10-K for the year 1993,
under File No. 1-1196 and incorporated herein by reference.
10.9(a)* Atlantic Richfield Company Executive Long-Term Disability Plan--Sum-
mary Plan Description, effective as of January 1, 1994, filed with the
Commission as Exhibit 10.9 to ARCO's report on Form 10-K for the year
1993, under File No. 1-1196 and incorporated herein by reference.
10.9(b)* Amendment No. 1 to the Atlantic Richfield Company Executive Long-Term
Disability Plan, effective as of February 28, 1994, filed herewith.
10.10 Form of Indemnity Agreement adopted by the Board of Directors of ARCO
on January 26, 1987 and executed in February 1987 by ARCO 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 incor-
porated herein by reference.
10.11* Retirement Plan for Outside Directors effective as of October 1, 1990,
as amended March 31, 1993, filed with the Commission as Exhibit 10 to
ARCO's report on Form 10-Q for the quarterly period ended March 31,
1993, under File No. 1-1196 and incorporated herein by reference.
10.12(a)* Stock Option Plan for Outside Directors effective as of December 17,
1990, filed with the Commission as Exhibit 10.14 to ARCO's report on
Form 10-K for the year 1990, under File No. 1-1196 and incorporated
herein by reference.
10.12(b)* Amendment No. 1 to the Stock Option Plan for Outside Directors, effec-
tive as of June 22, 1992, filed with the Commission as Exhibit
10.13(b) to ARCO's report on Form 10-K for the year 1992, under File
No. 1-1196 and incorporated herein by reference.
</TABLE>
<PAGE>
EXHIBIT DESCRIPTION
10.13(a)* Deferral Plan for Outside Directors, effective as of October 1, 1990,
filed herewith.
10.13(b)* Amendment No. 1 to the Deferral Plan for Outside Directors, effective
as of July 27, 1992, filed herewith.
10.14* Special Incentive Plan, as adopted by the Board of Directors of ARCO
on February 28, 1994, and as 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.
- --------
* Management compensatory plans filed as exhibits hereto pursuant to Item
14(c) of Form 10-K.
<PAGE>
Exhibit 10.1(c)
AMENDMENT NO. 2
TO
ATLANTIC RICHFIELD COMPANY
SUPPLEMENTARY EXECUTIVE RETIREMENT PLAN
___________________________
Pursuant to the power of amendment reserved therein, the following amendment is
hereby made to the Atlantic Richfield Company Supplementary Executive Retirement
Plan (the "Plan") effective as of February 28, 1994.
1. Article I, Section 1.2(a) of the Plan is amended to read as follows:
"(a) have received Awards under the Atlantic Richfield Company Annual
Incentive Plan, the Atlantic Richfield Company Special Incentive Plan,
the ARCO Chemical Company Annual Incentive Plan or the Lyondell
Petrochemical Company Annual Incentive Plan.
2. Article I, Section 3.3 of the Plan is amended to read as follows:
"3.3 Award or Awards means cash awards made under the Atlantic
Richfield Company Annual Incentive Plan, the Atlantic Richfield Company
Special Incentive Plan, the ARCO Chemical Company Annual Incentive Plan
and the Lyondell Petrochemical Company Annual Incentive Plan."
3. Article II, Section 2.5 of the Plan is amended to read as follows:
"2.5 Computation Procedure. For purposes of computing the amount of
monthly benefit payable under Sections 2.2 and 2.3 of this Article, it
shall be assumed that an award under the Atlantic Richfield Company
Annual Incentive Plan has been made with respect to the calendar year in
which a Participant's termination or death occurs equal in amount to a
pro rata share of such award, if any, made with respect to the calendar
year immediately preceding such event. If the Participant receives an
Award or Awards following termination and after commencement of benefits
<PAGE>
under this Article, the benefit under this Article shall be re-
calculated, using each actual Award granted subsequent to the
Participant's termination rather than the Award calculated on the pro
rata basis, provided; however, that such recalculation shall not result
in a reduction of the benefit that has commenced under this Article."
Executed this 31st day of March, 1995.
---- -----
ATTEST ATLANTIC RICHFIELD COMPANY
BY: /s/ Armineh Simonian BY: /s/ JOHN H. KELLY
-------------------- -----------------
John H. Kelly
Vice President
Human Resources
<PAGE>
Exhibit 10.2(c)
AMENDMENT NO. 2
TO
ATLANTIC RICHFIELD COMPANY
EXECUTIVE DEFERRAL PLAN
___________________________
Pursuant to the power of amendment reserved therein, the following amendment is
hereby made to the Atlantic Richfield Company Executive Deferral Plan (the
"Plan") effective as of February 28, 1994.
1. Article I, Section 1.1 of the Plan is amended to read as follows:
"1.1 This Plan is intended to provide the opportunity for eligible
Employees to accumulate supplemental funds through the deferral of portions
of their regular salary, Annual Incentive Plan awards, Special Incentive
Plan awards and Executive Supplementary Savings Plan benefits for
retirement or special needs prior to retirement."
2. Article I, Section 3.3 of the Plan is amended to read as follows:
"3.2 Awards means cash awards made under the Atlantic Richfield Company
Annual Incentive Plan and the Atlantic Richfield Special Incentive Plan".
Executed this 1st day of June, 1995.
--- ----
ATTEST ATLANTIC RICHFIELD COMPANY
BY: /s/ Armineh Simonian BY: /s/ JOHN H. KELLY
-------------------- ---------------------
John H. Kelly
Vice President
Human Resources
<PAGE>
Exhibit 10.6(b)
AMENDMENT NO. 3
TO
ATLANTIC RICHFIELD COMPANY
ANNUAL INCENTIVE PLAN
___________________________
Pursuant to authority contained in resolutions adopted by the Board of Directors
on February 27, 1995, the following amendment is hereby made to the Atlantic
Richfield Company Annual Incentive Plan (the "Plan") with respect to plan years
commencing on or after January 1, 1995.
Section 5(b) of the Plan is amended to read as follows:
"(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>
APPLICABLE
SALARY GRADE PERCENTAGE
---------------------------- ----------
<S> <C>
Chairman of the Board and/or
Chief Executive Officer (EO) 65
President and/or
Chief Operating Officer and any other
Officer in Grade EO 60
E1 55
E2 35
E3 25
E4 20
10 15
9 15
</TABLE>
- 1 -
<PAGE>
(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."
Executed this 31st day of March, 1995.
---- -----
ATTEST ATLANTIC RICHFIELD COMPANY
BY: /s/ Armineh Simonian BY: /s/ JOHN H. KELLY
----------------------- --------------------
John H. Kelly
Vice President
Human Resources
- 2 -
<PAGE>
Exhibit 10.9(b)
AMENDMENT NO. 1
TO
ATLANTIC RICHFIELD COMPANY
EXECUTIVE LONG-TERM DISABILITY PLAN
___________________________
Pursuant to the power of amendment reserved therein, the following amendment is
hereby made to the Atlantic Richfield Company Executive Long-Term Disability
Plan (the "Plan") effective as of February 28, 1994.
1. Article 1 Section 1.5 of the Plan is amended to read as follows:
"1.5 Earnings means Annual Base Pay, as defined in the Atlantic Richfield
Retirement Plan II, paid by the Company to the Participant plus the
yearly average of the sum of any Annual Incentive Plan (AIP) and
Special Incentive Plan (SIP) awards granted to the Participant during
each of the preceding three years, and excluding other allowances or
payments by the Company. If the Participant has less than three AIP
awards during the immediately preceding three years, due to
ineligibility for such awards, only the years in which an AIP award was
granted will be used in calculating the average described in the
preceding sentence. In the case of a Participant without any AIP awards
during the immediately preceding three years due to ineligibility for
such awards, (e.g., new hire or recent promotion) the award amount will
be an estimate, based on the average, projected AIP award for the
immediately following Plan Year for participants in the same grade and
other, similar circumstances as the Participant."
Executed this 1st day of June, 1995.
--- ----
ATTEST ATLANTIC RICHFIELD COMPANY
BY: /s/ Armineh Simonian BY: /s/ JOHN H. KELLY
----------------------- --------------------
John H. Kelly
Vice President
Human Resources
<PAGE>
Exhibit 10.13(a)
ATLANTIC RICHFIELD COMPANY
- --------------------------------------------------------------------------------
DEFERRAL PLAN FOR OUTSIDE DIRECTORS
Effective October 1, 1990
<PAGE>
ATLANTIC RICHFIELD COMPANY
DEFERRAL PLAN FOR OUTSIDE DIRECTORS
To record the adoption of the Atlantic Richfield Deferral Plan For Outside
Directors, effective October 1, 1990, the undersigned, being duly authorized to
act on behalf of Atlantic Richfield Company has executed this plan document at
Los Angeles, California on the 12th day of September, 1991.
ATTEST: ATLANTIC RICHFIELD COMPANY
BY: /s/ARMINEH SIMONIAN BY: /s/ DONALD A. MURRAY
-------------------- --------------------
Donald A. Murray
Vice President
Human Resources
<PAGE>
Atlantic Richfield Company
Deferral Plan For Outside Directors
TABLE OF CONTENTS
-----------------
Page No.
-------
ARTICLE I. GENERAL PROVISIONS
Section 1 Purpose and Intent of Plan............................... 1
Section 2 Effective Date of Plan................................... 1
Section 3 Definitions.............................................. 1
ARTICLE II. PARTICIPATION AND DEFERRAL COMMITMENTS
Section 1 Participation............................................ 5
Section 2 Basic Forms of Deferral.................................. 5
Section 3 Deferral Elections....................................... 5
Section 4 Limitation on Deferral................................... 5
Section 5 Termination of Service................................... 6
Section 6 Modification of Deferral Commitments..................... 6
ARTICLE III. DEFERRED COMPENSATION ACCOUNTS
Section 1 Accounts................................................. 7
Section 2 Deferred Compensation.................................... 7
Section 3 Interest Rate............................................ 7
Section 4 Determination of Accounts................................ 8
Section 5 Vesting of Accounts...................................... 8
Section 6 Statement of Accounts.................................... 8
ARTICLE IV. PLAN BENEFITS
Section 1 Plan Benefit............................................. 9
Section 2 Distribution Upon Retirement............................. 9
Section 3 Distribution Upon Termination of Service.................10
Section 4 Survivor Benefits........................................10
Section 5 In-Service Distributions.................................11
Section 6 Unscheduled Distributions................................12
Section 7 Valuation and Settlement.................................12
Section 8 Small Benefit............................................12
Section 9 Change in Control........................................13
(i)
<PAGE>
Page No.
-------
ARTICLE V. DESIGNATION OF BENEFICIARY
Section 1 Designation of Beneficiary...............................14
Section 2 Failure to Designate Beneficiary.........................14
ARTICLE VI. ADMINISTRATION
Section 1 Administrative Committee.................................15
Section 2 Rules of Conduct.........................................15
Section 3 Legal, Accounting, Clerical and Other Services...........15
Section 4 Interpretation of Provisions.............................15
Section 5 Records of Administration................................15
Section 6 Denial of Claim..........................................15
Section 7 Liability of Committee...................................16
ARTICLE VII. AMENDMENT AND DISCONTINUANCE
Section 1 Amendment of Plan........................................17
Section 2 Termination..............................................17
Section 3 Effect of Amendment or Termination.......................17
ARTICLE VIII. MISCELLANEOUS
Section 1 Unsecured General Creditor...............................18
Section 2 Grantor Trust............................................18
Section 3 Payments and Benefits Not Assignable.....................18
Section 4 No Right To Service On The Board.........................19
Section 5 Adjustments..............................................19
Section 6 Obligation to Company....................................19
Section 7 Protective Provisions....................................19
Section 8 Gender, Singular and Plural..............................20
Section 9 Law Governing............................................20
Section 10 Notice...................................................20
Section 11 Successors and Assigns...................................20
Section 12 Provisions for Incapacity................................20
(ii)
<PAGE>
ARTICLE I
GENERAL PROVISIONS
Section 1. Purpose and Intent of Plan
1.1 This Plan is intended to provide the opportunity for Directors who are
not employees of the Company to accumulate supplemental funds through the
deferral of portions of their Board and Committee Retainers and Meeting Fees for
retirement or special needs prior to retirement.
Section 2. Effective Date of Plan
2.1 This Plan shall generally be effective as of October 1, 1990 and shall
apply to those persons who are not employees of the Company and who serve on the
Board of Directors of the Company on or after October 1, 1990.
Section 3. Definitions
3.1 Account means a separate bookkeeping account maintained by the Company
for each Participant and which measures and determines the amounts to be paid to
the Participant under the Plan for each Deferral Unit. Separate subaccounts will
be established for separate Deferral Units and for amounts of Retainers and
Meeting Fees, as applicable, deferred by a Participant under separate Deferral
Units.
3.2 Administrative Committee means the group of three employees of the
Company which has been appointed by the Board and given authority to administer
the Plan.
3.3 Beneficiary means a person who is entitled to receive a Participant's
interest under this Plan in the event of the Participant's death.
3.4 Board means the Board of Directors of Atlantic Richfield Company.
3.5 Board Committee means any committee established by the Board which
consists of Directors and which reports to the Board.
3.6 Citibank Base Rate means the average of the base rates in effect on
January 1, April 1, July 1 and October 1 of such year at Citibank.
1
<PAGE>
3.7 Code means the Internal Revenue Code of 1986, as amended.
3.8 Company means Atlantic Richfield Company and any of its Subsidiaries or
Affiliates.
3.9 Deferral Commitment means a promise made by a Director to establish a
Deferral Unit pursuant to Article III for which a Participation Agreement has
been submitted by the Director to the Company.
3.10 Deferral Period means the period of years the maximum number of which is
established by the Administrative Committee in advance of the Deferral
Commitment, over which the Director elects to defer a Retainer or Meeting Fee.
A new Deferral Period shall normally start each January 1, except that with
respect to a new Director, the Deferral Period shall commence 30 days following
the Director's first day of service.
3.11 Deferral Unit means the amount of Retainer or Meeting Fee, as the case
may be, for which the Director makes a Deferral Commitment for a specific
Deferral Period.
3.12 Deferred Compensation means the amount of Retainer or Meeting Fee that a
Director elects to defer pursuant to a Deferral Commitment.
3.13 Director means a Director of the Board who is not an employee of
Atlantic Richfield Company, Lyondell Petrochemical Company or ARCO Chemical
Company.
3.14 Effective Date means October 1, 1990.
3.15 Financial Hardship means a condition of financial difficulty, determined
by the Administrative Committee, upon advice of counsel, on the basis of written
information supplied by the Participant or Beneficiary, as the case may be, in
accordance with such standards as are, from time to time, established by the
Administrative Committee and which condition is sufficient, in the judgment of
counsel, to justify a change of election under the Plan without causing the
receipt of taxable income by any other Participant in the Plan in advance of the
time the Participant or Beneficiary, as the case may be, actually receives his
benefit.
3.16 In-Service Distribution means a distribution to a Participant prior to
Termination of Service pursuant to Article IV, Section 5.
3.17 Interest Rate means the interest rate announced by the Company in
advance of the election period for a Plan Year which shall constitute the
interest rate applicable to that Plan Year.
2
<PAGE>
3.18 Meeting Fee means the allowance paid to a Director as compensation for
each Board and/or Board Committee meeting attended by the Director.
3.19 Participant means any Director who is participating in this Plan as
provided in Article II.
3.20 Participation Agreement means the agreement submitted by a Director to
the Company prior to the beginning of the Deferral Period, with respect to one
or more Deferral Commitments made for such Deferral Period.
3.21 Plan means the Atlantic Richfield Company Deferral Plan for Outside
Directors.
3.22 Plan Year means each calendar year beginning on January 1 and ending on
December 31, except that the first Plan Year shall be the period commencing on
October 1, 1990 and ending on December 31, 1990.
3.23 Retainer means the annual allowance paid to a Director and/or to a Board
Committee Chairman as compensation for serving in such capacity.
3.24 Retirement means the Director's Termination of Service with a right to
an immediate retirement allowance from the Director's regular, full-time
employer.
3.25 Subsidiary or Affiliate means:
(a) All corporations, which are members of a controlled group of
corporations within the meaning of Section 1563(a) of the Code [determined
without regard to Section 1563(a)(4) and Section 1563(e)(3)(C) of said Code] and
of which Atlantic Richfield Company is then a member, and
(b) All trades or businesses, whether or not incorporated, which, under
the regulations prescribed by the Secretary of the Treasury pursuant to Section
210(d) of ERISA, are then under common control with Atlantic Richfield Company.
3.26 Survivor Benefit means the benefit described in Article IV, Section 4 of
the Plan.
3.27 Ten-Year Treasury Note Rate means the rate periodically published by the
U.S. Department of Treasury under the heading "10-year Treasury Note Rate".
3
<PAGE>
3.28 Termination of Service means the Director's Termination of Service from
the Board.
3.29 Valuation Date means the last day of each month, or such other dates as
the Administrative Committee may determine in its discretion, which may be
either more or less frequent, for the valuation of Participants' Accounts.
4
<PAGE>
ARTICLE II
PARTICIPATION AND DEFERRAL COMMITMENTS
Section 1. Participation
1.1 A Director may elect to participate in the Plan by submitting a
Participation Agreement, in accordance with rules, including the time and form
of submission, established by the Administrative Committee.
Section 2. Basic Forms of Deferral
2.1 A Participant may elect to establish any or all of the following
Deferral Units in a Participation Agreement:
(a) Board Retainer and Board Meeting Fees Deferral Unit. Commencing with
Board Retainer and Board Meeting fees earned on and after October 1, 1990, a
Participant may elect to defer such amounts earned during a Deferral Period,
subject to any limitations, conditions or restrictions, such as minimum or
maximum amounts that may be deferred, as are prescribed by the Administrative
Committee in advance of the Deferral Period.
(b) Board Committee Retainer and Board Committee Meeting Fees Deferral
Unit. Commencing with Committee Retainer and Committee Meeting Fees earned on or
after October 1, 1990, a Participant may elect to defer during a Deferral
Period, subject to any limitations, conditions or restrictions, such as minimum
or maximum amounts that may be deferred, as are prescribed by the Administrative
Committee in advance of the Deferral Period.
Section 3. Deferral Elections
3.1 Prior to each Deferral Period, at a time and on a form prescribed by the
Administrative Committee, each Director may execute an election form to defer
Retainers or Meeting Fees, as applicable, which shall be irrevocable except as
modifications are authorized pursuant to Section 6 of this Article.
Section 4. Limitation on Deferral
4.1 Deferral Commitments shall be subject to any limitations, including
minimum amounts that may be deferred for the Deferral Period relating to a
Deferral Commitment, as are established by the Administrative Committee in
advance of the Deferral Period. Any
5
<PAGE>
minimum amounts shall be allocable among the Deferral Units described in Article
II, Section 2.1(a) and (b).
Section 5. Termination of Service
5.1 A Participant's Deferral Commitments shall terminate upon the
Participant's Termination of Service.
Section 6. Modification of Deferral Commitments
6.1 Deferral Commitments shall be irrevocable except as follows:
(a) Financial Hardship. The Administrative Committee may permit a
Participant to reduce the amount elected under a prior Deferral Commitment, or
to waive the remaining deferrals under a prior Deferral Commitment, upon a
finding that the Participant has suffered a Financial Hardship.
(b) Accelerated Deferral. At the discretion of the Administrative
Committee, prior to the beginning of any Plan Year in any Deferral Period as to
which there are two or more Plan Years remaining, a Participant may elect, on a
form prescribed by the Administrative Committee, to accelerate the amount of
Deferred Compensation previously elected for any of the Plan Years remaining in
such Deferral Period; provided, however, that any such acceleration of Deferred
Compensation for any remaining Plan Years in the Deferral Period shall not
increase, for any single Plan Year, the total Board Retainer or Board Meeting
Fees deferrals above hundred percent (100%) of the Board Retainer and Board
Meeting Fees during the Plan Year or the Board Committee Retainer or Board
Committee Meeting Fee deferrals above hundred percent (100%) of the Board
Committee Retainer or Board Committee Meeting Fees during the Plan Year.
6
<PAGE>
ARTICLE III
DEFERRED COMPENSATION ACCOUNTS
Section 1. Accounts
1.1 For record-keeping purposes only, Accounts shall be maintained for each
Participant. Separate subaccounts shall be maintained for each Deferral Unit of
a Participant.
Section 2. Deferred Compensation
2.1 A Participant's Deferred Compensation shall be credited to the
Participant's Account as of the date when the corresponding non-deferred portion
of the compensation is paid or would have been paid but for the Deferral
Commitment. The Company shall have the right to withhold from any Deferred
Compensation (or otherwise to cause the Director or the executor or
administrator of his estate, or his Beneficiary to make payment of) any federal,
state local or foreign taxes required to be withheld with respect to any
Deferred Compensation.
Section 3. Interest Rate
3.1 The Accounts shall be credited as of each Valuation Date with interest
based on the rates specified below, compounded annually. Interest shall be
credited as of each Valuation Date from the dates when deferred amounts are
credited to Accounts based on the balance of each Account.
(a) Interest Rate During Participant's Lifetime. During a Participant's
lifetime, the Participant's Accounts will be credited with interest as of each
Valuation Date during each Plan Year at the Interest Rate previously announced
by the Company to be applicable for the Plan Year. The Interest Rate for the
first Plan Year shall be 125% of the rolling average Ten-Year Treasury Note
Rate.
(b) Interest Rate After Participant's Death. Except with respect to
payments made pursuant to Article IV, Section 4.1(a), following a Participant's
death, the Participant's Account will be credited with interest on a monthly
basis during each Plan Year at an interest rate equal to the Citibank Base Rate.
7
<PAGE>
Section 4. Determination of Accounts
4.1 A Participant's Account as of each Valuation Date shall consist of the
balance of the Participant's Account as of the immediately preceding Valuation
Date, plus the amount of the Participant's Deferred Compensation since such
Valuation Date and interest credited to such Account and minus any distributions
or reductions made from such Account since the immediately preceding Valuation
Date.
Section 5. Vesting of Accounts
5.1 Each Participant shall be one hundred percent (100%) vested at all times
in the amounts credited to such Participant's Accounts.
Section 6. Statement of Accounts
6.1 The Company shall submit to each Participant periodic statements setting
forth the balance of the Participant's Account.
8
<PAGE>
ARTICLE IV
PLAN BENEFITS
Section 1. Plan Benefit
1.1 If a Participant has a Termination of Service for any reason the Company
shall pay a Plan benefit for each Deferral Unit equal to the Participant's
Account for the Deferral Unit, as determined below:
(a) Accounts of Participants shall be credited with the rate of interest
previously determined under Article III, Section 3.1(a) and communicated in
advance of each Deferral Period, to be applicable for each Plan Year that the
Account has been maintained.
(b) The Interest Rates provided under Section 1.1(a) of this Article,
shall be payable until the Participant's Accounts are distributed in full except
in the event of the Participant's death. After the Participant's death interest
shall be credited at the Interest Rate previously determined under Article III,
Section 3.1(b).
Section 2. Distribution Upon Retirement
2.1 Retirement distributions shall be paid in accordance with the form of
benefit elected by the Participant for each Deferral Unit, at the time of the
Deferral Commitment establishing such Deferral Unit, on the Participation
Agreement. A Participant's election shall be irrevocable, except that a
Participant may request the Administrative Committee to approve a change of the
prior election at any time prior to Retirement or commencement of benefits, or
in the case of installment payments, following commencement of payments, for any
Deferral Unit, provided that (i) the Administrative Committee determines, upon
application of the Participant, that the Participant has experienced a Financial
Hardship justifying the request for a change of election, or (ii) the
Participant agrees to accept a reduction in the value of the benefit, as
determined by the Administrative Committee, upon advice of counsel, to be
necessary to preclude the receipt of taxable income by any Participant in the
Plan in advance of the time the Participant actually receives his benefit.
Absent an election by the Participant of the form of distribution as of the
Retirement date, payment will be made in a Lump Sum.
2.2 The available forms of Retirement distributions are as follows:
9
<PAGE>
(a) Lump Sum. A single payment upon Retirement.
(b) Installment Payments. Monthly installment payments, commencing upon
Retirement, in substantially equal payments of principal and interest over
payment periods prescribed and communicated by the Administrative Committee in
advance of the applicable Deferral Period. The amount of each of the monthly
installments shall be redetermined effective as of January 1 of each year based
on the remaining Account balance and the remaining number of installment
payments.
Section 3. Distribution Upon Termination of Service
3.1 Benefits payable on account of a Participant's Termination of Service
other than due to Retirement or death shall be paid in one of the following
forms commencing either immediately following Termination of Service or at one
of the optional subsequent times prescribed and communicated by the
Administrative Committee in advance of the applicable Deferral Period, as
elected by the Participant; provided, however, that the Administrative
Committee, may, in its sole discretion, pay such termination benefits in monthly
installments over a three-year period:
(a) Lump Sum. A single payment upon Termination of Service.
(b) Installment Payments. Monthly installment payments in substantially
equal payments of principal and interest over payment periods prescribed and
communicated by the Administrative Committee in advance of the applicable
Deferral Period. The amount of each of the monthly installments shall be
redetermined effective as of January 1 of each year based on the remaining
Account balance and the remaining number of installment payments.
Section 4. Survivor Benefits
4.1 Amount and Form of Benefit:
(a) Death Prior to Termination of Service. If the Participant dies prior
to Termination of Service, the Survivor Benefit shall be paid to the
Participant's Beneficiary in a Lump Sum or in monthly installments, as elected
by the Participant, and shall be the sum of the Participant's Account balance in
each Deferral Unit plus one-hundred percent (100%) of the Participant's
unfulfilled Deferral Commitment, if any, for each Deferral Unit.
(b) Death After Termination of Service. If the Participant dies after
Termination of Service, the Participant's Account balance, if any, for each
Deferral Unit shall be paid to the Participant's Beneficiary
10
<PAGE>
by continuation of the form of benefit which was payable to the Participant for
the remaining payments which would have been made to the Participant if the
Participant had lived, increased by the applicable Interest Rate credited on
unpaid Account balances of deceased Participants during each year of the payment
period to the Beneficiary.
Section 5. In-Service Distributions
5.1 A Participant may elect to receive an In-Service Distribution from his
Account for a Deferral Unit subject to the following restrictions:
(a) Timing of Election. The election to take an In-Service Distribution
from an Account for a Deferral Unit must be made at the same time the
Participant makes the Deferral Commitment relating to the Deferral Unit.
(b) Amount of Distribution. The amount which a Participant can elect to
receive as an In-Service Distribution with respect to an Account for a Deferral
Unit shall be such portions of the Participant's Account balance for the
Deferral Unit, as prescribed by the Administrative Committee in advance of the
Deferral Period. If a previously elected amount exceeds the Account balance when
an In-Service Distribution is to be made, only the Account balance will be paid.
(c) Timing and Form of In-Service Distribution. The In-Service
Distribution shall commence at the time and in the form elected by the
Participant on the Participant Agreement at the time of the Deferral Commitment;
provided, however, that if the Participant terminates service, the In-Service
Distribution election will be canceled and distribution will be made pursuant to
Section 3 of this Article; and provided, further, that if the Participant
commences Retirement, the In-Service Distribution election will be canceled and
distribution will be made pursuant to Section 2 of this Article. In no event
shall an In-Service Distribution for a Deferral Unit be made prior to seven
years following the start of the Deferral Period for the Deferral Unit.
(d) Amounts paid to a Participant pursuant to this section shall be
treated as distributions from the Participant's Account.
Section 6. Unscheduled Distributions
6.1 Upon a finding that a Participant has suffered a Financial Hardship or
upon the Participant's agreeing to accept a reduction of his benefit in an
amount determined necessary by the Administrative
11
<PAGE>
Committee, upon advice of counsel, to avoid constructive receipt of taxable
income by any Participant, the Administrative Committee may, in its sole
discretion, make distributions from an Account prior to the time specified for
payment of the Account; provided, however, that in no event may an In-Service
Distribution for a Deferral Unit be made prior to seven (7) years following the
start of the Deferral Period for the Deferral Unit. Any unscheduled withdrawal
will be paid in Lump Sum and will be subject to such minimum or maximum amounts
and any additional conditions prescribed by the Adminis-trative Committee in
advance of the Deferral Period. Applications for unscheduled distributions and
determinations thereon by the Administrative Committee shall be in writing, and
a Participant or Beneficiary may be required to furnish proof of the Financial
Hardship in a formal manner as deemed appropriate by the Administrative
Committee, upon advice of counsel.
Section 7. Valuation and Settlement
7.1 The date on which a Lump Sum is paid or the date on which installment
payments commence shall be the "Settlement Date". The Settlement Date for a
Deferral Unit shall be no more than thirty (30) days after the last day of the
month in which the Participant or his Beneficiary becomes entitled to payments
on account of Retirement, Termination of Service or death, unless the
Participant elects to defer commencement of payments to a later date in the
Participation Agreement relating to the Deferral Unit. The Settlement Date for
an In-Service Distribution or delayed payments shall be the month which the
Participant elects for commencement of such payments in the election form for
designation of form of payment for the Deferral Unit. The amount of a Lump Sum
and the initial amount of installment payments for a Deferral Unit shall be
based on the value of the Participant's Account as of the Valuation Date at the
end of the immediately preceding month before the Settlement Date. For example,
the Valuation Date at the end of December shall be used to determine Lump Sum or
the initial amount of installment payments which will be made in the following
January.
Section 8. Small Benefit
8.1 Notwithstanding any election made by the Participant, the Administrative
Committee, in its sole discretion, may pay any benefit in the form of a Lump Sum
payment to the Participant or any Beneficiary, if the Lump Sum amount of the
Account balance of the applicable Deferral Unit which remains in the Account
following a distribution for any reason, or which is payable to the Participant
or Beneficiary when payments to such Participant or Beneficiary would otherwise
commence, is less than $2,000 for such Deferral Unit.
12
<PAGE>
Section 9. Change of Control
9.1 (a) Subject to the provisions of Section 9.1(b) hereof, upon a Change
of Control as defined in the Trust Agreement between Atlantic Richfield Company
and the Northern Trust Company, effective as of May 6, 1991, and incorporated
herein by reference, the interests of all then remaining Participants shall
continue, and provisions shall be made in connection with such transaction for
the continuance of the Plan and the assumption of the obligations of the Company
under the Plan by the Company's successor(s) in interest.
(b) Notwithstanding any other provisions of the Plan, at any time after
a Change of Control as defined in the Trust Agreement between Atlantic Richfield
Company and Northern Trust Company effective as of May 6, 1991, a Participant or
a Beneficiary of a deceased Participant may elect to receive an immediate Lump
Sum payment of the balance of his Account(s), in lieu of payments in accordance
with the form previously selected by the Participant for any Deferral Unit(s),
reduced by a penalty, which shall be forfeited to the Company, and which shall
be determined by the Administrative Committee, upon advice of counsel, and shall
be a portion of the balance of such Accounts as deemed necessary by counsel to
avoid constructive receipt of taxable income by any other Participant in the
Plan. However, this penalty shall not apply in the event of (i) a determination
by the Administrative Committee based on advice of counsel or (ii) a final
determination by the Internal Revenue Service or any court of competent
jurisdiction, that by reason of the foregoing provision any Participant or
Beneficiary has recognized or will recognize gross income for federal income tax
purposes under this Plan in advance of payment to him of Plan benefits. The
Company shall notify all Participants (and Beneficiaries of deceased
Participants) of any such determination. Whenever any such determination is
made, the Company shall refund all penalties which were imposed hereunder on
account of making Lump Sum payments at any time during or after the first year
to which such determination applies (i.e., the first year when gross income is
recognized for federal income tax purposes). Interest shall be paid on any such
refunds at the Interest Rate previously determined to be applicable for such
Plan Year.
13
<PAGE>
ARTICLE V
DESIGNATION OF BENEFICIARY
Section 1. Designation of Beneficiary
1.1 Each Participant shall have the right to designate a Beneficiary or
Beneficiaries to receive his interest in each of his Accounts upon his death.
Such designation shall be made on a form prescribed by and delivered to the
Administrative Committee. The Participant shall have the right to change or
revoke any such designation from time to time by filing a new designation or
notice of revocation with the Administrative Committee, and no notice to any
Beneficiary nor consent by any Beneficiary shall be required to effect any such
change or revocation.
Section 2. Failure to Designate Beneficiary
2.1 If a Participant shall fail to designate a Beneficiary before his death,
or if no designated Beneficiary survives the Participant, the Administrative
Committee shall direct the Company to pay the balance in each of his Accounts in
a Lump Sum to the executor or administrator for his estate.
14
<PAGE>
ARTICLE VI
ADMINISTRATION
Section 1. Administrative Committee
1.1 The Administrative Committee shall be responsible for the administration
of the Deferral Plan for Outside Directors.
Section 2. Rules of Conduct
2.1 The Administrative Committee shall adopt such rules for the conduct of
its business and administration of this Plan as it considers desirable, provided
they do not conflict with the provisions of this Plan.
Section 3. Legal, Accounting, Clerical and Other Services
3.1 The Administrative Committee may authorize one or more of its members or
any agent to act on its behalf and may contract for legal, accounting, clerical
and other services to carry out this Plan. All expenses of the Administrative
Committee shall be paid by the Company.
Section 4. Interpretation of Provisions
4.1 The Administrative Committee shall have the right to interpret the
provisions of this Plan and to decide questions arising in its administration.
The decisions and interpretations of the Administrative Committee shall be final
and binding on the Company, Participants, Directors and all other persons.
Section 5. Records of Administration
5.1 The Administrative Committee shall keep records reflecting the
administration of this Plan which shall be subject to audit by the Company.
Section 6. Denial of Claim
6.1 The Administrative Committee shall provide adequate notice in writing to
any Participant, Director or Beneficiary whose claim for benefits under this
Plan has been denied, setting forth the specific reasons for such denial. The
Participant, Director or Beneficiary will be given an opportunity for a full and
fair review by the
15
<PAGE>
Administrative Committee of the decision denying the claim. The Participant,
Director or Beneficiary shall be given sixty (60) days from the date of the
notice denying any such claim within which to request such review.
Section 7. Liability of Committee
7.1 No member of the Administrative Committee shall be liable for any action
taken in good faith or for exercise of any power given the Administrative
Committee, or for the actions of other members of said Administrative Committee.
16
<PAGE>
ARTICLE VII
AMENDMENT AND DISCONTINUANCE
Section 1. Amendment of Plan
1.1 This Plan may be amended from time to time by the Board of Directors of
Atlantic Richfield Company.
Section 2. Termination
2.1 Atlantic Richfield Company intends to continue this Plan indefinitely,
but reserves the right to terminate it at any time.
Section 3. Effect of Amendment or Termination
3.1 No amendment or termination of this Plan may adversely affect the
benefit payable to any former Participant receiving benefits under this Plan
prior to the effective date of the amendment or termination, or any Participant
who, as of such date, was eligible to receive a benefit under this Plan.
17
<PAGE>
ARTICLE VIII
MISCELLANEOUS
Section 1. Unsecured General Creditor
1.1 Participants and their Beneficiaries shall have no legal or equitable
rights, claims or interests in any specific assets or property of the Company,
nor shall they be the Beneficiaries of, or have any rights, claims or interests
in any life insurance policies, annuity contracts, or the proceeds therefrom
owned, or which may be acquired by, the Company (Policies). Any such Policies
or other assets of the Company shall be, and remain, the general, unpledged,
unrestricted assets of the Company. The Company's obligation under the Plan
shall be merely that of an unfunded and unsecured promise of the Company to pay
money in the future.
Section 2. Grantor Trust
2.1 Although the Company is responsible for the payment of all benefits
under the Plan, the Company may, in its discretion, contribute funds to a
grantor trust for the purpose, as it deems appropriate, of paying benefits under
this Plan. Such trust may be irrevocable, but assets of the trust shall be
subject to the claims of creditors of Atlantic Richfield Company. To the extent
any benefits provided under the Plan are actually paid from the trust, the
Company shall have no further obligation with respect thereto but to the extent
not so paid, such benefits shall remain the obligation of, and shall be paid, by
the Company. The Participants shall have the status of unsecured creditors
insofar as their legal claim for benefits under the Plan and the Participants
shall have no security interest in the grantor trust.
Section 3. Payments and Benefits Not Assignable
3.1 Payments to and benefits under this Plan are not assignable,
transferable or subject to alienation since they are primarily for the support
and maintenance of the Participants and Beneficiaries. Likewise, such payments
shall not be subject to attachments by creditors of, or through legal process
against, the Company, the Administrative Committee or the Participants.
18
<PAGE>
Section 4. No Right To Service On The Board
4.1 The provisions of this Plan shall not give a Director the right to be
retained in the service of the Company nor shall this Plan or any action taken
under the Plan be construed as a contract for service on the Board.
Section 5. Adjustments
5.1 At the request of the Company, the Administrative Committee may, with
respect to a Participant, adjust such Participant's benefit under this Plan or
make such other adjustments with respect to such Participant as are required to
correct administrative errors or provide uniform treatment of Participants in a
manner consistent with the intent and purpose of this Plan.
Section 6. Obligation to Company
6.1 If a Participant becomes entitled to a distribution of benefits under
the Plan, and if at such time the Participant has outstanding any debt,
obligation, or other liability representing an amount owing to the Company, or
any benefit plan maintained by the Company, then the Company may offset such
amount owed to it or such benefit plan against the amount of benefits otherwise
distributable. Such determination shall be made by the Administrative Committee.
Section 7. Protective Provisions
7.1 Each Participant shall cooperate with the Company by furnishing any and
all information requested by the Company in order to facilitate the payment of
benefits hereunder, taking such physical examinations as the Company may deem
necessary and taking such other relevant action as may be requested by the
Company. If a Participant refuses to cooperate, the Company shall have no
further obligation to the Participant under the Plan. If the Participant makes
any material misstatement of information or nondisclosure of medical history,
then no benefits will be payable hereunder to such Participant or his
Beneficiary, provided, that in the Company's sole discretion, benefits may be
payable in an amount reduced to compensate the Company for any loss, cost,
damage or expense suffered or incurred by the Company as a result in any way of
any such action, misstatement or nondisclosure.
19
<PAGE>
Section 8. Gender, Singular and Plural
8.1 All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, or neuter, as the identity of the person or persons may
require. As the context may require, the singular may be read as the plural and
the plural as the singular.
Section 9. Law Governing
9.1 This Plan shall be construed, regulated and administered under the laws
of the State of Delaware.
Section 10. Notice
10.1 Any notice or filing required or permitted to be given to the
Administrative Committee under the Plan shall be sufficient if in writing and
hand delivered, or sent by registered or certified mail, to the principal office
of the Company, directed to the attention of the Secretary of the Administrative
Committee. Such notice shall be deemed given as to the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the receipt
for registration or certification.
Section 11. Successors and Assigns
11.1 This Plan shall be binding upon the Company and its successors and
assigns.
Section 12. Provisions for Incapacity
12.1 If the Administrative Committee deems any person entitled to receive any
payment under the provisions of this Plan incapable of receiving or disbursing
the same by reason of minority, illness or infirmity, mental incompetency, or
incapacity of any kind, the Administrative Committee may, in its sole
discretion, take any one or more of the following actions: it may apply such
payment directly for the comfort, support and maintenance of such person; it may
reimburse any person for any such support theretofore supplied to the person
entitled to receive any such payment; or it may pay such payment to any other
person selected by the Administrative Committee to disburse such payment for the
comfort, support and maintenance of the person entitled thereto, including,
without limitations, to any relative who has undertaken, wholly or partially,
the expense of such person's comfort, care and maintenance, or any institution
in whose care or custody the person entitled to the payment may be. The
Administrative Committee may, in its sole discretion, deposit any payment due to
a minor to the minor's credit in any savings or commercial bank of the
Administrative Committee's choice.
20
<PAGE>
Exhibit 10.13(b)
AMENDMENT NO. 1
TO
ATLANTIC RICHFIELD COMPANY
DEFERRAL PLAN FOR OUTSIDE DIRECTORS
___________________________
Pursuant to the power of amendment reserved therein, the following amendment is
hereby made to the Atlantic Richfield Company Deferral Plan For Outside
Directors (the "Plan") effective as of July 27, 1992.
1. Article IV, Section 2 of the Plan is amended to read as follows:
"Section 2. Form and Time of Retirement Distribution
2.1 Retirement Distributions shall be paid at the time and in the
form of benefit elected by the Participant for each Deferral Unit, at the
time of the Deferral Commitment establishing such Deferral Unit, on the
Participation Agreement. A Participant's election shall be irrevocable,
except that a Participant may request, by application to the Administrative
Committee, approval of a change of the prior election at any time prior to
retirement or commencement of benefits, or in the case of installment
payments, following commencement of payments, for any Deferral Unit, (i)
without any reduction in, or imposition of any penalty on, the
Participant's Account, provided that the Administrative Committee
determines, upon application of the Participant, that the Participant has
experienced a Financial Hardship justifying the request for a change of
election; or (ii) the Administrative Committee, in its sole discretion,
determines that it is appropriate to grant the Participant's request.
Absent an election by the Participant of the form and/or commencement date
of the Retirement Distribution, payment will be made in a lump sum
immediately following the Participant's date of retirement.
1
<PAGE>
2.2 The available forms and times of payment upon retirement are
as follows:
(a) Lump Sum. A single payment at retirement.
(b) Installment Payments. Monthly installment payments in
substantially equal payments of principal and interest over payment periods
prescribed and communicated by the Administrative Committee in advance of
the applicable Deferral Period. The amount of each of the monthly
installments shall be redetermined effective as of January 1 of each year
based on the remaining Account balance and the remaining number of
installment payments.
(c) Deferred Payments. A lump sum or installment payments
commencing subsequent to retirement at one of the optional deferral times
prescribed and communicated by the Administrative Committee in advance of
the applicable Deferral Period."
2. Article IV, Section 5(c) of the Plan is amended to read as follows:
"(c) Timing and Form of In-Service Distribution. The In-Service
Distribution shall commence at a time prescribed by the Administrative
Committee and in the form elected by the Participant on the Participant
Agreement at the time of the Deferral Commitment; provided, however, that
if the Participant terminates employment without a right to commence a
retirement allowance under the Retirement Plan, the In-Service Distribution
election will be canceled and distribution will be made pursuant to Section
3 of this Article, and provided,
2
<PAGE>
further, that if the Participant terminates employment with a right to
commence a retirement allowance, the In-Service Distribution election will
be canceled and distribution will be made pursuant to Section 2 of this
Article."
3. Article IV, Section 6 of the Plan is amended to read as follows:
"Section 6. Unscheduled Distributions
6.1 Upon a finding that a Participant has suffered a Financial
Hardship, following submission of an application by the Participant, the
Administrative Committee shall make a distribution of all or a portion of
the Participant's Account, consistent with the finding of Financial
Hardship but in no event exceeding the amount of the Participant's request,
without any reduction in, or imposition of any penalty on, the
Participant's Account. The distribution shall be made as soon as
administratively practical following the finding of Financial Hardship.
6.2 A Participant may apply for a distribution of all or part of
his Account, without regard to any condition of Financial Hardship. Such
distribution shall be made as soon as practical following the Participant's
application and shall be subject to whatever penalty, in the form of a
forfeiture of a percentage of the amount requested and/or a suspension of
participation as determined by the Administrative Committee upon the advice
of Counsel for the Plan as is deemed necessary to preclude the constructive
receipt of taxable income by any Participant in the Plan.
6.3 Counsel for the Plan shall review legal and tax developments
to assure continuous compliance with the relevant authorities governing
plan design to prevent constructive receipt and shall advise the
Administrative
3
<PAGE>
Committee in writing in advance of any change in its most recent written
advice on the penalty which is to be imposed.
6.4 The Company shall notify Participants in writing of this
amendment and of the specific, currently effective penalty as described
under Section 6.2, and shall update this written notification periodically
and in advance of any subsequent change of which it is notified under
Section 6.3, unless administratively impossible to do so, in which case
such notification shall be provided no later than 30 days following the
effective date of the change."
4. Article IV, Section 9(b) of the Plan is deleted.
Executed this 31st day of July, 1992.
---- ----
ATTEST ATLANTIC RICHFIELD COMPANY
BY: /s/ Armineh Simonian BY: /s/ DONALD A. MURRAY
-------------------- ------------------------
Donald A. Murray
Vice President
Human Resources
4
<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
Subsidiaries of Registrant in consolidated
financial statements, as of December 31,
1995:
ARCO Alaska, Inc............................ Delaware 100.0
ARCO Chemical Company....................... Delaware 82.9
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 12, 1996, on our audits of the consolidated financial
statements and financial statement schedule of Atlantic Richfield Company as
of December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995, which report is included in this Annual Report on
Form 10-K.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,537
<SECURITIES> 1,569
<RECEIVABLES> 1,684
<ALLOWANCES> 0
<INVENTORY> 877
<CURRENT-ASSETS> 5,888
<PP&E> 32,544
<DEPRECIATION> 17,189
<TOTAL-ASSETS> 23,999
<CURRENT-LIABILITIES> 3,963
<BONDS> 6,708
0
1
<COMMON> 402
<OTHER-SE> 6,355
<TOTAL-LIABILITY-AND-EQUITY> 23,999
<SALES> 17,337
<TOTAL-REVENUES> 18,257
<CGS> 13,017
<TOTAL-COSTS> 13,540
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 750
<INCOME-PRETAX> 2,173
<INCOME-TAX> 687
<INCOME-CONTINUING> 1,376
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,376
<EPS-PRIMARY> 8.42
<EPS-DILUTED> 8.42
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