SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
________________
For the quarterly period ended June 30, 1996
Commission file number 1-1196
________________
ATLANTIC RICHFIELD COMPANY
(Exact name of registrant as specified in its charter)
_________________
Delaware 23-0371610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
515 South Flower Street
Los Angeles, California 90071
(Address of principal executive offices) (Zip code)
__________________
(213) 486-3511
(Registrant's telephone number, including area code)
__________________
Not Applicable
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock, $2.50 par value, outstanding as of
June 30, 1996: 160,833,020.
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Millions except per share amounts) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Sales and other operating revenues,
including excise taxes . . . . . . $4,960 $4,423 $9,494 $8,667
Income from equity investments . . . 11 81 28 155
Interest . . . . . . . . . . . . . . 49 55 101 114
Other revenues . . . . . . . . . . . 54 126 211 206
----- ----- ----- -----
5,074 4,685 9,834 9,142
----- ----- ----- -----
Expenses
Trade purchases. . . . . . . . . . . 1,866 1,554 3,540 3,122
Operating expenses . . . . . . . . . 751 758 1,494 1,455
Selling, general and administrative
expenses . . . . . . . . . . . . . 469 443 894 852
Depreciation, depletion and
amortization . . . . . . . . . . . 399 407 803 819
Exploration expenses (including
undeveloped leasehold amortization) 107 105 207 195
Excise taxes . . . . . . . . . . . . 401 377 779 727
Taxes other than excise and income
taxes . . . . . . . . . . . . . . 194 195 411 389
Interest . . . . . . . . . . . . . . 167 197 340 400
Unusual items. . . . . . . . . . . . - - 26 -
----- ----- ----- -----
4,354 4,036 8,494 7,959
----- ----- ----- -----
Income before income taxes and
minority interest. . . . . . . . . . 720 649 1,340 1,183
Provision for taxes on income. . . . . 261 227 481 412
Minority interest in earnings of
subsidiaries . . . . . . . . . . . . 25 31 55 58
----- ----- ----- -----
Net Income . . . . . . . . . . . . . . $ 434 $ 391 $ 804 $ 713
===== ===== ===== =====
Earned per Share . . . . . . . . . . . $ 2.66 $ 2.39 $ 4.92 $ 4.36
===== ===== ===== =====
Cash Dividends Paid per Share of
Common Stock . . . . . . . . . . . . $1.375 $1.375 $ 2.75 $ 2.75
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
- 1 -
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED BALANCE SHEET
June 30, December 31,
1996 1995
---- ----
(Millions)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 1,633 $ 1,537
Short-term investments. . . . . . . . . . . . . 1,476 1,569
Accounts receivable . . . . . . . . . . . . . . 1,554 1,684
Inventories . . . . . . . . . . . . . . . . . . 975 877
Prepaid expenses and other current assets . . . 383 221
------ ------
Total current assets. . . . . . . . . . . . . . 6,021 5,888
------ ------
Investments and long-term receivables:
Investments accounted for on the equity method. 733 711
Other investments and long-term receivables . . 703 550
------ ------
1,436 1,261
------ ------
Fixed assets:
Property, plant and equipment . . . . . . . . . 33,367 32,544
Less accumulated depreciation, depletion
and amortization . . . . . . . . . . . . . . . 17,824 17,189
------ ------
15,543 15,355
------ ------
Deferred charges and other assets . . . . . . . . 1,580 1,495
------ ------
Total assets. . . . . . . . . . . . . . . . . . . $24,580 $23,999
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED BALANCE SHEET
June 30, December 31,
1996 1995
---- ----
(Millions)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable . . . . . . . . . . . . . . . . $ 1,106 $ 1,174
Accounts payable. . . . . . . . . . . . . . . 1,193 1,145
Long-term debt due within one year. . . . . . 97 184
Taxes payable, including excise taxes . . . . 435 303
Accrued interest. . . . . . . . . . . . . . . 159 153
Other . . . . . . . . . . . . . . . . . . . . 1,162 1,004
------ ------
Total current liabilities . . . . . . . . . . 4,152 3,963
------ ------
Long-term debt. . . . . . . . . . . . . . . . . 6,619 6,708
Deferred income taxes . . . . . . . . . . . . . 2,628 2,637
Other deferred liabilities and credits. . . . . 3,540 3,456
Minority interest . . . . . . . . . . . . . . . 564 477
Stockholders' equity:
Preference stocks . . . . . . . . . . . . . . 1 1
Common stock. . . . . . . . . . . . . . . . . 402 402
Capital in excess of par value of stock . . . 612 632
Retained earnings . . . . . . . . . . . . . . 6,176 5,816
Pension liability adjustment. . . . . . . . . (60) (60)
Foreign currency translation. . . . . . . . . (40) (17)
Net unrealized loss on investments. . . . . . (8) (11)
Treasury stock, at cost . . . . . . . . . . . (6) (5)
------ ------
Total stockholders' equity. . . . . . . . . . 7,077 6,758
------ ------
Total liabilities and stockholders' equity. . . $24,580 $23,999
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended
June 30,
----------------
1996 1995
---- ----
(Millions)
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 804 $ 713
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization . . . . . . . 803 819
Dry hole expense and undeveloped leasehold amortization 108 92
Net gain on asset sales. . . . . . . . . . . . . . . . (40) (11)
Income from equity investments . . . . . . . . . . . . (28) (155)
Dividends from equity investments. . . . . . . . . . . 42 38
Minority interest in earnings of subsidiaries. . . . . 55 58
Cash payments greater than noncash provisions. . . . . (120) (205)
Deferred income taxes. . . . . . . . . . . . . . . . . 17 37
Changes in accounts receivable, inventories
and accounts payable. . . . . . . . . . . . . . . . . 83 (117)
Changes in other working capital accounts. . . . . . . (38) (137)
Other. . . . . . . . . . . . . . . . . . . . . . . . . (14) (61)
----- -----
Net cash provided by operating activities. . . . . . 1,672 1,071
----- -----
Cash flows from investing activities:
Additions to fixed assets (including dry hole costs) . (873) (752)
Net cash provided by short-term investments. . . . . . 76 792
Investment in LUKoil convertible bonds . . . . . . . . (89) -
Proceeds from asset sales. . . . . . . . . . . . . . . 43 54
Other. . . . . . . . . . . . . . . . . . . . . . . . . (12) (89)
----- -----
Net cash provided (used) by investing activities . . (855) 5
----- -----
Cash flows from financing activities:
Repayments of long-term debt . . . . . . . . . . . . . (208) (573)
Proceeds from issuance of long-term debt . . . . . . . 46 149
Net cash used by notes payable . . . . . . . . . . . . (69) (283)
Dividends paid . . . . . . . . . . . . . . . . . . . . (444) (443)
Treasury stock purchases . . . . . . . . . . . . . . . (39) (24)
Other. . . . . . . . . . . . . . . . . . . . . . . . . (5) (8)
----- -----
Net cash used by financing activities. . . . . . . . (719) (1,182)
----- -----
Effect of exchange rate changes on cash. . . . . . . . . (2) -
----- -----
Net increase (decrease) in cash and cash equivalents . . 96 (106)
Cash and cash equivalents at beginning of period . . . . 1,537 1,394
----- -----
Cash and cash equivalents at end of period . . . . . . . $1,633 $1,288
===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE A. Basis of Presentation.
The foregoing financial information is unaudited and has been prepared
from the books and records of the Company. Certain previously reported
amounts have been restated to conform to classifications adopted in 1996.
In the opinion of the Company, the financial information reflects all
adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations in
conformity with generally accepted accounting principles.
NOTE B. Investments.
At June 30, 1996 and 1995, 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 23 months. At June 30, 1996, all
investments were classified as available-for-sale ("AFS"); there were no
investments considered held-to-maturity ("HTM"). AFS investments were
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, as of June 30:
<TABLE>
<CAPTION>
1996 1995
-------- ----------------
Millions AFS AFS HTM
--- --- ---
<S> <C> <C> <C>
Aggregate fair value . . . . . . . . . . $1,644 $1,900 $400
Gross unrealized holding losses. . . . . 12 24 -
Gross unrealized holding gains . . . . . (4) (17) -
----- ----- ---
Amortized cost . . . . . . . . . . . . . $1,652 $1,907 $400
===== ===== ===
</TABLE>
Investment activity for the six-month periods ended June 30 was as follows:
<TABLE>
<CAPTION>
1996 1995
------ -----------------
Millions AFS AFS HTM
--- --- ---
<S> <C> <C> <C>
Gross purchases. . . . . . . . . . . . . $2,561 $1,701 $1,293
Gross sales. . . . . . . . . . . . . . . 973 1,447 -
Gross maturities . . . . . . . . . . . . 2,035 349 2,123
</TABLE>
For the three and six-month periods ended June 30, 1996 and 1995 gross
realized gains and losses were insignificant and were determined by the
specific identification method.
-5-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE C. Inventories.
Inventories at June 30, 1996 and December 31, 1995 comprised the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
(Millions)
<S> <C> <C>
Crude oil and petroleum products. . . . . . . $ 235 $ 184
Chemical products . . . . . . . . . . . . . . 455 423
Other products. . . . . . . . . . . . . . . . 37 32
Materials and supplies. . . . . . . . . . . . 248 238
---- ----
Total. . . . . . . . . . . . . . . . . . . $ 975 $ 877
==== ====
</TABLE>
NOTE D. Capital Stock.
Detail of the Company's capital stock was as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
(Thousands)
<S> <C> <C>
$3.00 Cumulative convertible preference stock,
par $1 . . . . . . . . . . . . . . . . . . . . $ 64 $ 66
$2.80 Cumulative convertible preference stock,
par $1 . . . . . . . . . . . . . . . . . . . . 696 731
Common stock, par $2.50. . . . . . . . . . . . . 402,199 402,199
------- -------
Total. . . . . . . . . . . . . . . . . . . . . $402,959 $402,996
======= =======
</TABLE>
NOTE E. Capitalization of Interest.
Interest expense excluded capitalized interest of $7 million and $13
million, respectively, for the three-month periods ended June 30, 1996 and
1995, and $12 million and $25 million, respectively, for the six-month
periods ended June 30, 1996 and 1995.
-6-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE F. Income Taxes.
Provision for taxes on income:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
(Millions)
<S> <C> <C> <C> <C>
Federal:
Current . . . . . . . . . . . . $190 $133 $337 $273
Deferred. . . . . . . . . . . . 5 25 10 23
--- --- --- ---
195 158 347 296
--- --- --- ---
Foreign:
Current . . . . . . . . . . . . 26 34 65 56
Deferred. . . . . . . . . . . . 5 8 7 9
--- --- --- ---
31 42 72 65
--- --- --- ---
State:
Current . . . . . . . . . . . . 35 19 62 46
Deferred. . . . . . . . . . . . - 8 - 5
--- --- --- ---
35 27 62 51
--- --- --- ---
Total. . . . . . . . . . . . $261 $227 $481 $412
=== === === ===
</TABLE>
-7-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
Note F. Income Taxes (Continued).
Reconciliation of provision for taxes on income with tax at federal
statutory rate:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------------------------
1996 1995
----------------- ----------------
Percent Percent
of of
Pretax Pretax
Amount Income Amount Income
------ ------- ------ -------
(Millions)
<S> <C> <C> <C> <C>
Income before income taxes and
minority interest . . . . . . . . . $ 720 100.0 $ 649 100.0
=== ===== === =====
Tax at federal statutory rate . . . . $ 252 35.0 $ 227 35.0
Increase (reduction) in taxes
resulting from:
Dividend exclusion . . . . . . . . (2) (0.3) (19) (2.9)
Taxes on foreign income in excess
of statutory rate . . . . . . . . 6 0.8 23 3.5
State income taxes (net of federal
effect) . . . . . . . . . . . . . 22 3.1 17 2.6
Tax credits. . . . . . . . . . . . (24) (3.3) (17) (2.6)
Other. . . . . . . . . . . . . . . 7 1.0 (4) (0.6)
--- ----- --- -----
Provision for taxes on income . . . . $ 261 36.3 $ 227 35.0
=== ===== === =====
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------------
1996 1995
------------------ -----------------
Percent Percent
of of
Pretax Pretax
Amount Income Amount Income
------ ------ ------ -------
(Millions)
<S> <C> <C> <C> <C>
Income before income taxes and
minority interest. . . . . . . . . . $1,340 100.0 $1,183 100.0
===== ===== ===== =====
Tax at federal statutory rate . . . . $ 469 35.0 $ 414 35.0
Increase (reduction) in taxes
resulting from:
Dividend exclusion . . . . . . . . (5) (0.4) (37) (3.1)
Taxes on foreign income in excess
of statutory rate . . . . . . . . 23 1.7 39 3.3
State income taxes (net of federal
effect) . . . . . . . . . . . . . 40 3.0 33 2.8
Tax credits. . . . . . . . . . . . (46) (3.4) (35) (3.0)
Other. . . . . . . . . . . . . . . - - (2) (0.2)
--- ----- --- -----
Provision for taxes on income . . . . $ 481 35.9 $ 412 34.8
=== ===== === =====
</TABLE>
-8-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE G. 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 information necessary for the calculation of earned per share is as
follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------
1996 1995
---- ----
(Millions of Shares)
<S> <C> <C>
Average number of common shares outstanding. . . . . 160.8 160.8
Common stock equivalents . . . . . . . . . . . . . . 2.5 2.7
----- -----
Total . . . . . . . . . . . . . . . . . . . . . . 163.3 163.5
===== =====
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------
1996 1995
---- ----
(Millions of Shares)
<S> <C> <C>
Average number of common shares outstanding. . . . . 160.8 160.8
Common stock equivalents . . . . . . . . . . . . . . 2.5 2.7
----- -----
Total . . . . . . . . . . . . . . . . . . . . . . 163.3 163.5
===== =====
</TABLE>
NOTE H. Supplemental Income Statement Information.
Taxes other than excise and income taxes comprised the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
(Millions)
<S> <C> <C> <C> <C>
Production/severance . . . . . . . . $105 $ 94 $208 $183
Property . . . . . . . . . . . . . . 46 45 93 93
Other. . . . . . . . . . . . . . . . 43 56 110 113
--- --- --- ---
Total. . . . . . . . . . . . . . . $194 $195 $411 $389
=== === === ===
</TABLE>
-9-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE I. Supplemental Cash Flow Information.
Following is supplemental cash flow information for the six months ended
June 30, 1996 and 1995:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1996 1995
---- ----
(Millions)
<S> <C> <C>
Gross sales and maturities of short-term investments . $ 1,618 $ 2,524
Gross purchases of short-term investments. . . . . . . (1,542) (1,732)
------ ------
Net cash provided by short-term investments. . . . . . $ 76 $ 792
====== ======
Gross proceeds from issuance of notes payable. . . . . $ 3,028 $ 4,670
Gross repayments of notes payable. . . . . . . . . . . (3,097) (4,953)
------ ------
Net cash used by notes payable . . . . . . . . . . . . $ (69) $ (283)
====== ======
Gross noncash provisions charged to income . . . . . . $ 206 $ 212
Cash payments of previously accrued items. . . . . . . (326) (417)
------ ------
Cash payments greater than noncash provisions. . . . . $ (120) $ (205)
====== ======
</TABLE>
Interest paid during the six-month periods ended June 30, 1996 and 1995
was $334 million and $392 million, respectively.
Income taxes paid during the six-month periods ended June 30, 1996 and
1995 were $395 million and $475 million, respectively.
Excluded from the Consolidated Statement of Cash Flows for the six
months ended June 30, 1996 was the accrual (in other accrued liabilities)
of a signing bonus due a foreign state owned oil company of $225 million.
-10-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE J. Summarized Financial Information.
Summarized financial information for Lyondell Petrochemical Company
("Lyondell"), a company in which Atlantic Richfield owned a 49.9 percent
interest at June 30, 1996, was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
(Millions)
<S> <C> <C> <C> <C>
Revenues (including sales to ARCO
and ARCO Chemical Company). . . . $1,239 $1,370 $2,404 $2,544
Sales to ARCO and ARCO
Chemical Company. . . . . . . . . 73 99 137 189
Operating income. . . . . . . . . . 45 237 106 459
Net income. . . . . . . . . . . . . 15 135 39 262
________________________
ARCO's equity in net income of
Lyondell. . . . . . . . . . . . . 7 67 19 131
Cash dividends received from
Lyondell. . . . . . . . . . . . . 9 9 18 18
</TABLE>
________________________
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
(Millions)
<S> <C> <C>
Current assets. . . . . . . . . . . . . . . . $ 766 $ 678
Noncurrent assets . . . . . . . . . . . . . . 2,242 1,928
Current liabilities . . . . . . . . . . . . . 718 750
Long-term debt. . . . . . . . . . . . . . . . 1,134 807
Other liabilities . . . . . . . . . . . . . . 233 210
Minority interest . . . . . . . . . . . . . . 542 459
Stockholders' equity. . . . . . . . . . . . . 381 380
</TABLE>
-11-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE K. 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.
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.
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 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 the remedial actions which may be required and the determination of
ARCO's liability in proportion to other responsible parties. In addition,
environmental loss contingencies include claims for personal injuries
allegedly caused by exposure to toxic materials manufactured or used by
ARCO.
ARCO continues to estimate the amount of these costs in periodically
establishing reserves based on progress made in determining the magnitude
of remediation costs, experience gained from sites on which remediation has
been completed, the timing and extent of remedial actions required by the
applicable governmental authorities and an evaluation of the amount of
ARCO's liability considered in light of the liability and financial where
withal of the other responsible parties. At June 30, 1996, the
environmental remediation reserve was $643 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 of the 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.
-12-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE K. Other Commitments and Contingencies (Continued).
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. Most 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 period, 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.
-13-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Second Quarter 1996 vs. Second Quarter 1995
Consolidated Earnings
The earnings increase in 1996 primarily reflected higher refining and
marketing margins and volumes, higher crude oil and natural gas prices,
increased natural gas volumes and lower interest expense. These combined
improvements more than offset lower earnings from ARCO's chemical
interests.
The 1996 second quarter results included a net charge of $6 million
after tax, primarily associated with future environmental remediation
costs.
The 1995 second quarter included a net benefit of $10 million after tax
associated with insurance litigation settlements, partially offset by
environmental and other charges.
Revenues
<TABLE>
<CAPTION>
Millions 1996 1995
---- ----
<S> <C> <C>
Sales and other operating revenues
Upstream . . . . . . . . . . . . . . . . $2,231 $2,284
Downstream . . . . . . . . . . . . . . . 3,477 3,077
Intersegment eliminations. . . . . . . . (748) (938)
----- -----
Total. . . . . . . . . . . . . . . . . $4,960 $4,423
===== =====
</TABLE>
Upstream sales and other operating revenues declined slightly as higher
crude oil and natural gas prices, increased natural gas marketing activity
and higher natural gas produced volumes were offset by decreased crude oil
trading activity. Third party sales of petroleum liquids (both produced
and purchased volumes) declined by 70,200 barrels per day in the 1996
second quarter, compared to the 1995 second quarter.
Third-party sales of natural gas (produced and purchased volumes)
increased to 3.3 billion cubic feet per day in the 1996 second quarter, up
from 2.8 billion cubic feet per day in the 1995 second quarter. The
majority of the increase was generated by Vastar Resources, Inc.
("Vastar"), where revenues increased from $493 million in second quarter
1995 to $668 million in second quarter 1996.
Downstream sales and other operating revenues increased because of
higher refined products prices and volumes, partially offset by a net
decline in chemical products prices and volumes. Revenues of ARCO Chemical
Company ("ARCO Chemical") decreased from $1,149 million in the 1995 second
quarter to $959 million in the 1996 second quarter.
The decrease in 1996 income from equity investments primarily reflected
a decline in earnings from ARCO's 49.9 percent equity interest in Lyondell
Petrochemical Company ("Lyondell").
The decrease in 1996 other revenues primarily reflected the recording of
insurance settlements in the second quarter of 1995.
Expenses
Trade purchases were higher primarily as a result of third-party
purchases of crude oil and refined products and increased natural gas
marketing activity. The higher third-party purchases of crude oil and
refined products represented the combined effect of both higher prices and
purchased volumes of crude oil and refined products in the 1996 second
quarter, compared to the 1995 second quarter. These increased trade
purchases were partially offset
- 14 -
<PAGE>
by decreased crude oil trading activity and lower trade purchases of chemical
feedstocks due to lower chemical products production levels.
The lower interest expense reflected lower average long-term debt
balances outstanding in 1996.
Upstream Earnings
<TABLE>
<CAPTION>
Millions (after tax) 1996 1995
---- ----
<S> <C> <C>
Oil and Gas . . . . . . . . . . . . . . . . . $305 $209
Coal. . . . . . . . . . . . . . . . . . . . . $ 22 $ 28
</TABLE>
ARCO's earnings from worldwide oil and gas exploration and production
operations benefited from higher crude oil and natural gas prices and
growth in natural gas volumes. Included in the 1996 second quarter results
was a benefit of $15 million after tax related to a Trans Alaska Pipeline
System ("TAPS") tariff refund.
Average Oil and Gas Prices
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
U.S.
Crude oil - per barrel (bbl)
Alaska . . . . . . . . . . . . . . . . . . $16.08 $12.07
Lower 48, including Vastar . . . . . . . . $18.93 $16.92
Composite average price . . . . . . . . . . $16.86 $13.34
Natural gas - per thousand cubic feet (mcf) . $ 1.67 $ 1.38
International
Crude Oil - per bbl . . . . . . . . . . . . . $18.29 $17.23
Natural gas - per mcf . . . . . . . . . . . . $ 2.46 $ 2.58
</TABLE>
Petroleum Liquids and Natural Gas Production
<TABLE>
<CAPTION>
Net Production 1996 1995
---- ----
<S> <C> <C>
U.S.
Petroleum liquids - bbl/day . . . . . . . . 556,100 585,600
Natural gas - mcf/day . . . . . . . . . . . 1,043,000 986,800
Barrels of oil equivalent (BOE)/day*. . . . 729,900 750,100
International
Petroleum liquids - bbl/day . . . . . . . . 60,800 68,400
Natural gas - mcf/day . . . . . . . . . . . 651,500 535,300
BOE/day . . . . . . . . . . . . . . . . . . 169,400 157,600
</TABLE>
__________
* Natural gas converted at the ratio of 6 mcf to 1 barrel of liquid.
The reduction in U.S. petroleum liquids production primarily resulted
from natural field declines in Alaska, where natural field declines in the
Prudhoe Bay and Kuparuk River fields were only partially offset by
increased production from the Point McIntyre Area. The decline in
international petroleum liquids production resulted from the impact of
crude oil prices on production sharing contracts in Indonesia.
The increase in U.S. natural gas production resulted from continuing
growth in San Juan Basin production and offshore production in the Gulf of
Mexico. Most of ARCO's U.S. natural gas reserves are owned and produced by
Vastar Resources, Inc., in which ARCO holds an 82.3 percent interest.
The higher international natural gas volumes in 1996 reflected ARCO's
new South China Sea gas field and increased production from Indonesia gas
fields. The South China Sea gas field increased production by
approximately 61 million cubic feet per day and the Indonesia gas
- 15 -
<PAGE>
fields increased production by approximately 46 million cubic feet per
day compared to the 1995 second quarter.
Coal Operations
The earnings decline in 1996 reflected primarily lower earnings from
Australian operations, caused by lower volumes and the exchange
rate effect of a stronger Australian currency. A decrease of 12% in
Australian volumes compared to second quarter 1995 resulted from
equipment downtime and strikes. In the U.S., earnings were up slightly due
to the net effect of volume expansions at all mines totaling 18% compared
to second quarter 1995 offset by lower average prices.
Downstream Earnings
<TABLE>
<CAPTION>
Millions (after tax) 1996 1995
---- ----
<S> <C> <C>
Refining and marketing . . . . . . . . . . . . $120 $ 27
Transportation . . . . . . . . . . . . . . . . $ 29 $ 45
Intermediate chemicals and specialty products. $ 75 $134
</TABLE>
Refining and Marketing Operations
The results in 1996 reflected higher refined product prices and sales
volumes, partially offset by the impact of higher crude oil prices and
increased operating costs. The volume increase was in gasoline sales and
was partially offset by declines in jet fuel and distillate sales. The
volume increase in other sales reflected the sale of intermediate product
as a result of turnarounds in 1996. A majority of the increase in
operating costs was associated with turnaround maintenance. The refining
and marketing results in 1995 included $5 million after tax for
environmental and litigation-related charges. Sales prices for the
company's refined products were higher in the second quarter of 1996,
compared to the second quarter of 1995, particularly in California, as a
result of higher prices for crude oil and increases in retail gasoline
prices reflecting increased costs to produce specially formulated gasoline
required by new clean-air standards. In addition, gasoline prices were
higher as a result of tighter supplies of gasoline available for sale
because of production problems at refineries serving California.
West Coast Petroleum Products Sales
<TABLE>
<CAPTION>
Volumes (Barrels/day) 1996 1995
---- ----
<S> <C> <C>
Gasoline . . . . . . . . . . . . . . . . . . 262,700 249,800
Jet. . . . . . . . . . . . . . . . . . . . . 111,800 114,400
Distillate . . . . . . . . . . . . . . . . . 64,700 70,000
Other. . . . . . . . . . . . . . . . . . . . 93,100 55,600
------- -------
Total. . . . . . . . . . . . . . . . . . . . 532,300 489,800
======= =======
</TABLE>
Transportation Operations
The 1996 transportation results were negatively impacted by an after-tax
charge of $14 million associated with a TAPS tariff refund reflected as a
benefit in ARCO's oil and natural gas operations. Additionally, tariff
revenues were lower, while TAPS volumes also decreased 8% compared with
second quarter 1995.
-16-
<PAGE>
Intermediate Chemical and Specialty Products
For the intermediate chemicals and specialty products segment,
reflecting ARCO's 82.8% interest in ARCO Chemical Company, the 1996
earnings decline primarily reflected lower styrene monomer ("SM") margins
compared to the second quarter of 1995. SM margins were significantly lower
as SM prices decreased substantially more than raw material costs. SM
prices declined from last year's levels as weaker demand for styrene in
Europe and Asia and increased worldwide capacity resulted in lower selling
prices. Lower methyl tertiary butyl ether ("MTBE") margins and sales
volumes also contributed to the earnings decline in 1996.
The impact of lower propylene oxide ("PO") and derivatives volumes was
substantially offset by higher PO and derivatives margins. PO and
derivatives margins improved primarily as a result of lower raw materials
costs.
Equity Affiliate
ARCO earned $7 million from its 49.9 percent equity interest in Lyondell
in the second quarter of 1996. This compared to $67 million in the second
quarter of 1995. The decline in earnings resulted primarily from lower
petrochemicals margins as feedstock costs increased and prices dropped.
The lower prices in the 1996 second quarter reflected a softer market,
compared to the tighter market conditions for Lyondell's products in the
1995 second quarter.
Six-Month Period Ended June 30, 1996 vs. Same Six-Month Period 1995
Consolidated Earnings
The earnings increase in the first six months of 1996 primarily
reflected higher crude oil and natural gas prices, higher refining and
marketing margins and volumes, increased natural gas volumes and lower
interest expense. These combined improvements more than offset lower
earnings from ARCO's chemical interests. The impact of higher refining and
marketing margins primarily occurred in the second quarter 1996.
Revenues
<TABLE>
<CAPTION>
Millions 1996 1995
---- ----
<S> <C> <C>
Sales and other operating revenues
Upstream . . . . . . . . . . . . . . . . . . $4,442 $4,440
Downstream . . . . . . . . . . . . . . . . . 6,453 6,018
Intersegment eliminations. . . . . . . . . . (1,401) (1,791)
----- -----
Total . . . . . . . . . . . . . . . . . . . $9,494 $8,667
===== =====
</TABLE>
For the first six months of 1996 upstream sales and other operating
revenues reflected higher crude oil and natural gas prices, increased
natural gas marketing activity and higher natural gas produced volumes
offset by decreased crude oil trading activity. Third party sales of
petroleum liquids (both produced and purchased volumes) declined by 95,200
barrels per day in the first half of 1996, compared to the same period in
1995.
Third-party sales of natural gas (produced and purchased volumes)
increased to 3.4 billion cubic feet per day in the first half of 1996, up
from 2.8 billion cubic feet per day in the same period in 1995. The
majority of the increase was generated by Vastar, where revenues increased
from $982 million in the first half of 1995 to $1.4 billion in the first
half of 1996.
For the first six months of 1996 downstream sales and other operating
revenues increased because of higher refined products prices and volumes,
partially offset by a net decline in chemical products prices and volumes.
Revenues of ARCO Chemical decreased from $2,290 million in the first half
of 1995 to $1,941 million in the first half of 1996.
- 17 -
<PAGE>
The decrease in income from equity investments for the first six months
of 1996 primarily reflected a decline in earnings from ARCO's 49.9 percent
equity interest in Lyondell.
Expenses
Trade purchases were higher primarily as a result of third-party
purchases of crude oil and refined products and increased natural gas
marketing activity. The higher third-party purchases of crude oil and
refined products primarily represented the combined effect of both higher
prices and purchased volumes of crude oil and refined products in the 1996
second quarter, compared to the 1995 second quarter. These increased trade
purchases were partially offset by decreased crude oil trading activity and
lower trade purchases of chemical feedstocks due to lower chemical products
production levels.
The lower interest expense reflected lower average long-term debt
balances outstanding in 1996.
The first six months of 1996 included unusual items of $26 million
before tax related to final charges for previously reported personnel
reductions.
Average Oil and Gas Prices
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1996 1995
---- ----
<S> <C> <C>
U.S.
Crude oil - per bbl
Alaska . . . . . . . . . . . . . . . . . $14.55 $11.34
Lower 48, including Vastar. . . . . . . . $18.05 $16.28
Composite average price . . . . . . . . . $15.49 $12.61
Natural gas - per mcf . . . . . . . . . . . $ 1.62 $ 1.30
International
Crude Oil - per bbl . . . . . . . . . . . . $18.00 $16.80
Natural gas - per mcf . . . . . . . . . . . $ 2.54 $ 2.58
</TABLE>
Financial Position and Liquidity
<TABLE>
<CAPTION>
Millions 1996
----
<S> <C>
Cash flow provided (used) by:
Operations. . . . . . . . . . . . . . . . . . $1,672
Investing activities. . . . . . . . . . . . . $ (855)
Financing activities. . . . . . . . . . . . . $ (719)
</TABLE>
The net cash used by investing activities in the first six months of
1996 primarily included expenditures for additions to fixed assets of $873
million.
The net cash used in financing activities in the first six months of
1996 primarily included dividend payments of $444 million, repayments of
long-term debt of $208 million and a decrease of $69 million in the
Company's short-term debt position.
Cash and cash equivalents and short-term investments totaled $3.1
billion, and short-term borrowings were $1.1 billion at the end of the
second quarter of 1996.
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.
-18-
<PAGE>
Statements 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") 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 will continue to follow
the provisions of APB No. 25 and accordingly, will make the pro forma
disclosures, if material, required by SFAS No. 123 in its financial
statements for the year ended December 31, 1996.
_______________________________
Management cautions against projecting any future results based on
present earnings levels because of economic uncertainties, the extent and
form of existing or future governmental regulations and other possible
actions by governments.
-19-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
1. Reference is made to the disclosure on page 15 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 (hereinafter, the
"1995 Form 10-K Report") regarding the suit brought by the City of New York
and the New York City Housing Authority against former lead pigment
manufacturers. Plaintiffs appealed the dismissal of their claims for
restitution and indemnification and on June 27, 1996, the court of appeals
unanimously reversed the trial court's order.
2. Reference is made to the disclosure on page 15 of the Company's 1995
Form 10-K Report regarding the German, et al. v. Federal Home Loan Mortgage
Corp., et al. (Case No. 93 Civ 8941) matter. The City of New York, its
Housing Authority, and the owner of the building where plaintiffs reside
have filed cross-claims against ARCO, the other alleged former processors
of lead pigment and paint, and the LIA seeking indemnification against or
contribution toward any liability they (cross-claimants) may have to
plaintiffs.
3. Reference is made to the disclosure on page 15 of the Company's 1995
Form 10-K Report regarding Jefferson v. Lead Industries Association, Inc.
(Case No. 95-2885). On June 3, 1996, the trial court dismissed the case.
The plaintiff has appealed the decision.
4. Reference is made to the disclosure on pages 15-16 of the Company's
1995 Form 10-K Report regarding Tesch v. ARCO Alaska, Inc. (Case No. 3AN-95-
3320-CI). On May 7, 1996, the court denied plaintiffs' motion for class
certification and ordered further discovery with respect to the claims of
the individual plaintiffs. The plaintiffs are not precluded from filing
another motion for class certification.
5. On June 7, 1996, the case of Aguilar, et al. v. Atlantic Richfield, et
al. (Case No 700810) was brought in the Superior Court of California for
the County of San Diego against ARCO and eight other refiner-marketers of
California Air Resources Board ("CARB") reformulated gasoline. The
plaintiffs allege that the defendants conspired to restrict the supply, and
thereby to raise the price, of CARB gasoline in violation of California
state antitrust and unfair competition law. The plaintiffs seek to recover
treble damages, restitution, attorneys fees, and injunctive relief on
behalf of themselves and a purported class of California residents who
bought CARB gasoline after March 1, 1996 other than for resale.
6. Reference is made to the Company's 1995 Form 10-K Report for
information on other legal proceedings matters reported herein.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The following Current Report on Form 8-K was filed during the
quarter ended June 30, 1996 and through the date hereof.
Date of Report Item No. Financial Statements
-------------- -------- --------------------
July 22, 1996 5 None
-20-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATLANTIC RICHFIELD COMPANY
(Registrant)
/s/ ALLAN L. COMSTOCK
Dated: August 6, 1996 ______________________________
(signature)
Allan L. Comstock
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Income and the Consolidated Balance Sheet and
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000775483
<NAME> ATLANTIC RICHFIELD COMPANY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,633
<SECURITIES> 1,476
<RECEIVABLES> 1,554
<ALLOWANCES> 0
<INVENTORY> 975
<CURRENT-ASSETS> 6,021
<PP&E> 33,367
<DEPRECIATION> 17,824
<TOTAL-ASSETS> 24,580
<CURRENT-LIABILITIES> 4,152
<BONDS> 6,619
0
1
<COMMON> 402
<OTHER-SE> 6,674
<TOTAL-LIABILITY-AND-EQUITY> 24,580
<SALES> 9,494
<TOTAL-REVENUES> 9,834
<CGS> 7,027
<TOTAL-COSTS> 7,234
<OTHER-EXPENSES> 26
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 340
<INCOME-PRETAX> 1,340
<INCOME-TAX> 481
<INCOME-CONTINUING> 804
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 804
<EPS-PRIMARY> $4.92
<EPS-DILUTED> $4.92
</TABLE>
