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, 1997
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, 1997: 320,796,157.
<PAGE>
PART I. FINANCIAL INFORMATION
ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Millions except per share amounts) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Sales and other operating revenues . . $4,587 $4,559 $9,631 $8,715
Other revenues . . . . . . . . . . . . 223 114 362 340
----- ----- ----- -----
4,810 4,673 9,993 9,055
----- ----- ----- -----
Expenses
Trade purchases. . . . . . . . . . . . 1,990 1,866 4,222 3,540
Operating expenses . . . . . . . . . . 1,087 971 2,097 1,927
Selling, general and administrative
expenses . . . . . . . . . . . . . . 271 249 522 487
Depreciation, depletion and
amortization . . . . . . . . . . . . 417 399 844 803
Exploration expenses (including
undeveloped leasehold amortization). 90 107 216 207
Taxes other than income taxes. . . . . 177 194 408 411
Interest . . . . . . . . . . . . . . . 8 167 174 340
----- ----- ----- -----
4,040 3,953 8,483 7,715
----- ----- ----- -----
Income before income taxes, minority
interest and extraordinary item. . . . 770 720 1,510 1,340
Provision for taxes on income. . . . . . 243 261 479 481
Minority interest in earnings of
subsidiaries . . . . . . . . . . . . . 19 25 40 55
Net income before extraordinary item . . 508 434 991 804
Extraordinary loss on extinguishment of
debt (net of income tax of $74). . . . (118) - (118) -
----- ----- ----- -----
Net Income . . . . . . . . . . . . . . . $ 390 $ 434 $ 873 $ 804
===== ===== ===== =====
Earned per Share
Income before extraordinary item . . . $ 1.55 $ 1.33 $ 3.02 $ 2.46
Extraordinary loss . . . . . . . . . . (.36) - (.36) -
----- ----- ----- -----
Net income . . . . . . . . . . . . . . $ 1.19 $ 1.33 $ 2.66 $ 2.46
===== ===== ===== =====
Cash Dividends Paid per Share of
Common Stock . . . . . . . . . . . . . $.7125 $.6875 $1.400 $1.375
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
- 1 -
<PAGE>
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
(Millions)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 1,134 $ 1,460
Short-term investments. . . . . . . . . . . . . . 473 784
Accounts receivable . . . . . . . . . . . . . . . 1,698 1,936
Inventories . . . . . . . . . . . . . . . . . . . 1,020 995
Prepaid expenses and other current assets . . . . 413 258
------ ------
Total current assets. . . . . . . . . . . . . . . 4,738 5,433
------ ------
Investments and long-term receivables:
Investments accounted for on the equity method. . 1,483 1,174
Other investments and long-term receivables . . . 1,566 1,188
------ ------
3,049 2,362
------ ------
Net property, plant and equipment . . . . . . . . . 16,217 16,195
Deferred charges and other assets . . . . . . . . . 1,743 1,725
------ ------
Total assets. . . . . . . . . . . . . . . . . . . . $25,747 $25,715
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
- 2 -
<PAGE>
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
(Millions)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable . . . . . . . . . . . . . . . . . $ 1,225 $ 1,157
Accounts payable. . . . . . . . . . . . . . . . 1,948 1,443
Long-term debt due within one year. . . . . . . 1,397 1,102
Taxes payable, including excise taxes . . . . . 371 438
Other . . . . . . . . . . . . . . . . . . . . . 1,135 1,163
------ ------
Total current liabilities . . . . . . . . . . . 6,076 5,303
------ ------
Long-term debt. . . . . . . . . . . . . . . . . . 4,334 5,593
Deferred income taxes . . . . . . . . . . . . . . 2,932 2,884
Other deferred liabilities and credits. . . . . . 3,397 3,450
Minority interest . . . . . . . . . . . . . . . . 724 684
Stockholders' equity:
Preference stocks . . . . . . . . . . . . . . . 1 1
Common stock. . . . . . . . . . . . . . . . . . 806 403
Capital in excess of par value of stock . . . . 631 628
Retained earnings . . . . . . . . . . . . . . . 6,616 6,592
Equity adjustments. . . . . . . . . . . . . . . 230 177
------ ------
Total stockholders' equity. . . . . . . . . . . 8,284 7,801
------ ------
Total liabilities and stockholders' equity. . . . $25,747 $25,715
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
- 3 -
<PAGE>
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1997 1996
---- ----
(Millions)
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . $ 873 $ 804
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization . . . . . . 844 803
Dry hole expense and undeveloped leasehold
amortization . . . . . . . . . . . . . . . . . . . 87 108
Net gain on asset sales. . . . . . . . . . . . . . . (18) (40)
Income from equity investments . . . . . . . . . . . (88) (28)
Dividends from equity investments. . . . . . . . . . 28 42
Minority interest in earnings of subsidiaries. . . . 40 55
Cash payments greater than noncash provisions. . . . (149) (120)
Extraordinary loss on extinguishment of debt . . . . 118 -
Changes in working capital accounts. . . . . . . . . (312) 34
Other. . . . . . . . . . . . . . . . . . . . . . . . 40 14
----- -----
Net cash provided by operating activities. . . . . 1,463 1,672
----- -----
Cash flows from investing activities:
Additions to fixed assets (including dry hole
costs) . . . . . . . . . . . . . . . . . . . . . . (1,072) (873)
Net cash provided by short-term investments. . . . . 304 76
Investment in LUKARCO. . . . . . . . . . . . . . . . (201) -
Investment in LUKOIL convertible bonds . . . . . . . - (89)
Proceeds from asset sales. . . . . . . . . . . . . . 23 43
Other. . . . . . . . . . . . . . . . . . . . . . . . 4 (12)
----- -----
Net cash used by investing activities. . . . . . . (942) (855)
----- -----
Cash flows from financing activities:
Repayments of long-term debt . . . . . . . . . . . . (575) (208)
Proceeds from issuance of long-term debt . . . . . . 253 46
Net cash provided (used) by notes payable. . . . . . 93 (69)
Dividends paid . . . . . . . . . . . . . . . . . . . (452) (444)
Treasury stock purchases . . . . . . . . . . . . . . (155) (39)
Other. . . . . . . . . . . . . . . . . . . . . . . . (2) (5)
----- -----
Net cash used by financing activities. . . . . . . (838) (719)
----- -----
Effect of exchange rate changes on cash. . . . . . . . (9) (2)
----- -----
Net increase (decrease) in cash and cash equivalents . (326) 96
Cash and cash equivalents at beginning of period . . . 1,460 1,537
----- -----
Cash and cash equivalents at end of period . . . . . . $1,134 $1,633
===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
- 4 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE A. Accounting Policies.
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 1997.
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.
Environmental Remediation.
Effective January 1, 1997, the Company adopted Statement of Position
("SOP") 96-1, "Environmental Remediation Liabilities," issued by the
Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants. The provisions include standards affecting
the measurement, recognition and disclosure of environmental remediation
liabilities. The effect of adopting the provisions of SOP 96-1 in the
first quarter of 1997 was a decrease in the Company's net income for the
first six months of 1997 of $30 million, or $.09 per share.
Derivative Instruments
The Company uses a variety of derivative instruments, both financial
and commodity based, to minimize the effects of commodity price, interest
rate and foreign currency fluctuations. The Company does not hold or issue
derivative instruments for trading purposes and is not a party to leveraged
instruments. All derivative instruments are off-balance sheet instruments;
however, net receivable or payable positions related to derivative
instruments are carried on the balance sheet. The nature of the
transaction underlying a risk management strategy, primarily whether or not
the instrument qualifies as a hedge, determines which accounting method is
used.
The conditions to be met for a derivative instrument to qualify as a
hedge are the following: (1) item to be hedged exposes the Companay to
price or interest rate risk, (2) the derivative reduces the risk exposure
and is designated as a hedge at the time the derivative contract is entered
into and (3) at the inception of the hedge and throughout the hedge period
there is a high correlation of changes in the market value of the
derivative instrument and the fair value of the underlying items being
hedged.
Deferral accounting is used for the following types of transactions,
providing the instrument qualifies as a hedge: future crude oil and
natural gas production, fixed-price crude oil and natural gas purchase and
sale commitments, U.S. dollar-denominated debt issued by a foreign
subsidiary, debt denominated in a foreign currency or anticipated foreign
currency commitments. Under the deferral method of accounting, gains and
losses are deferred and included in other assets or accrued liabilities
until the designated underlying item is recognized in income. Recognized
gains and losses under the deferral method are recorded in sales and other
operating revenues, other revenues or trade purchases depending on the
underlying item associated with the derivative instrument. Instruments
typically used in these transactions are crude oil and natural gas swap and
price collar contracts and some foreign currency swap, forward and option
contracts.
- 5 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE A. Accounting Policies (continued).
Derivative Instruments (continued).
The accrual method of accounting is used for interest rate swap
agreements entered into by the Company which convert the interest rate on
variable rate debt to a fixed rate. Under the accrual method, each net
payment or receipt due or owed under the derivative instrument is
recognized in income during the period to which the payment or receipt
relates. Amounts to be paid or received under these agreements are
recognized as an adjustment to interest expense. The related amounts
payable to, or receivable from, the counter-parties are included in other
accrued liabilities.
The fair value method of accounting is used for any derivative
instrument that does not qualify as a hedge. The fair value method of
accounting, whereby gains and losses associated with changes in fair value
of a derivative instrument are recognized currently in income or
stockholders' equity, is used for the following derivative instruments:
foreign currency forward and option contracts associated with anticipated
future cash flows from overseas operations and foreign currency swap
contracts associated with foreign-denominated intercompany debt with
maturities exceeding one year. Presently, changes in fair value of all
transactions accounted for under this method are recognized currently in
income and reported as other revenues.
Under each method of accounting used by the Company the cash flows
related to any recognized gains or losses associated with derivative
instruments are reported as cash flows from operations.
If a derivative instrument designated as a hedge is terminated prior
to expected maturity, gains or losses are deferred and included in income
when the underlying hedged item is recognized in income.
When the designated item associated with a derivative instrument
matures, is sold, extinguished or terminated, gains or losses are
recognized as part of the gain or loss on sale or settlement of the
underlying item. When a derivative instrument is associated with an
anticipated transaction that is no longer expected to occur, the gain or
loss on the derivative is recognized immediately in income.
NOTE B. Investments.
At June 30, 1997 and 1996, investments were primarily composed of U.S.
Treasury securities and corporate debt instruments and were principally
included in short-term investments. Maturities generally ranged from one
day to 20 months. At June 30, 1997, all investments were classified as
available-for-sale ("AFS"); there were no investments considered held-to-
maturity. AFS investments were reported at fair value, with unrealized
holding gains and losses, net of tax, reported in a separate component of
stockholders' equity.
- 6 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE B. Investments (continued).
The following summarizes investments in securities, at June 30:
<TABLE>
<CAPTION>
Millions 1997 1996
---- ----
<S> <C> <C>
Aggregate fair value . . . . . . . . . . . . $1,961 $1,986
Gross unrealized holding losses. . . . . . . 3 12
Gross unrealized holding gains . . . . . . . (798) (4)
----- -----
Amortized cost . . . . . . . . . . . . . . . $1,166 $1,994
===== =====
</TABLE>
Investment activity for the six-month periods ended June 30 was as
follows:
<TABLE>
<CAPTION>
Millions 1997 1996
---- ----
<S> <C> <C>
Gross purchases. . . . . . . . . . . . . . . $4,185 $2,561
Gross sales. . . . . . . . . . . . . . . . . 1,303 973
Gross maturities . . . . . . . . . . . . . . 3,588 2,035
</TABLE>
For the three-and six-month periods ended June 30, 1997 and 1996,
gross realized gains and losses were insignificant and were determined by
the specific identification method.
NOTE C. Inventories.
Inventories at June 30, 1997 and December 31, 1996 comprised the
following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
(Millions)
<S> <C> <C>
Crude oil and petroleum products . . . . . . . . $ 246 $ 204
Chemical products. . . . . . . . . . . . . . . . 464 488
Other products . . . . . . . . . . . . . . . . . 47 48
Materials and supplies . . . . . . . . . . . . . 263 255
------- -------
Total . . . . . . . . . . . . . . . . . . . . $ 1,020 $ 995
======= =======
</TABLE>
- 7 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE D. Long-term Debt.
During the second quarter of 1997, ARCO retired debt with a face value
of $756 million prior to maturity. The debt repurchases resulted in an
extraordinary charge of $118 million, or $.36 per share against net income,
after tax of $74 million.
The settlement of certain repurchased debt did not take place until
July 1997. Approximately $800 million, which included the face amount of
the debt and premium to be paid for the early retirement, is recorded in
accounts payable at June 30, 1997.
In July 1997, ARCO redeemed its 10.25% Eurobonds which had a face
value of $250 million and were due in 2000. Accordingly, that debt issue
was reclassified to current liabilities as of June 30, 1997.
NOTE E. Capital Stock.
Detail of the Company's capital stock was as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
(Thousands)
<S> <C> <C>
$3.00 Cumulative convertible preference stock,
par $1 . . . . . . . . . . . . . . . . . . . . . $ 58 $ 61
$2.80 Cumulative convertible preference stock,
par $1 . . . . . . . . . . . . . . . . . . . . . 645 674
Common stock, par $2.50 . . . . . . . . . . . . . . 806,442 402,715
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . $807,145 $403,450
======= =======
</TABLE>
The Company's Board of Directors authorized a two-for-one stock split
effective June 13, 1997, in the form of a 100 percent stock dividend. The
par value of the additional shares of common stock issued in connection with
the stock split was credited to common stock and charged against capital in
excess of par value. All per share data have been adjusted to reflect the
stock split.
NOTE F. Stockholders' Equity Adjustments.
Adjustments to stockholders' equity at June 30, 1997 and December 31,
1996 were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
(Millions)
<S> <C> <C>
Minimum pension liability. . . . . . . . . . . $ (28) $ (28)
Treasury stock, at cost. . . . . . . . . . . . (117) (1)
Net unrealized gain on investments . . . . . . 489 225
Foreign currency translation . . . . . . . . . (114) (19)
---- ----
Total. . . . . . . . . . . . . . . . . . . . $ 230 $ 177
==== ====
</TABLE>
- 8 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE G. Capitalization of Interest.
Interest expense excluded capitalized interest of $15 million and $7
million, respectively, for the three-month periods ended June 30, 1997 and
1996, and $18 million and $12 million, respectively, for the six-month
periods ended June 30, 1997 and 1996.
NOTE H. Income Taxes.
Provision for taxes on income:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
(Millions)
<S> <C> <C> <C> <C>
Federal:
Current . . . . . . . . . . . . . $161 $190 $330 $337
Deferred. . . . . . . . . . . . . 27 5 14 10
--- --- --- ---
188 195 344 347
--- --- --- ---
Foreign:
Current . . . . . . . . . . . . . 15 26 67 65
Deferred. . . . . . . . . . . . . 1 5 (5) 7
--- --- --- ---
16 31 62 72
--- --- --- ---
State:
Current . . . . . . . . . . . . . 39 35 73 62
Deferred. . . . . . . . . . . . . - - - -
--- --- --- ---
39 35 73 62
--- --- --- ---
Total . . . . . . . . . . . . $243 $261 $479 $481
=== === === ===
</TABLE>
- 9 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
Note H. Income Taxes (continued).
Reconciliation of provision for taxes on income with tax at federal
statutory rate:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------------------
1997 1996
------------------ -----------------
Percent Percent
of of
Pretax Pretax
Amount Income Amount Income
------ ------- ------ -------
(Millions)
<S> <C> <C> <C> <C>
Income before income taxes, minority
interest and extraordinary item . . $ 770 100.0 $ 720 100.0
==== ===== ==== =====
Tax at federal statutory rate . . . . $ 270 35.0 $ 252 35.0
Increase (reduction) in taxes
resulting from:
Dividend exclusion. . . . . . . . . (13) (1.7) (2) (0.3)
Subsidiary stock transaction. . . . (22) (2.9) - -
Taxes on foreign income in excess
of statutory rate . . . . . . . . 14 1.8 6 0.8
State income taxes (net of federal
effect) . . . . . . . . . . . . . 25 3.2 22 3.1
Tax credits . . . . . . . . . . . . (26) (3.4) (24) (3.3)
Other . . . . . . . . . . . . . . . (5) (0.4) 7 1.0
---- ----- ---- -----
Provision for taxes on income . . . . $ 243 31.6 $ 261 36.3
==== ===== ==== =====
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------------
1997 1996
------------------ -----------------
Percent Percent
of of
Pretax Pretax
Amount Income Amount Income
------ ------- ------ -------
(Millions)
<S> <C> <C> <C> <C>
Income before income taxes, minority
interest and extraordinary item . . $1,510 100.0 $1,340 100.0
===== ===== ===== =====
Tax at federal statutory rate . . . . $ 529 35.0 $ 469 35.0
Increase (reduction) in taxes
resulting from:
Dividend exclusion. . . . . . . . . (21) (1.4) (5) (0.4)
Subsidiary stock transaction. . . . (44) (2.9) - -
Taxes on foreign income in excess
of statutory rate. . . . . . . . 28 1.9 23 1.7
State income taxes (net of federal
effect). . . . . . . . . . . . . 47 3.1 40 3.0
Tax credits . . . . . . . . . . . . (51) (3.4) (46) (3.4)
Other . . . . . . . . . . . . . . . (9) (0.6) - -
----- ----- ----- -----
Provision for taxes on income . . . . $ 479 31.7 $ 481 35.9
===== ===== ===== =====
</TABLE>
- 10 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE I. 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,
--------------------
1997 1996*
---- ----
(Millions of Shares)
<S> <C> <C>
Average number of common shares outstanding . . . . 321.0 321.6
Common stock equivalents. . . . . . . . . . . . . . 7.1 5.1
----- -----
Total. . . . . . . . . . . . . . . . . . . . . . 328.1 326.7
===== =====
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1997 1996*
---- ----
(Millions of Shares)
<S> <C> <C>
Average number of common shares outstanding . . . . 321.6 321.6
Common stock equivalents. . . . . . . . . . . . . . 6.4 5.0
----- -----
Total. . . . . . . . . . . . . . . . . . . . . . 328.0 326.6
===== =====
* Restated to give affect to stock split (Note E).
</TABLE>
- 11 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE I. Earned Per Share (continued).
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per
Share." SFAS No. 128 requires companies to adopt its provisions for fiscal
years ending after December 15, 1997 and requires restatement of all prior
period earnings per share ("EPS") data presented. Earlier application is
not permitted. A company is permitted to disclose pro forma EPS amounts
computed using SFAS No. 128 in periods prior to required adoption.
Accordingly, the pro forma EPS data for the three-and-six-month periods
ended June 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------------------
1997 1996*
-------------- -------------
Millions, except per share amounts Shares EPS Shares EPS
------ --- ------ ---
<S> <C> <C> <C> <C>
Basic EPS. . . . . . . . . . . . . . . . 321.1 $1.21 321.6 $1.35
Diluted EPS. . . . . . . . . . . . . . . 325.7 $1.20 326.4 $1.33
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------
1997 1996*
------------- --------------
Millions, except per share amounts Shares EPS Shares EPS
------ --- ------ ---
<S> <C> <C> <C> <C>
Basic EPS. . . . . . . . . . . . . . . . 321.6 $2.71 321.6 $2.50
Diluted EPS. . . . . . . . . . . . . . . 326.2 $2.67 325.7 $2.47
* Restated to give affect to stock split (Note E).
</TABLE>
NOTE J. Supplemental Income Statement Information.
Taxes other than income taxes comprised the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ---
(Millions)
<S> <C> <C> <C> <C>
Production/severance . . . . . . . $ 82 $105 $205 $208
Property. . . . . . . . . . . . . . 48 46 93 93
Other . . . . . . . . . . . . . . . 47 43 110 110
--- --- --- ---
Total . . . . . . . . . . . . . . $177 $194 $408 $411
=== === === ===
</TABLE>
- 12 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE K. Supplemental Cash Flow Information.
Following is supplemental cash flow information for the six months
ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1997 1996
---- ----
(Millions)
<S> <C> <C>
Gross sales and maturities of short-term
investments . . . . . . . . . . . . . . . . . $ 1,069 $ 1,618
Gross purchases of short-term investments . . . (1,373) (1,542)
------ ------
Net cash provided by short-term investments . . $ 304 $ 76
====== ======
Gross proceeds from issuance of notes payable . $ 4,171 $ 3,028
Gross repayments of notes payable . . . . . . . (4,078) (3,097)
------ ------
Net cash provided (used) by notes payable . . . $ 93 $ (69)
====== ======
Gross noncash provisions charged to income. . . $ 154 $ 206
Reserve reversal from partial tax audit
settlements . . . . . . . . . . . . . . . . . (145) -
Cash payments of previously accrued items . . . (158) (326)
------ ------
Cash payments greater than noncash provisions . $ (149) $ (120)
====== ======
Changes in working capital - Increase (decrease)
to cash:
Accounts receivable . . . . . . . . . . . . . . $ 176 $ 109
Inventories . . . . . . . . . . . . . . . . . . (37) (104)
Accounts payable. . . . . . . . . . . . . . . . (292) 63
Other working capital . . . . . . . . . . . . . (159) (34)
------ ------
Total. . . . . . . . . . . . . . . . . . . . $ (312) $ 34
====== ======
</TABLE>
Interest paid during the six-month periods ended June 30, 1997 and
1996 was $335 million and $334 million, respectively.
Income taxes paid during the six-month periods ended June 30, 1997 and
1996 were $598 million and $395 million, respectively.
- 13 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE L. Summarized Financial Information.
Summarized financial information for Lyondell Petrochemical Company
("Lyondell"), a company in which Atlantic Richfield owned a 49.9% interest
at June 30, 1997, was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
Pro forma* Pro forma*
1997 1996 1997 1996
---- ---------- ---- ----------
(Millions)
<S> <C> <C> <C> <C>
Revenues (including sales to ARCO
and ARCO Chemical Company). . . $ 789 $ 613 $1,544 $1,192
Sales to ARCO and ARCO Chemical
Company . . . . . . . . . . . . 75 73 142 137
Operating income. . . . . . . . . 146 38 225 68
Income from equity investment
in LYONDELL-CITGO Refining Co.
("LCR") . . . . . . . . . . . . 21 7 27 33
Net income. . . . . . . . . . . . 93 15 133 39
* Effective January 1, 1997, Lyondell began accounting for its investment
in LCR under the equity method of accounting. Pro forma financial
information for the three and six months ended June 30, 1996 presents
Lyondell's results of operations as if the change from consolidation of LCR
to accounting for Lyondell's investment in LCR under the equity method
accounting had been effective January 1, 1996.
_________________
ARCO's equity in net income of
Lyondell. . . . . . . . . . . . 46 7 76 19
Cash dividends received from
Lyondell. . . . . . . . . . . . 9 9 18 18
</TABLE>
________________________
<TABLE>
<CAPTION>
Pro forma**
June 30, December 31,
1997 1996
---- ----
(Millions)
<S> <C> <C>
Current assets. . . . . . . . . . . . . . . . . . $ 612 $ 619
Noncurrent assets . . . . . . . . . . . . . . . . 1,297 1,271
Current liabilities . . . . . . . . . . . . . . . 385 485
Long-term debt. . . . . . . . . . . . . . . . . . 742 744
Other liabilities . . . . . . . . . . . . . . . . 249 227
Minority interest . . . . . . . . . . . . . . . . 5 3
Stockholders' equity. . . . . . . . . . . . . . . 528 431
________
** Pro forma December 31, 1996 information reflects the accounting for
Lyondell's investment in LCR under the equity method as if the change from
consolidation to equity accounting had been effective December 31, 1996.
</TABLE>
- 14 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE M. 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 22%). 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 the liability for the spill remain unresolved between the Exxon
companies, on the one hand, 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.
The State of Montana is seeking recovery from ARCO of $764 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. 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, 1997, the
environmental remediation accrual was $600 million. As the scope of ARCO's
obligations becomes more clearly defined, there may be changes in these
estimated costs, which might result in future charges against ARCO's
earnings.
ARCO's environmental remediation accrual covers federal Superfund and
state-managed sites as well as other clean-up sites, including service
stations, refineries, terminals, chemical facilities, third-party
landfills, former nuclear processing facilities, sites associated with
discontinued operations and sites formerly owned by ARCO. ARCO has been
named a potentially responsible party ("PRP") for 117 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
- 15 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE M. Other Commitments and Contingencies (continued).
with other sites as to which no claims have been asserted, in estimating
the amount of the accrual. ARCO's future costs at these sites could exceed
the amount accrued by as much as $600 million.
Approximately 45% 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 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.
- 16 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Second Quarter 1997 vs. Second Quarter 1996
Consolidated Earnings
The earnings decline in 1997 primarily reflected lower refining and
marketing margins and lower ARCO Chemical Company ("ARCO Chemical")
earnings and crude oil prices. Partially offsetting these declines were
higher natural gas sales volumes and prices, higher earnings from ARCO's
equity interest in Lyondell Petrochemical Company ("Lyondell") and
increased refined products sales volumes.
The 1997 second quarter included an extraordinary loss of $118 million
after tax related to early retirement of debt. The impact of the
extraordinary loss was offset by the reversal of reserves for taxes and
related interest which resulted primarily from the partial resolution of
certain federal and state income tax audits.
The 1996 second quarter results included a net charge of $6 million
after tax, primarily associated with future environmental remediation
costs.
Upstream Earnings
<TABLE>
<CAPTION>
Millions (after tax) 1997 1996
---- ----
<S> <C> <C>
Exploration and Production . . . . . . . . . . . . $321 $309
Coal . . . . . . . . . . . . . . . . . . . . . . . $ 24 $ 22
</TABLE>
Exploration and Production operations
ARCO's earnings from worldwide oil and gas exploration and production
operations benefited from growth in international natural gas volumes and
higher natural gas prices, partially offset by lower crude oil prices.
Average Oil and Gas Prices
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
U.S.
Petroleum liquids - per barrel (bbl)
Alaska . . . . . . . . . . . . . . . . . . . $14.95 $15.99
Lower 48, including Vastar . . . . . . . . . $16.06 $17.58
Composite average price. . . . . . . . . . . $15.31 $16.47
Natural gas - per thousand cubic feet (mcf). . $ 1.72 $ 1.67
International
Petroleum liquids - per bbl. . . . . . . . . . $17.04 $17.69
Natural gas - per mcf. . . . . . . . . . . . . $ 2.75 $ 2.46
</TABLE>
- 17 -
<PAGE>
Petroleum Liquids and Natural Gas Production
<TABLE>
<CAPTION>
Net Production 1997 1996
---- ----
<S> <C> <C>
U.S.
Petroleum liquids - bbl/day. . . . . . . . . . 554,000 558,500
Natural gas - mcf/day. . . . . . . . . . . . . 1,060,100 1,043,000
Barrels of oil equivalent (BOE)/day* . . . . . 730,700 732,300
International
Petroleum liquids - bbl/day. . . . . . . . . . 76,800 60,800
Natural gas - mcf/day. . . . . . . . . . . . . 855,400 651,500
BOE/day. . . . . . . . . . . . . . . . . . . . 219,400 169,400
Total net production BOE/day . . . . . . . . . . 950,100 901,700
__________
* Natural gas converted at the ratio of 6 mcf to 1 barrel of liquid.
</TABLE>
The reduction in U.S. petroleum liquids production primarily resulted
from natural field declines in the Prudhoe Bay and Kuparuk River fields in
Alaska. Increased international petroleum liquids production reflects the
production from the Rhourde El Baguel field in Algeria.
International natural gas volumes in 1997 reflected increased
production from Yacheng 13, ARCO's South China Sea natural gas field and
increased production from the United Kingdom North Sea, primarily the new
Tyne field. The South China Sea natural gas field increased production by
approximately 95 million cubic feet per day and the Tyne field added
approximately 62 million cubic feet per day to natural gas production in
the 1997 second quarter.
Coal Operations
The earnings increase in 1997 primarily reflected the earnings
contribution from ARCO's 65% ownership interest in Canyon Fuel Company, a
limited liability company which owns three mines in Utah. Decreases in
U.S. and Australian volumes and lower average U.S. prices were offset by a
favorable judgment associated with litigation over a coal sales contract.
In April 1997, ARCO announced it is evaluating a likely withdrawal
from its worldwide coal business through the disposition of coal-mining
operations in the United States and Australia because they are no longer
considered part of the Company's core business. The method of disposition
is currently under study.
Downstream Earnings
<TABLE>
<CAPTION>
Millions (after tax) 1997 1996
---- ----
<S> <C> <C>
Refining and marketing. . . . . . . . . . . . . $ 66 $129
Chemicals . . . . . . . . . . . . . . . . . . . $ 38 $ 75
</TABLE>
- 18 -
<PAGE>
Refining and Marketing Operations
The decline in earnings in 1997 primarily reflected lower margins as
the West Coast experienced high operating rates by refiners and high
inventories. In the 1996 second quarter product prices benefited from
product scarcity due to problems at a number of West Coast refineries. The
lower margins were partially offset by increased sales volumes.
Approximately 200 recently-leased Thrifty Oil Co. gas stations were
integrated into ARCO's retail network. In addition, there was a net
increase of 12 ARCO branded sites to the retail network during the 1997
second quarter. These added sites contributed to an increase in gasoline
sales of 5%. In addition, jet fuel and diesel sales volumes were up 9% and
20%, respectively, as a result of refineries running at higher crude rates
in 1997. The 1997 volume decrease in other products reflected the sale of
intermediate product as a result of turnarounds in 1996.
ARCO also announced that it is expanding its retail marketing into
British Columbia with the expected acquisition of 52 Super-Save gasoline
sites in the greater Vancouver area.
West Coast Petroleum Products Sales
<TABLE>
<CAPTION>
Volumes (Barrels/day) 1997 1996
---- ----
<S> <C> <C>
Gasoline. . . . . . . . . . . . . . . . . . . 275,800 262,700
Jet . . . . . . . . . . . . . . . . . . . . . 122,400 111,800
Distillate. . . . . . . . . . . . . . . . . . 78,100 64,700
Other . . . . . . . . . . . . . . . . . . . . 75,100 93,100
------- -------
Total . . . . . . . . . . . . . . . . . . . . 551,400 532,300
======= =======
</TABLE>
Chemicals
For the chemicals segment, reflecting ARCO's 82.5% interest in ARCO
Chemical Company, the 1997 earnings decline primarily reflected lower
margins for most products and higher costs due to plant turnarounds in the
U.S. and Europe, partially offset by higher sales volumes for propylene
oxide ("PO") erivatives. The decline in margins is due to the combined
effect of lower sales prices and higher feedstock costs in the second
quarter of 1997, compared to the 1996 second quarter. Factors contributing
to the lower 1997 prices included stronger price competition in PO
derivatives and toluene di-isocyanate markets, the expiration of most of
ARCO Chemical's long-term methyl tertiary butyl ether contracts and the
effect of a stronger U.S. dollar.
During the second quarter, ARCO Chemical launched a cost reduction
program designed to reduce annual fixed and controllable costs by $150
million, starting in 1998. ARCO Chemical reported that it expects a charge
to earnings in the second half of 1997 to account for the costs of the
restructuring program.
Equity Affiliate
ARCO earned $46 million from its 49.9% equity interest in Lyondell in
the second quarter of 1997. This compared to $7 million in the second
quarter of 1996. The increased earnings resulted primarily from stronger
petrochemicals margins and improved results for LYONDELL-CITGO Refining
Company Ltd. (LCR). LCR's improved performance resulted from the
completion of a refinery upgrade project in February 1997 which provided
higher processing capability for very heavy crude oil.
- 19 -
<PAGE>
Consolidated Revenues
<TABLE>
<CAPTION>
Millions 1997 1996
---- ----
<S> <C> <C>
Sales and other operating revenues
Upstream . . . . . . . . . . . . . . . . . . . $2,568 $2,311
Downstream . . . . . . . . . . . . . . . . . . 2,641 2,930
Intersegment eliminations. . . . . . . . . . . (622) (682)
----- -----
Total. . . . . . . . . . . . . . . . . . . . $4,587 $4,559
===== =====
</TABLE>
Upstream sales and other operating revenues increased primarily as a
result of higher international natural gas volumes, higher natural gas
prices and increased natural gas marketing activity, partially offset by
lower crude oil prices. Natural gas marketing sales volumes increased to
2.8 billion cubic feet per day in the 1997 second quarter, up from 2.6
billion cubic feet per day in the 1996 second quarter. International
natural gas volumes increased by approximately 200 million cubic feet per
day in the 1997 second, compared to the 1996 second quarter.
Downstream sales and other operating revenues primarily decreased
because of lower refined products prices, partially offset by higher
refined products volumes.
The increase in 1997 other revenues primarily reflected the $39
million earnings increase from ARCO's equity interest in Lyondell and
revenue resulting from the termination of a lease agreement and a favorable
judgment associated with litigation over a coal sales contract.
Consolidated Expenses
Trade purchases were higher primarily as a result of increased natural
gas marketing activity, partially offset by lower crude oil prices. Natural
gas marketing purchase volumes increased to 2.0 billion cubic feet per day
in the 1997 second quarter, up from 1.7 billion cubic feet per day in the
1996 second quarter.
Operating expenses were higher in 1997 primarily as a result of lease
operating costs associated with production from the Rhourde El Baguel
field, manufacturing plant turnarounds at ARCO Chemical and higher tolling
volumes at ARCO Chemical related to a plant in France that was under repair
and operated at restricted rates in the 1996 second quarter.
The lower interest expense reflected the reversal of reserves for tax-
related interest which resulted from the partial resolution of certain
federal and state income tax audits.
Income Taxes
The Company's effective tax rate was 31.6% in the 1997 second quarter,
compared to 36.3% in the 1996 second quarter. The lower effective tax rate
in 1997 primarily reflected the partial elimination of deferred taxes which
were provided in a prior year upon the sale of stock of a subsidiary but
which are no longer required. Elimination of such taxes is expected to
continue in future periods. The remaining amount of deferred taxes that
may be eliminated in future periods is approximately $140 million. In
addition, an increase in the dividends received tax deduction also lowered
the effective tax rate.
- 20 -
<PAGE>
Six-Month Period Ended June 30, 1997 vs. Same Six-Month Period 1996
Consolidated Earnings
The earnings increase in the first six months of 1997 primarily
reflected higher crude oil and natural gas prices and volumes, higher
refined products volumes and higher earnings from ARCO's equity interest in
Lyondell. These combined improvements more than offset lower refining and
marketing margins and lower earnings from ARCO Chemical.
Consolidated Revenues
<TABLE>
<CAPTION>
Millions 1997 1996
---- ----
<S> <C> <C>
Sales and other operating revenues
Upstream. . . . . . . . . . . . . . . . . . . . . $5,608 $4,602
Downstream. . . . . . . . . . . . . . . . . . . . 5,409 5,397
Intersegment eliminations . . . . . . . . . . . . (1,386) (1,284)
----- -----
Total. . . . . . . . . . . . . . . . . . . . . . $9,631 $8,715
===== =====
</TABLE>
For the first six months of 1997 upstream sales and other operating
revenues reflected increased natural gas marketing activity, higher natural
gas and crude oil prices and natural gas volumes. Natural gas marketing
sales volumes increased to 3.2 billion cubic feet per day in the 1997
second quarter, up from 2.5 billion cubic feet per day in the 1996 second
quarter. International natural gas volumes increased by approximately 145
million cubic feet per day during the first six months of 1997, compared to
the same period in 1996.
For the first six months of 1997 downstream sales and other operating
revenues increased slightly as higher chemical and refined products volumes
and higher refined products prices were mostly offset by lower chemical
products prices.
Consolidated Expenses
Trade purchases for the six months ended June 30, 1997 were higher
primarily as a result of increased natural gas marketing activity. Natural
gas marketing purchase volumes increased to 2.4 billion cubic feet per day
in the 1997 second quarter, up from 1.7 billion cubic feet per day in the
1996 second quarter.
Operating expenses for the first six months of 1997 reflected charges
for future environmental remediation related to the adoption of a new
accounting standard, lease operating costs associated with production from
the Rhourde El Baguel field and higher tolling volumes and manufacturing
plant turnaround expense at ARCO Chemical. The higher tolling volumes
related to a plant in France that was under repair and operated at
restricted rates during the first six months of 1997.
For the first six months ended June 30, 1997, the lower interest
expense reflected the reversal of reserves for tax-related interest which
resulted from the partial resolution of certain federal and state income
tax audits.
- 21 -
<PAGE>
Income Taxes
The Company's effective tax rate was 31.7% for the first six months of
1997, compared to 35.9% for the same period in 1996. The lower effective
tax rate in 1997 primarily reflected the partial elimination of deferred
taxes which were provided in a prior year upon the sale of stock of a
subsidiary but which are no longer required. Elimination of such taxes is
expected to continue in future periods. In addition, an increase in the
dividends received tax deduction also lowered the effective tax rate.
Average Oil and Gas Prices
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1997 1996
---- ----
<S> <C> <C>
U.S.
Petroleum liquids - per bbl
Alaska . . . . . . . . . . . . . . . . . . $16.80 $14.50
Lower 48, including Vastar. . . . . . . . . $17.65 $17.04
Composite average price . . . . . . . . . . $17.07 $15.25
Natural gas - per mcf . . . . . . . . . . . . $ 2.03 $ 1.62
International
Petroleum liquids - per bbl . . . . . . . . . $19.00 $17.51
Natural gas - per mcf . . . . . . . . . . . . $ 2.70 $ 2.54
</TABLE>
Petroleum Liquids and Natural Gas Production
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Production
U.S.
Petroleum liquids - bbl/day. . . . . . . . . 564,300 569,400
Natural gas - mcf/day. . . . . . . . . . . . 1,054,600 1,049,800
Barrels of oil equivalent (BOE)/day* . . . . 740,100 744,300
International
Petroleum liquids - bbl/day. . . . . . . . . 72,500 62,800
Natural gas - mcf/day. . . . . . . . . . . . 867,000 721,800
BOE/day. . . . . . . . . . . . . . . . . . . 217,000 183,200
Total net production BOE/day . . . . . . . . 957,100 927,500
__________
* Natural gas converted at the ratio of 6 mcf to 1 barrel of liquid.
</TABLE>
Liquidity and Capital Resources
<TABLE>
<CAPTION>
Millions 1997
----
<S> <C>
Cash flow provided (used) by:
Operations. . . . . . . . . . . . . . . . . . . . . $1,463
Investing activities. . . . . . . . . . . . . . . . $ (942)
Financing activities. . . . . . . . . . . . . . . . $ (838)
</TABLE>
- 22 -
<PAGE>
The net cash used by investing activities in the first six months of
1996 primarily included expenditures for additions to fixed assets of
$1,072 million.
The net cash used in financing activities in the first six months of
1996 primarily included repayments of long-term debt of $575 million,
dividend payments of $452 million, and treasury stock purchases of $155
million. These uses were partially offset by proceeds of $253 million from
the issuance of long-term debt and an increase of $93 million in the
Company's short-term debt position.
The Company used approximately $800 million in cash in July 1997 to
settle early retirements of debt contracted in the second quarter of 1997.
Also in July the Company used approximately $250 million in cash for
redemption of its 10.25% Eurobonds which were due in 2000.
Cash and cash equivalents and short-term investments totaled $1.6
billion, short-term borrowings were $1.2 billion and long-term debt due
within one year was $1.4 billion at the end of the second quarter of 1996.
On July 28, 1997, ARCO's Board of Directors finalized a decision to
settle all of ARCO's 9% Exchangeable Notes ("Notes") due September 15,
1997 with Lyondell stock currently owned by ARCO. If market conditions
remain unchanged from July 1997, ARCO expects to realized an after-tax gain
of approximately $300 million upon the exchange. The outstanding amount of
the Notes at June 30, 1997 was $988 million.
On July 28, 1997, Lyondell common stock was trading above the issue
price of the Notes ($24.75). The Notes were structured such that ARCO
retains approximately the first 12% in stock price appreciation above the
issue price. Therefore, if the final pricing of the stock settlement
exceeds $24.75, ARCO will retain a residual stockholding, which it plans to
sell at such times and in the manner deemed in the best interest of the
Company.
ARCO's 2-for-1 stock split and a 4% increase in the quarterly dividend
became effective June 13 to stockholders of record on May 16, 1997.
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.
Statements of Financial Accounting Standards Not Yet Adopted
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 requires companies to adopt its provisions for fiscal
years ending after December 15, 1997 and requires restatement of all prior
period earnings per share ("EPS") data presented. Earlier application is
not permitted. SFAS No. 128 specifies the computation, presentation and
disclosure requirements for EPS. The implementation of SFAS No. 128 is not
expected to have a material effect on the EPS data presented by the
Company. See Note H of notes to the consolidated financial statements.
_______________________________
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.
- 23 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
1. Reference is made to the disclosure on page 14 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 (hereinafter, the
"1996 Form 10-K Report") and on page 19 of the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1997 (the "First Quarter Form
10-Q Report") regarding In re Hanford Nuclear Reservation Litigation (CY-91-
3015-AAM). On April 4, 1997, ARCO was served with a new complaint making
allegations similar to those already pending in this litigation, filed by
six individual Native Americans in the United States District Court for the
Western District of Washington. This action has been transferred to the
United States District Court for the Eastern District of Washington.
2. Reference is made to the disclosure on pages 15 and 16 of the Company's
1996 Form 10-K Report and on page 19 of the First Quarter Form 10-Q Report
regarding the case of Aguilar, et al. v. Atlantic Richfield, et al. (Case
No. 700810). The court has set a date of November 7, 1997 for trial.
3. On March 29, 1994, Siemens Solar Industries ("Siemens") filed a
complaint in the Supreme Court of the State of New York for the County of
New York, titled Siemens Solar Industries v. Atlantic Richfield Company
(Case No. 94-109092). Siemens' complaint alleges breach of contract and
misrepresentation in connection with the February 1990 sale by ARCO to
Siemens of the stock of ARCO Solar, Inc. Siemens seeks damages in the
amount of the purchase price, operating losses incurred after the sale,
prejudgment interest, and punitive damages. ARCO denies the allegations of
the complaint. The court has set a date of September 3, 1997 for trial.
4. On July 29, 1996, a crude oil spill involving ARCO Pipe Line Company's
("APL") Line 8 occurred in Long Beach, California. On May 23, 1997, the
City Prosecuting Attorney of Long Beach filed a misdemeanor complaint
against APL. The complaint alleges inter alia that APL violated the
California Fish & Game Code, the California Government Code and the
California Waster Code. Settlement discussions have been initiated and it
is anticipated that an amount in excess of $100,000 will be paid.
5. Reference is made to the Company's 1996 Form 10-K Report for
information on other legal proceedings matters reported herein.
- 24 -
<PAGE>
Item 5. Other.
At its meeting on July 28, 1997, the Board of Directors elected two
Senior Vice Presidents of the Company, Messrs. Hazelwood and Slater. Set
forth below is a current list of the Company's Executive Officers and
Officers.
<TABLE>
<S> <C>
Mike R. Bowlin Chairman, President and Chief
Executive Officer
Anthony G. Fernandes Executive Vice President
Marie L. Knowles Executive Vice President and Chief
Financial Officer
William E. Wade, Jr. Executive Vice President
Michael E. Wiley Executive Vice President
Harrell L. Bilhartz Senior Vice President
John B. Cheatham IV Senior Vice President
Terry G. Dallas Senior Vice President and Treasurer
Kenneth R. Dickerson Senior Vice President
Mark L. Hazelwood Senior Vice President
John H. Kelly Senior Vice President
Stephen R. Mut Senior Vice President
William C. Rusnack Senior Vice President
John M. Slater Senior Vice President
J. Kenneth Thompson Senior Vice President
Donald R. Voelte, Jr. Senior Vice President
Bruce G. Whitmore Senior Vice President, General Counsel
and Secretary
Allan L. Comstock Vice President and Controller
Dodd W. DeCamp Vice President
Stephen J. Giovanisci Vice President
Beverly L. Hamilton Vice President and Investment Officer
Robert L. Healy Vice President
Allen C. Holmes Vice President and General Tax Officer
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed during
the quarter ended June 30, 1997 and through the date hereof.
Date of Report Item No. Financial Statements
-------------- -------- --------------------
June 23, 1997 5 None
July 28, 1997 5 None
- 25 -
<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 5, 1997 ______________________________
(signature)
Allan L. Comstock
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
- 26 -
<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 is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> $ 1,134
<SECURITIES> 473
<RECEIVABLES> 1,698
<ALLOWANCES> 0
<INVENTORY> 1,020
<CURRENT-ASSETS> 4,738
<PP&E> 35,380
<DEPRECIATION> 19,163
<TOTAL-ASSETS> 25,747
<CURRENT-LIABILITIES> 6,076
<BONDS> 4,334
0
1
<COMMON> 806
<OTHER-SE> 7,477
<TOTAL-LIABILITY-AND-EQUITY> 25,747
<SALES> 9,631
<TOTAL-REVENUES> 9,993
<CGS> 7,571
<TOTAL-COSTS> 7,787
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174
<INCOME-PRETAX> 1,510
<INCOME-TAX> 479
<INCOME-CONTINUING> 991
<DISCONTINUED> 0
<EXTRAORDINARY> 118
<CHANGES> 0
<NET-INCOME> 873
<EPS-PRIMARY> $2.66
<EPS-DILUTED> $2.66
</TABLE>
