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 March 31, 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
March 31, 1997: 161,090,496.
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended
March 31,
------------------
(Millions except per share amounts) 1997 1996
---- ----
<S> <C> <C>
Revenues
Sales and other operating revenues . . . . . . . . . . $5,044 $4,156
Other revenues . . . . . . . . . . . . . . . . . . . . 139 226
----- -----
5,183 4,382
----- -----
Expenses
Trade purchases. . . . . . . . . . . . . . . . . . . . 2,232 1,674
Operating expenses . . . . . . . . . . . . . . . . . . 1,010 930
Selling, general and administrative expenses . . . . . 251 238
Depreciation, depletion and amortization . . . . . . . 427 404
Exploration expenses (including undeveloped
leasehold amortization). . . . . . . . . . . . . . . 126 100
Taxes other than income taxes. . . . . . . . . . . . . 231 217
Interest . . . . . . . . . . . . . . . . . . . . . . . 166 173
Unusual items. . . . . . . . . . . . . . . . . . . . . - 26
----- -----
4,443 3,762
----- -----
Income before income taxes and minority interest . . . . 740 620
Provision for taxes on income. . . . . . . . . . . . . . 236 220
Minority interest in earnings of subsidiaries. . . . . . 21 30
----- -----
Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 483 $ 370
===== =====
Earned per Share . . . . . . . . . . . . . . . . . . . . $ 2.95 $ 2.26
===== =====
Cash Dividends Paid per Share of Common Stock. . . . . . $1.375 $1.375
===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
-1-
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED BALANCE SHEET
March 31, December 31,
1997 1996
---- ----
(Millions)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 1,449 $ 1,460
Short-term investments. . . . . . . . . . . . . . 805 784
Accounts receivable . . . . . . . . . . . . . . . 1,749 1,936
Inventories . . . . . . . . . . . . . . . . . . . 992 995
Prepaid expenses and other current assets . . . . 287 258
------ ------
Total current assets. . . . . . . . . . . . . . . 5,282 5,433
------ ------
Investments and long-term receivables:
Investments accounted for on the equity method. . 855 764
Other investments and long-term receivables . . . 1,652 1,598
------ ------
2,507 2,362
------ ------
Net property, plant and equipment . . . . . . . . . 16,137 16,195
Deferred charges and other assets . . . . . . . . . 1,720 1,725
------ ------
Total assets. . . . . . . . . . . . . . . . . . . . $25,646 $25,715
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED BALANCE SHEET
March 31, December 31,
1997 1996
---- ----
(Millions)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable . . . . . . . . . . . . . . . . . . $ 1,142 $ 1,157
Accounts payable. . . . . . . . . . . . . . . . . 1,148 1,443
Long-term debt due within one year. . . . . . . . 1,111 1,102
Taxes payable . . . . . . . . . . . . . . . . . . 616 438
Other . . . . . . . . . . . . . . . . . . . . . . 1,060 1,163
------ ------
Total current liabilities . . . . . . . . . . . . 5,077 5,303
------ ------
Long-term debt. . . . . . . . . . . . . . . . . . . 5,407 5,593
Deferred income taxes . . . . . . . . . . . . . . . 2,864 2,884
Other deferred liabilities and credits. . . . . . . 3,504 3,450
Minority interest . . . . . . . . . . . . . . . . . 717 684
Stockholders' equity:
Preference stocks . . . . . . . . . . . . . . . . 1 1
Common stock. . . . . . . . . . . . . . . . . . . 403 403
Stock dividends issuable. . . . . . . . . . . . . 403 -
Capital in excess of par value of stock . . . . . 634 628
Retained earnings . . . . . . . . . . . . . . . . 6,458 6,592
Equity adjustments. . . . . . . . . . . . . . . . 178 177
------ ------
Total stockholders' equity. . . . . . . . . . . . 8,077 7,801
------ ------
Total liabilities and stockholders' equity. . . . . $25,646 $25,715
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
- 3 -
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
March 31,
------------------
1997 1996
---- ----
(Millions)
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 483 $ 370
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization . . . . . . . 427 404
Dry hole expense and undeveloped leasehold
amortization. . . . . . . . . . . . . . . . . . . . . 50 48
Net gain on asset sales. . . . . . . . . . . . . . . . (8) (26)
Income from equity investments . . . . . . . . . . . . (35) (17)
Dividends from equity investments. . . . . . . . . . . 13 27
Minority interest in earnings of subsidiaries. . . . . 21 30
Cash payments (greater) less than noncash provisions . 19 (27)
Deferred income taxes. . . . . . . . . . . . . . . . . (19) 7
Changes in working capital accounts. . . . . . . . . . (78) 1
Other. . . . . . . . . . . . . . . . . . . . . . . . . 32 23
----- -----
Net cash provided by operating activities. . . . . . 905 840
----- -----
Cash flows from investing activities:
Additions to fixed assets (including dry hole costs) . (504) (352)
Net cash used by short-term investments . . . . . . . (29) (218)
Proceeds from asset sales. . . . . . . . . . . . . . . 9 26
Investments and long-term receivables. . . . . . . . . (5) (21)
Other. . . . . . . . . . . . . . . . . . . . . . . . . 11 17
----- -----
Net cash used by investing activities. . . . . . . . (518) (548)
----- -----
Cash flows from financing activities:
Repayments of long-term debt . . . . . . . . . . . . . (393) (79)
Proceeds from issuance of long-term debt . . . . . . . 233 45
Net cash provided by notes payable . . . . . . . . . . 18 72
Dividends paid . . . . . . . . . . . . . . . . . . . . (223) (222)
Treasury stock purchases . . . . . . . . . . . . . . . (17) (14)
Other. . . . . . . . . . . . . . . . . . . . . . . . . (5) (5)
----- -----
Net cash used by financing activities. . . . . . . . (387) (203)
----- -----
Effect of exchange rate changes on cash. . . . . . . . . (11) (2)
----- -----
Net increase (decrease) in cash and cash equivalents . . (11) 87
Cash and cash equivalents at beginning of period . . . . 1,460 1,537
----- -----
Cash and cash equivalents at end of period . . . . . . . $1,449 $1,624
===== =====
</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 of $30
million, or $.18 per share.
NOTE B. Investments.
At March 31, 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 March 31, 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.
The following summarizes investments in securities at March 31:
<TABLE>
<CAPTION>
Millions 1997 1996
------ ------
AFS AFS
--- ---
<S> <C> <C>
Aggregate fair value . . . . . . . . . . . $1,842 $2,174
Gross unrealized holding losses. . . . . . 7 19
Gross unrealized holding gains . . . . . . (478) (12)
----- -----
Amortized cost . . . . . . . . . . . . . . $1,371 $2,181
===== =====
</TABLE>
Investment activity for the three months ended March 31 was as follows:
<TABLE>
<CAPTION>
Millions 1997 1996
------ ------
AFS AFS
--- ---
<S> <C> <C>
Gross purchases. . . . . . . . . . . . . . $2,641 $1,321
Gross sales. . . . . . . . . . . . . . . . 592 531
Gross maturities . . . . . . . . . . . . . 2,551 1,050
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 March 31, 1997 and December 31, 1996 comprised the
following:
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
(Millions)
<S> <C> <C>
Crude oil and petroleum products. . . . . . $194 $204
Chemical products . . . . . . . . . . . . . 484 488
Other products. . . . . . . . . . . . . . . 53 48
Materials and supplies. . . . . . . . . . . 261 255
--- ---
Total . . . . . . . . . . . . . . . . . . $992 $995
=== ===
</TABLE>
NOTE D. Capital Stock.
Detail of the Company's capital stock was as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
(Thousands)
<S> <C> <C>
$3.00 Cumulative convertible preference stock,
par $1 . . . . . . . . . . . . . . . . . . . . $ 60 $ 61
$2.80 Cumulative convertible preference stock,
par $1 . . . . . . . . . . . . . . . . . . . . 660 674
Common stock, par $2.50. . . . . . . . . . . . . 402,995 402,715
------- -------
Total . . . . . . . . . . . . . . . . . . . . $403,715 $403,450
======= =======
</TABLE>
NOTE E. Stockholders' Equity Adjustments.
Adjustments to stockholders' equity at March 31, 1997 and December 31,
1996 were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
(Millions)
<S> <C> <C>
Minimum pension liability . . . . . . . . . . $(28) $(28)
Treasury stock, at cost . . . . . . . . . . . (14) (1)
Net unrealized gain on investments. . . . . . 290 225
Foreign currency translation. . . . . . . . . (70) (19)
--- ---
Total . . . . . . . . . . . . . . . . . . . $178 $177
=== ===
</TABLE>
- 6 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE F. Capitalization of Interest.
Interest expense excludes capitalized interest of $3 million and $5
million for the three-month periods ended March 31, 1997 and 1996,
respectively.
NOTE G. Income Taxes.
Provision for taxes on income:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
---- ----
(Millions)
<S> <C> <C>
Federal:
Current . . . . . . . . . . . . . . . . . . $169 $147
Deferred. . . . . . . . . . . . . . . . . . (13) 5
--- ---
156 152
--- ---
Foreign:
Current . . . . . . . . . . . . . . . . . . 52 39
Deferred. . . . . . . . . . . . . . . . . . (6) 2
--- ---
46 41
--- ---
State:
Current . . . . . . . . . . . . . . . . . . 34 27
Deferred. . . . . . . . . . . . . . . . . . - -
--- ---
34 27
--- ---
Total . . . . . . . . . . . . . . . . . . $236 $220
=== ===
</TABLE>
- 7 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE G. Income Taxes (Continued).
Reconciliation of provision for taxes on income with tax at federal
statutory rate:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------------
1997 1996
------------------ ------------------
Percent Percent
of of
Pretax Pretax
Amount Income Amount Income
------ ------- ------ -------
(Millions)
<S> <C> <C> <C> <C>
Income before income taxes and
minority interest . . . . . . . $740 100.0 $620 100.0
=== ===== === =====
Tax at federal statutory rate . . $259 35.0 $217 35.0
Increase (reduction) in taxes
resulting from:
Dividend exclusion. . . . . . . (8) (1.1) (3) (.5)
Subsidiary stock transaction. . (22) (3.0) - -
Taxes on foreign income in
excess of statutory rate. . . 14 1.9 17 2.7
State income taxes (net of
federal effect) . . . . . . . 22 3.0 18 2.9
Tax credits . . . . . . . . . . (25) (3.4) (22) (3.5)
Other . . . . . . . . . . . . . (4) (0.5) (7) (1.1)
--- ----- --- -----
Provision for taxes on income . . $236 31.9 $220 35.5
=== ===== === =====
</TABLE>
NOTE H. 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
March 31,
------------------
1997 1996
---- ----
(Millions of shares)
<S> <C> <C>
Average number of common shares outstanding . . . 161.1 160.8
Common stock equivalents. . . . . . . . . . . . . 2.8 2.5
----- -----
Total . . . . . . . . . . . . . . . . . . . . . 163.9 163.3
===== =====
</TABLE>
- 8 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE H. 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. However, a company is permitted to disclose pro forma EPS
amounts computed using SFAS No. 128 in the notes to the financial
statements in periods prior to required adoption. Accordingly, the pro
forma EPS data for the three months ended March 31, 1997 and 1996 is as
follows (in millions, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1997 1996
------------- -------------
Shares EPS Shares EPS
------ --- ------ ---
<S> <C> <C> <C> <C>
Basic EPS. . . . . . . . . . . 161.1 $2.99 160.8 $2.30
Diluted EPS. . . . . . . . . . 163.5 $2.95 163.2 $2.27
</TABLE>
NOTE I. Supplemental Income Statement Information.
Taxes other than income taxes comprised the following:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
---- ----
(Millions)
<S> <C> <C>
Production/severance. . . . . . . . . . . . . . . $123 $103
Property. . . . . . . . . . . . . . . . . . . . . 45 47
Other . . . . . . . . . . . . . . . . . . . . . . 63 67
--- ---
Total . . . . . . . . . . . . . . . . . . . . . $231 $217
=== ===
</TABLE>
- 9 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE J. Supplemental Cash Flow Information.
Following is supplemental cash flow information for the three months
ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
---- ----
(Millions)
<S> <C> <C>
Gross sales and maturities of short-term investments. $ 611 $ 702
Gross purchases of short-term investments . . . . . . (640) (920)
------ ------
Net cash used by short-term investments . . . . . . . $ (29) $ (218)
===== ======
Gross proceeds from issuance of notes payable . . . . $ 1,797 $ 1,472
Gross repayments of notes payable . . . . . . . . . . (1,779) (1,400)
------ ------
Net cash provided by notes payable. . . . . . . . . . $ 18 $ 72
====== ======
Gross noncash provisions charged to income. . . . . . $ 100 $ 132
Cash payments of previously accrued items . . . . . . (81) (159)
------ ------
Cash payments (greater) less than noncash provisions. $ 19 $ (27)
====== ======
</TABLE>
Interest paid during the three-month periods ended March 31, 1997 and
1996 was $186 million and $191 million, respectively.
Income taxes paid during the three-month periods ended March 31, 1997
and 1996 were $109 million and $47 million, respectively.
Changes in working capital accounts for the three-month periods ended
March 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
---- ----
(Millions)
<S> <C> <C>
Increase (decrease) to cash
Accounts receivable. . . . . . . . . . . . $ 180 $ 17
Inventories. . . . . . . . . . . . . . . . 3 (58)
Accounts payable . . . . . . . . . . . . . (295) (17)
Other working capital. . . . . . . . . . . 34 59
---- ----
Total. . . . . . . . . . . . . . . . . . $ (78) $ 1
==== ====
</TABLE>
- 10 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE K. Summarized Financial Information.
Summarized financial information for Lyondell Petrochemical Company
("Lyondell"), a company in which Atlantic Richfield owned a 49.9% interest
at March 31, 1997, was as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
Pro forma*
1997 1996
---- ----
(Millions)
<S> <C> <C>
Revenues (including sales to ARCO and
ARCO Chemical Company). . . . . . . . . . . . $755 $579
Sales to ARCO and ARCO Chemical Company . . . . 67 64
Operating income. . . . . . . . . . . . . . . . 79 30
Income from equity investment in
LYONDELL-CITGO Refining Co. ("LCR") . . . . . 6 26
Net income. . . . . . . . . . . . . . . . . . . 40 24
___________
* 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 months ended March 31, 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 of accounting had been effective January 1, 1996.
</TABLE>
_____________________________
<TABLE>
<S> <C> <C>
ARCO's equity in net income of Lyondell . . . . $ 30 $ 12
Cash dividends received from Lyondell . . . . . 9 9
</TABLE>
______________________________
<TABLE>
<CAPTION>
Pro forma**
March 31, December 31,
1997 1996
---- ----
(Millions)
<S> <C> <C>
Current assets. . . . . . . . . . . . . . . . $ 618 $ 619
Noncurrent assets . . . . . . . . . . . . . . 1,305 1,271
Current liabilities . . . . . . . . . . . . . 488 485
Long-term debt. . . . . . . . . . . . . . . . 742 744
Other liabilities . . . . . . . . . . . . . . 236 227
Minority interest . . . . . . . . . . . . . . 4 3
Stockholders' equity. . . . . . . . . . . . . 453 431
__________
**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>
- 11 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE L. 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 remedial actions
which may be required and the determination of ARCO's liability in
proportion to other responsible parties. In addition, environmental loss
contingencies include claims for personal injuries allegedly caused by
exposure to toxic materials manufactured or used by ARCO.
ARCO continues to estimate the amount of these costs in periodically
establishing reserves based on progress made in determining the magnitude
of remediation costs, experience gained from sites on which remediation has
been completed, the timing and extent of remedial actions required by the
applicable governmental authorities and an evaluation of the amount of
ARCO's liability considered in light of the liability and financial
wherewithal of the other responsible parties. At March 31, 1997, the
environmental remediation accrual was $616 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.
- 12 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE L. Other Commitments and Contingencies (Continued).
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 PRP sites, along with other sites as to
which no claims have been asserted, in estimating the amount of the
accrual. ARCO's future costs at these sites could exceed the amount
accrued by as much as $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 third parties. Many
of these claims have been resolved. ARCO has neither recorded any asset
nor reduced any liability in connection with unresolved claims.
Although any ultimate liability arising from any of the matters
described herein could result in significant expenses or judgments that, if
aggregated and assumed to occur within a single fiscal year, would be
material to ARCO's results of operations, the likelihood of such occurrence
is considered remote. On the basis of management's best assessment of the
ultimate amount and timing of these events, such expenses or judgments are
not expected to have a material adverse effect on ARCO's consolidated
financial statements.
The operations and consolidated financial position of ARCO continue to
be affected from time to time in varying degrees by domestic and foreign
political developments as well as legislation, regulations and litigation
pertaining to restrictions on production, imports and exports, tax
increases, environmental regulations, cancellation of contract rights and
expropriation of property. Both the likelihood of such occurrences and
their overall effect on ARCO vary greatly and are not predictable.
These uncertainties are part of a number of items that ARCO has taken
and will continue to take into account in periodically establishing
reserves.
- 13 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
First Quarter 1997 vs. First Quarter 1996
Consolidated Earnings
The earnings increase in 1997 primarily reflected higher crude oil and
natural gas prices, partially offset by a decline in earnings from ARCO
Chemical Company ("ARCO Chemical"). In addition, refining margins and
volumes improved compared to first quarter 1996.
For the first quarter of 1997, charges for future environmental
remediation, primarily related to implementation of a new accounting
standard, were offset by benefits from deferred taxes and changes in
certain reserves.
The 1996 first quarter included a net benefit from special items of
approximately $28 million after tax. Benefits from insurance settlements
and the sale of an interest in a crude oil pipeline were partially offset
by final charges for previously reported personnel reductions and by other
remediation-related charges.
Upstream Earnings
<TABLE>
<CAPTION>
Millions (after tax) 1997 1996
---- ----
<S> <C> <C>
Exploration & Production . . . . . . . . . . . . $452 $293
Coal . . . . . . . . . . . . . . . . . . . . . . $ 23 $ 5
</TABLE>
ARCO's earnings from worldwide oil and gas exploration and production
operations benefited from higher crude oil and natural gas prices. A $26
million increase in exploration expense in the 1997 first quarter was
primarily dry hole and seismic expenses associated with Vastar Resources,
Inc.'s ("Vastar") operations. The increased dry hole expense primarily
reflected the writeoff of Vastar's Ship Shoal 357 sub-salt well. The
increase in seismic expense was in support of Vastar's efforts in the most
recent federal Gulf of Mexico lease sale.
Average Oil & Gas Prices
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
U.S.
Petroleum liquids - per barrel (bbl)
Alaska . . . . . . . . . . . . . . . . . . . $18.56 $13.12
Lower 48, including Vastar . . . . . . . . . $19.29 $16.48
Composite average price. . . . . . . . . . . $18.79 $14.08
Natural gas - per thousand cubic feet (mcf). . $ 2.32 $ 1.58
International
Petroleum liquids - per bbl. . . . . . . . . . $20.79 $17.33
Natural gas - per mcf. . . . . . . . . . . . . $ 2.64 $ 2.60
</TABLE>
- 14 -
<PAGE>
Petroleum Liquids and Natural Gas Production
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Production
U.S.
Petroleum liquids-bbl/day. . . . . . . . . . 562,300 579,700
Natural gas mcf/day. . . . . . . . . . . . . 1,049,200 1,055,400
Barrels of oil equivalent (BOE)/day* . . . . 737,200 755,500
International
Petroleum liquids-bbl/day. . . . . . . . . . 68,100 64,900
Natural gas mcf/day. . . . . . . . . . . . . 878,400 792,500
BOE/day. . . . . . . . . . . . . . . . . . . 214,500 197,100
Total net production BOE/day . . . . . . . . . 951,700 952,600
____________
* 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 production resulted from production from
the Rhourde El Baguel field in Algeria, partially offset by the impact of
higher crude oil prices on production-sharing contracts in Indonesia.
The decrease in U.S. natural gas production resulted from a decline in
Vastar's production. Natural field declines at Mustang Island 805, High
Island 177 and Wilburton were partially offset by production growth in the
San Juan Basin and redevelopment efforts at several offshore fields. ARCO
holds an 82.3% interest in Vastar.
The record international natural gas volumes in 1997 reflected
increased production from Yancheng 13, ARCO's South China Sea natural gas
field, and ARCO's offshore Indonesia gas fields, partially offset by the
effects of warmer weather on gas takes in the United Kingdom. Production
from Yacheng 13 increased by approximately 90 million cubic feet per day
and production from the Indonesian natural gas fields increased by
approximately 20 million cubic feet per day.
Coal Operations
The earnings increase in 1997 reflected higher average U.S. and
Australian coal prices and volumes. U.S. sales volumes increased by
approximately 1,098,000 tons and Australian sales volumes increased by
approximately 380,000 tons. Average U.S. prices for ARCO Coal were up 6%
in the first quarter 1997, compared to first quarter 1996. Average
Australian coal prices were up approximately 3% in the first quarter 1997.
The increase in average U.S. prices resulted from the product mix of coal
sold in 1997, compared to 1996.
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 . . . . . . . . . . . . . $ 44 $ 28
Chemicals . . . . . . . . . . . . . . . . . . . $ 50 $ 97
</TABLE>
- 15 -
<PAGE>
Refining and Marketing Operations
The refining and marketing results reflected the benefits of increased
products sales prices and volumes and lower operating costs partially
offset by higher crude oil costs and higher prices for purchased refined
products. ARCO's refining and marketing margins improved from weak fourth
quarter 1996 levels. The lower operating costs in 1997 reflected the
absence of turnaround costs and an after-tax charge of approximately $8
million related to environmental and other remediation recorded in the
first quarter of 1996.
In the 1997 first quarter ARCO announced plans to lease more than 260
California service stations from Thrifty Oil Co.
West Coast Petroleum Products Sales
<TABLE>
<CAPTION>
Volumes (barrels/day) 1997 1996
---- ----
<S> <C> <C>
Gasoline . . . . . . . . . . . . . . . . . . . . 265,000 261,300
Jet. . . . . . . . . . . . . . . . . . . . . . . 118,900 106,100
Distillate . . . . . . . . . . . . . . . . . . . 77,700 75,000
Other. . . . . . . . . . . . . . . . . . . . . . 61,600 67,300
------- -------
Total. . . . . . . . . . . . . . . . . . . . . 523,200 509,700
======= =======
</TABLE>
Chemicals
For the chemicals segment, reflecting ARCO's 82.6 interest in ARCO
Chemical, the 1997 earnings decline primarily reflected lower margins for
most products. First quarter 1997 margins were lower as a result of higher
worldwide feedstock costs and generally lower sales prices.
Sales prices in the first quarter of 1997 were impacted by a weak
economy in Europe, the effect of a stronger U.S. dollar, the expiration of
ARCO Chemical's long-term methyl tertiary butyl ether sales contracts, and
concerns over styrene monomer capacity additions in Asia.
Equity Affiliate
ARCO earned $30 million from its 49.9% equity interest in Lyondell
Petrochemical Company ("Lyondell") in the first quarter of 1997, compared
to $12 million in the first quarter of 1996. The increase in earnings
reflected improved results from Lyondell's petrochemical operations
partially offset by lower earnings from Lyondell's equity interest in the
LYONDELL-CITGO Refining Co.
ARCO announced on March 24, 1997, its intention to settle all its 9%
Exchangeable Notes due September 15, 1997 with Lyondell stock currently
owned by ARCO. If market conditions remain unchanged from that date, ARCO
will realize a gain in excess of $300 million after tax upon the exchange
of its shares of Lyondell stock. The decision to settle the Notes with
Lyondell shares can still be affected by a material change in market
conditions.
- 16 -
<PAGE>
Consolidated Revenues
<TABLE>
<CAPTION>
Millions 1997 1996
<S> <C> <C>
Sales and other operating revenues
Upstream . . . . . . . . . . . . . . . . . . . . $3,040 $2,291
Downstream . . . . . . . . . . . . . . . . . . . 2,768 2,518
Intersegment eliminations. . . . . . . . . . . . (764) (653)
----- -----
Total. . . . . . . . . . . . . . . . . . . . . $5,044 $4,156
===== =====
</TABLE>
The increase in upstream sales and other operating revenues resulted
primarily from higher crude oil and natural gas prices and increased
natural gas marketing activity. Natural gas marketing sales volumes
increased to 3.7 billion cubic feet per day in the 1997 first quarter, up
from 2.5 billion cubic feet per day in the 1996 first quarter.
While ARCO realized higher average crude oil and natural gas prices in
the first quarter of 1997, compared to the first quarter of 1996, crude oil
and natural gas prices were at their highest at the beginning of the
quarter and then declined throughout the quarter and into April. The price
for West Texas Intermediate crude oil was above $25 a barrel in January
1997 and declined to less than $20 a barrel in April 1997.
Downstream sales and other operating revenues increased primarily
because of higher refined products prices and volumes and higher chemical
products volumes.
The decrease in 1997 Other Revenues primarily reflected the absence of
insurance settlements recorded in the first quarter of 1996.
Consolidated Expenses
Trade purchases were higher primarily as a result of higher natural
gas marketing activity and higher crude oil prices.
The higher operating expenses in 1997 primarily reflected charges for
future environmental remediation related to the adoption of a new
accounting standard and to a much lesser extent higher volume-related
tolling costs at ARCO Chemical and higher lease operating costs associated
with production from the Rhourde El Baguel field. The higher tolling
volumes at ARCO Chemical related to a plant in France that was under repair
and operated at restricted rates in the 1996 first quarter.
Unusual items in 1996 consisted of final charges for previously
reported personnel reductions.
Income Taxes
The Company's effective tax rate was 31.9% in the 1997 first quarter,
compared to 35.5% in the 1996 first 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. Including the first quarter amount, the
potential maximum elimination of deferred taxes would be $186 million.
- 17 -
<PAGE>
Liquidity and Capital Resources
<TABLE>
<CAPTION>
Millions 1997
----
<S> <C>
Cash flow provided (used) by:
Operations . . . . . . . . . . . . . . . . . . . $ 905
Investing activities . . . . . . . . . . . . . . $(518)
Financing activities . . . . . . . . . . . . . . $(387)
</TABLE>
The net cash used by investing activities in the first quarter 1997
included expenditures for additions to fixed assets of $504 million. The
Company expects total capital expenditures for additions to fixed assets to
approximate $3.4 billion for the full year 1997.
The net cash used in financing activities in the first quarter of 1997
included repayments of long-term debt of $393 million and dividend payments
of $223 million, partially offset by proceeds of $233 million from the
issuance of long-term debt.
Cash and cash equivalents and short-term investments totaled $2.3
billion, and short-term borrowings were $1.1 billion at the end of the
first quarter of 1997.
During the first quarter of 1997, ARCO purchased 130,000 shares of its
common stock and contributed them to treasury in order to satisfy ARCO's
obligations upon conversion of the $3.00 and $2.80 Preference Stocks and
upon exercise of stock options.
ARCO's Board of Directors announced a 2-for-1 stock split by means of
a 100% stock dividend and a 4% increase in the regular quarterly dividend,
both effective June 13, 1997, 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.
- 18 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
1. Reference is made to the disclosure on page 13 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1996
(hereinafter, the "1996 Form 10-K Report") regarding Montana v. ARCO, ex
rel. (Case No. CV-83-317-HLN-PGH). On March 3, 1997, trial commenced and
is continuing.
2. Reference is made to the disclosure on page 14 of the 1996 Form
10-K Report regarding In re Hanford Nuclear Reservation Litigation (CY-91-
3015-AAM). On April 4, 1997, ARCO was served with a new complaint, filed
by six individual Native Americans, purportedly on behalf of classes of
Native Americans living near the Hanford Nuclear Reservation. The
Department of Energy has indicated that it will indemnify ARCO and ARHCO
with respect to this new action as well.
3. Reference is made to the disclosure on page 15 of the 1996 Form
10-K Report regarding Jefferson v. Lead Industries Association, Inc. (Case
No. 95-2885). On March 12, 1997, the United States Court of Appeals for
the Fifth Circuit affirmed the trial court's decision.
4. Reference is made to the disclosure on page 15 of the 1996 Form
10-K Report regarding Tesch, et al. v. ARCO Alaska, Inc. (Case No. 3AN-95-
3320-CI). On March 7, 1997, the court denied the plaintiffs' renewed
motion for class certification and granted ARCO's motion for partial
summary judgment as to the "salary test" issues in this case. The
plaintiffs have filed a motion for reconsideration.
5. Reference is made to the disclosure on pages 15-16 of the 1996
Form 10-K Report regarding Aguilar, et al. v. Atlantic Richfield, et al.
(Case No. 700810). On May 1, 1997, the court certified a class of
California residents who bought CARB gasoline after March 1, 1996 other
than for resale.
6. Reference is made to the disclosure on page 16 of the 1996 Form
10-K Report regarding the Beaver Valley plant formerly owned by ARCO
Chemical. ARCO Chemical and Beazer East, Inc. have reached an agreement
with the U.S. government pursuant to which the government will pay 28.5% of
the costs incurred by them for remediation of substantial portions of the
Beaver Valley site.
7. Reference is made to the disclosure on page 16 of the 1996 Form
10-K Report regarding the southern California earthquake on January 17,
1994. A settlement has been reached. The United States of America, the
State of California acting by and through the Department of Fish and Game,
the California Regional Water Quality Control Board, Los Angeles Region,
The People of The State of California in and for the County of Los Angeles,
ARCO, and ARCO Pipe Line Company, executed an Agreement and Consent Decree
that was entered March 19, 1997 in the United States District Court for the
Central District of California. Pursuant to the Agreement and Consent
Decree numerous payments that included $7,100,000 for natural resource
damages related to the crude oil spills, and $125,000 denominated as civil
penalties were made to various governmental entities.
8. Reference is made to the disclosure on pages 16-17 of the 1996
Form 10-K Report regarding the PSD permit program. The terms of the
settlement have been finalized, and on March 4, 1997, ARCO was dismissed
from the lawsuit.
9. Reference is made to the Company's 1996 Form 10-K Report for
information on other legal proceeding matters reported therein.
- 19 -
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting of stockholders was held on May 5 1997
The stockholders elected all the Company's nominees for director,
authorized amendment of the 1985 Executive Long-Term Incentive Plan, and
approved the appointment of Coopers & Lybrand L.L.P. as the Company's
independent auditors for 1997. The votes were as follows:
1. Election of Directors.
<TABLE>
<CAPTION>
Votes
Votes For Withheld
----------- ---------
<S> <C> <C>
Frank D. Boren 137,028,161 2,388,523
Mike R. Bowlin 137,013,693 2,402,991
Lodwrick M. Cook 136,198,163 3,218,521
Richard H. Deihl 136,908,655 2,508,029
Anthony G. Fernandes 136,930,878 2,485,806
John Gavin 136,825,786 2,590,898
Hanna H. Gray 136,880,276 2,536,408
Philip M. Hawley 136,814,462 2,602,222
Marie L. Knowles 136,930,998 2,485,686
Kent Kresa 137,080,251 2,336,433
David T. McLaughlin 136,976,357 2,440,327
John B. Slaughter 136,934,311 2,482,373
William E. Wade, Jr. 136,966,366 2,450,318
Henry Wendt 137,055,745 2,360,939
</TABLE>
2. Amendment of the 1985 Executive Long-Term Incentive Plan.
<TABLE>
<S> <C>
For 118,898,869
Against 9,287,447
Abstain 2,415,418
Broker Non-Votes 8,814,950
</TABLE>
3. Appointment of Coopers & Lybrand L.L.P.
<TABLE>
<S> <C>
For 136,664,088
Against 1,980,925
Abstain 771,671
</TABLE>
4. Stockholders' proposal requesting the review and development of
guidelines for country selection and report to stockholders.
<TABLE>
<S> <C>
For 11,805,035
Against 109,270,550
Abstain 9,526,149
Broker Non-Votes 8,814,950
</TABLE>
- 20 -
<PAGE>
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 March 31, 1997 and through the date hereof.
<TABLE>
<CAPTION>
Date of Report Item No. Financial Statements
<S> <C> <C>
March 24, 1997 5 None
March 24, 1997 5 None
March 31, 1997 5 None
April 1, 1997 5 None
</TABLE>
- 21 -
<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: May 6, 1997 _______________________________
ALLAN L. COMSTOCK
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
- 22 -
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> $1,449
<SECURITIES> 805
<RECEIVABLES> 1,749
<ALLOWANCES> 0
<INVENTORY> 992
<CURRENT-ASSETS> 5,282
<PP&E> 34,966
<DEPRECIATION> 18,829
<TOTAL-ASSETS> 25,646
<CURRENT-LIABILITIES> 5,077
<BONDS> 5,407
0
1
<COMMON> 403
<OTHER-SE> 7,673
<TOTAL-LIABILITY-AND-EQUITY> 25,646
<SALES> 5,044
<TOTAL-REVENUES> 5,183
<CGS> 3,900
<TOTAL-COSTS> 4,026
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 166
<INCOME-PRETAX> 740
<INCOME-TAX> 236
<INCOME-CONTINUING> 483
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 483
<EPS-PRIMARY> $2.95
<EPS-DILUTED> $2.95
</TABLE>
