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, 1998
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, 1998: 321,139,022.
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
------------------ ----------------
(Millions except per share amounts) 1998 1997 1998 1997
---- ---- ---- ----
(Restated) (Restated)
<S> <C> <C> <C> <C>
Revenues
Sales and other operating revenues $2,564 $3,534 $5,100 $7,426
Other revenues . . . . . . . . . . 90 148 200 248
----- ----- ----- -----
2,654 3,682 5,300 7,674
----- ----- ----- -----
Expenses
Trade purchases. . . . . . . . . . 1,071 1,634 2,057 3,455
Operating expenses . . . . . . . . 559 649 1,094 1,227
Selling, general and
administrative expenses . . . . . 202 204 385 384
Depreciation, depletion and
amortization. . . . . . . . . . . 436 341 788 687
Exploration expenses (including
undeveloped leasehold
amortization) . . . . . . . . . . 126 90 275 216
Taxes other than income taxes. . . 122 144 276 340
Interest . . . . . . . . . . . . . 106 (12) 203 132
----- ----- ----- -----
2,622 3,050 5,078 6,441
----- ----- ----- -----
Income before income taxes,
minority interest and
extraordinary item . . . . . . . . 32 632 222 1,233
Provision (benefit) for taxes
on income. . . . . . . . . . . . . (37) 212 10 411
Minority interest in earnings of
subsidiary . . . . . . . . . . . . 5 11 14 22
----- ----- ----- -----
Income from continuing operations
before extraordinary item. . . . . 64 409 198 800
Income from discontinued operations,
net of income taxes of $43 and $89
(1998) and $30 and $67 (1997). . . 90 99 176 191
----- ----- ----- -----
Income before extraordinary item . . 154 508 374 991
Extraordinary loss on extinguishment
of debt (net of income taxes
of $74). . . . . . . . . . . . . . - (118) - (118)
----- ----- ----- -----
Net Income . . . . . . . . . . . . . $ 154 $ 390 $ 374 $ 873
===== ===== ===== =====
Earned per Share
Basic
Continuing operations. . . . . . $ .19 $ 1.27 $ .61 $ 2.48
Discontinued operations. . . . . .29 .31 .55 .60
Extraordinary loss . . . . . . . - (.37) - (.37)
----- ----- ----- -----
Net income . . . . . . . . . . . $ .48 $ 1.21 $ 1.16 $ 2.71
===== ===== ===== =====
Diluted
Continuing operations. . . . . . $ .19 $ 1.25 $ .60 $ 2.44
Discontinued operations. . . . . .28 .30 .54 .59
Extraordinary loss . . . . . . . - (.36) - (.36)
----- ----- ----- -----
Net income . . . . . . . . . . . $ .47 $ 1.19 $ 1.14 $ 2.67
===== ===== ===== =====
Cash Dividends Paid per Share of
Common Stock . . . . . . . . . . . $.7125 $.7125 $1.425 $1.400
===== ===== ===== =====
The accompanying notes are an integral part of these statements.
</TABLE>
- 1 -
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED BALANCE SHEET
June 30, December 31,
1998 1997
-------- ------------
(Millions) (Restated)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . $ 513 $ 434
Short-term investments. . . . . . . . . . . . 215 222
Accounts receivable . . . . . . . . . . . . . 840 929
Inventories . . . . . . . . . . . . . . . . . 451 456
Prepaid expenses and other current assets . . 295 204
------ ------
Total current assets. . . . . . . . . . . . . 2,314 2,245
------ ------
Investments and long-term receivables:
Investment in Union Texas Petroleum . . . . . 2,646 -
Investments accounted for on the equity
method . . . . . . . . . . . . . . . . . . . 821 763
Other investments and long-term receivables . 979 1,820
------ ------
4,446 2,583
------ ------
Net property, plant and equipment . . . . . . . 14,308 13,560
Net assets of discontinued operations . . . . . 2,013 2,777
Deferred charges and other assets . . . . . . . 1,353 1,260
------ ------
Total assets. . . . . . . . . . . . . . . . . . $24,434 $22,425
====== ======
The accompanying notes are an integral part of these statements.
</TABLE>
- 2 -
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED BALANCE SHEET
June 30, December 31,
1998 1997
-------- ------------
(Millions) (Restated)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable . . . . . . . . . . . . . . . . . $ 4,364 $ 1,456
Accounts payable. . . . . . . . . . . . . . . . 791 948
Long-term debt due within one year. . . . . . . 102 164
Taxes payable. . . . . . . . . . . . . . . . . 190 308
Other . . . . . . . . . . . . . . . . . . . . . 920 953
------ ------
Total current liabilities . . . . . . . . . . . 6,367 3,829
------ ------
Long-term debt. . . . . . . . . . . . . . . . . . 3,679 3,619
Deferred income taxes . . . . . . . . . . . . . . 2,335 2,661
Other deferred liabilities and credits. . . . . . 3,739 3,396
Minority interest . . . . . . . . . . . . . . . . 251 240
Stockholders' equity:
Preference stocks . . . . . . . . . . . . . . . 1 1
Common stock. . . . . . . . . . . . . . . . . . 814 807
Capital in excess of par value of stock . . . . 856 640
Retained earnings . . . . . . . . . . . . . . . 6,969 7,054
Treasury stock. . . . . . . . . . . . . . . . . (356) (170)
Accumulated other comprehensive income (loss) . (221) 348
------ ------
Total stockholders' equity. . . . . . . . . . . 8,063 8,680
------ ------
Total liabilities and stockholders' equity. . . . $24,434 $22,425
====== ======
The accompanying notes are an integral part of these statements.
</TABLE>
- 3 -
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended
June 30,
----------------
1998 1997
------ ------
(Millions) (Restated)
<S> <C> <C>
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . $ 198 $ 682
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss on extinguishment of debt. . . . . - 118
Depreciation, depletion and amortization. . . . . . . 788 687
Dry hole expense and undeveloped leasehold
amortization . . . . . . . . . . . . . . . . . . . . 138 87
Net gain on asset sales . . . . . . . . . . . . . . . (23) (13)
Income from equity investments. . . . . . . . . . . . (32) (5)
Dividends from equity investments . . . . . . . . . . 4 10
Minority interest in earnings of subsidiaries . . . . 14 22
Cash payments greater than noncash provisions . . . . (99) (154)
Changes in working capital accounts . . . . . . . . . (339) (288)
Other . . . . . . . . . . . . . . . . . . . . . . . . 5 (6)
----- -----
Net cash provided by operating activities . . . . . 654 1,140
----- -----
Cash flows from investing activities:
Union Texas Petroleum acquisition . . . . . . . . . . (2,646) -
Additions to fixed assets (including dry hole costs). (1,612) (918)
Net cash provided by short-term investments . . . . . 8 304
Investment in LUKARCO . . . . . . . . . . . . . . . . (32) (201)
Proceeds from asset sales . . . . . . . . . . . . . . 1,135 16
Other . . . . . . . . . . . . . . . . . . . . . . . . (35) (23)
----- -----
Net cash used by investing activities . . . . . . . (3,182) (822)
----- -----
Cash flows from financing activities:
Repayments of long-term debt. . . . . . . . . . . . . (155) (403)
Proceeds from issuance of long-term debt. . . . . . . 153 95
Net cash provided by notes payable . . . . . . . . . 2,930 42
Dividends paid. . . . . . . . . . . . . . . . . . . . (459) (452)
Treasury stock purchases. . . . . . . . . . . . . . . (1) (155)
Other . . . . . . . . . . . . . . . . . . . . . . . . 15 22
----- -----
Net cash provided (used) by financing activities. . 2,483 (851)
----- -----
Cash flows from discontinued operations . . . . . . . . 123 190
Effect of exchange rate changes on cash . . . . . . . . 1 (4)
----- -----
Net increase (decrease) in cash and cash equivalents. . 79 (347)
Cash and cash equivalents at beginning of period. . . . 434 1,326
----- -----
Cash and cash equivalents at end of period. . . . . . . $ 513 $ 979
===== =====
The accompanying notes are an integral part of these statements.
</TABLE>
- 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 1998.
In the opinion of the Company, the financial information reflects all
adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations in
conformity with generally accepted accounting principles.
NOTE B. Comprehensive Income.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
SFAS No. 130 established new rules for the reporting of comprehensive
income and its components. Comprehensive income comprises net income plus
all other changes in equity from nonowner sources. ARCO's comprehensive
income for the three- and six-month periods ended June 30, 1998 and 1997
was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Millions) 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income . . . . . . . . . . $ 154 $ 390 $ 374 $ 873
After-tax changes in:
Net unrealized gain on
investments (a). . . . . . . (333) 200 (519) 265
Foreign currency translation
adjustment . . . . . . . . . (46) (47) (50) (97)
---- ---- ---- -----
Comprehensive income (loss) . . $(225) $ 543 $(195) $1,041
==== ==== ==== =====
(a) Primarily consists of a decline in ARCO's unrealized gain on its
investment in LUKOIL, which had a fair value of approximately $482
million at June 30, 1998, compared to a fair value of approximately
$1.3 billion at December 31, 1997. The unrealized pretax gain in the
LUKOIL investment at June 30, 1998, was $140 million.
</TABLE>
The new disclosure had no impact on ARCO's net income, financial
position, stockholders' equity or cash flows.
Accumulated nonowner changes in equity (accumulated other comprehensive
income) at June 30, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
(Millions)
<S> <C> <C>
Net unrealized gain on investments . . . . . $ 87 $ 606
Foreign currency translation adjustment. . . (254) (204)
Minimum pension liability. . . . . . . . . . (54) (54)
---- ----
Accumulated other comprehensive income . . $(221) $ 348
==== ====
</TABLE>
- 5 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE C. Interim Segment Information.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
- --------------------------------
Exploration Refining & All Unallo-
(Millions) & Production Marketing Other cated Total
------------ ---------- ----- ------- -----
<S> <C> <C> <C> <C> <C>
Sales and other
operating revenues . . $ 1,368 $1,432 $ 39 $ 14 $ 2,853
Intersegment revenues . (262) - (21) (6) (289)
------ ----- ----- ----- ------
Total . . . . . . . . . $ 1,106 $1,432 $ 18 $ 8 $ 2,564
====== ===== ===== ===== ======
Income from continuing
operations . . . . . . $ 17 $ 97 $ 29 $ (79) $ 64
Income from discontinued
operations . . . . . . - - - 90 90
------ ----- ----- ----- ------
Net income. . . . . . . $ 17 $ 97 $ 29 $ 11 $ 154
====== ===== ===== ===== ======
Segment assets. . . . . $12,977 $3,722 $1,178 $6,557 $24,434
====== ===== ===== ===== ======
December 31, 1997
- -----------------
(Restated)
Segment assets. . . . . $12,882 $3,565 $1,164 $4,814 $22,425
====== ===== ===== ===== ======
Three Months Ended June 30, 1997
- --------------------------------
(Restated)
Exploration Refining & All Unallo-
(Millions) & Production Marketing Other cated Total
------------ ---------- ----- ------- -----
Sales and other
operating revenues . . $ 2,399 $1,631 $ 49 $ 6 $ 4,085
Intersegment revenues . (526) - (21) (4) (551)
------ ----- ----- ----- ------
Total . . . . . . . . . $ 1,873 $1,631 $ 28 $ 2 $ 3,534
====== ===== ===== ===== ======
Income from continuing
operations . . . . . . $ 321 $ 68 $ 24 $ (4) $ 409
Income from discontinued
operations . . . . . . - - - 99 99
Extraordinary item. . . - - - (118) (118)
------ ----- ----- ----- ------
Net income. . . . . . . $ 321 $ 68 $ 24 $ (23) $ 390
====== ===== ===== ===== ======
</TABLE>
- 6 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE C. Interim Segment Information (Continued).
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
- ------------------------------
Exploration Refining & All Unallo-
(Millions) & Production Marketing Other cated Total
------------ ---------- ----- ------- -----
<S> <C> <C> <C> <C> <C>
Sales and other
operating revenues . . $ 2,906 $ 2,784 $ 79 $ 16 $ 5,785
Intersegment revenues . (624) (12) (40) (9) (685)
------ ------ ----- ----- ------
Total . . . . . . . . . $ 2,282 $ 2,772 $ 39 $ 7 $ 5,100
====== ====== ===== ===== ======
Income from continuing
operations . . . . . . $ 199 $ 116 $ 53 $ (170) $ 198
Income from discontinued
operations . . . . . . - - - 176 176
------ ------ ----- ----- ------
Net income. . . . . . . $ 199 $ 116 $ 53 $ 6 $ 374
====== ====== ===== ===== ======
Six Months Ended June 30, 1997
- ------------------------------
(Restated)
Exploration Refining & All Unallo-
(Millions) & Production Marketing Other cated Total
------------ ---------- ----- ------- -----
Sales and other
operating revenues . . $ 5,246 $ 3,323 $ 93 $ 8 $ 8,670
Intersegment revenues . (1,194) - (42) (8) (1,244)
------ ------ ----- ----- ------
Total . . . . . . . . . $ 4,052 $ 3,323 $ 51 $ - $ 7,426
====== ====== ===== ===== ======
Income from continuing
operations . . . . . . $ 773 $ 114 $ 37 $ (124) $ 800
Income from discontinued
operations . . . . . . - - - 191 191
Extraordinary item . . - - - (118) (118)
------ ------ ----- ----- ------
Net income. . . . . . . $ 773 $ 114 $ 37 $ ( 51) $ 873
====== ====== ===== ===== ======
</TABLE>
As discussed in Note K, the Company's coal and chemical operations and
investment in Lyondell Petrochemical Company ("Lyondell") have been
reported as discontinued at June 30, 1998. Accordingly, the income from
and net assets of discontinued operations are included with unallocated
items in the segment presentation above. At December 31, 1997, coal
operations and ARCO's investment in Lyondell were included as part of "all
other" for segment purposes and chemical operations were shown as a
separate segment. The prior period has been restated to conform to the
current presentation.
- 7 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE D. Acquisition of Union Texas Petroleum Holdings, Inc.
On June 16, 1998, ARCO announced the completion of its tender offer
for all outstanding shares of Union Texas Petroleum Holdings, Inc.'s
("UTP") common stock. ARCO purchased the outstanding common stock of UTP
for approximately $2.5 billion, or $29 per share in cash. ARCO also
purchased in a tender offer 1,649,500 shares of Union Texas Petroleum
Holdings, Inc.'s 7.14% Series A Cumulative Preferred Stock for
approximately $200 million, or $122 per share in cash. UTP was a U.S.-
based, non-integrated oil and gas company with worldwide operations.
Substantially all of UTP's oil and gas producing operations were conducted
outside of the U.S. in the United Kingdom sector of the North Sea,
Indonesia and Pakistan.
The acquisition is being accounted for as a purchase and the
operations of UTP will be included in the consolidated financial statements
of ARCO as of July 1, 1998. The cost of the acquisition will be allocated
on the basis of the estimated fair value of the assets acquired and
liabilities assumed. ARCO expects that this allocation will be completed
by year-end 1998.
NOTE E. Investments.
At June 30, 1998 and 1997, investments in debt securities 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. Investments in
LUKOIL common stock and Zhenhai Refining and Chemical Company convertible
bonds were included in other investments and long-term receivables. At
June 30, 1998, all investments were classified as available-for-sale; there
were no investments considered held-to-maturity. 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 June 30:
<TABLE>
<CAPTION>
1998 1997
---- ----
(Millions)
<S> <C> <C>
Aggregate fair value . . . . . . . . . . . . . . $1,058 $1,961
Gross unrealized holding losses. . . . . . . . . 7 3
Gross unrealized holding gains . . . . . . . . . (148) (798)
----- -----
Amortized cost . . . . . . . . . . . . . . . . . $ 917 $1,166
===== =====
</TABLE>
Investment activity for the six-month periods ended June 30 was as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(Millions)
<S> <C> <C>
Gross purchases. . . . . . . . . . . . . . . . . $7,191 $4,185
Gross sales. . . . . . . . . . . . . . . . . . . 267 1,303
Gross maturities . . . . . . . . . . . . . . . . 6,920 3,588
</TABLE>
Gross realized gains and loss were determined by the specific
identification method and for the three- and six-month periods ended June
30, 1998 and 1997, were insignificant.
- 8 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE F. Inventories.
Inventories at June 30, 1998 and December 31, 1997 comprised the
following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
(Millions) (Restated)
<S> <C> <C>
Crude oil and petroleum products . . . . . . . $ 228 $ 247
Other products . . . . . . . . . . . . . . . . 23 24
Materials and supplies . . . . . . . . . . . . 200 185
------- -------
Total. . . . . . . . . . . . . . . . . . . . $ 451 $ 456
======= =======
</TABLE>
NOTE G. Capital Stock.
Detail of the Company's capital stock was as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
(Thousands)
<S> <C> <C>
$3.00 Cumulative convertible preference
stock, par $1 . . . . . . . . . . . . . . . . $ 52 $ 56
$2.80 Cumulative convertible preference
stock, par $1 . . . . . . . . . . . . . . . . 589 616
Common stock, par $2.50 . . . . . . . . . . . . 814,435 806,800
------- -------
Total . . . . . . . . . . . . . . . . . . . . $815,076 $807,472
======= =======
</TABLE>
NOTE H. Capitalization of Interest.
Interest expense excluded capitalized interest of $21 million and $12
million, respectively, for the three-month periods ended June 30, 1998 and
1997, and $37 million and $14 million, respectively, for the six-month
periods ended June 30, 1998 and 1997.
- 9 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE I. Restructuring Programs.
During 1997, the Company undertook several restructuring actions,
primarily at ARCO Chemical Company ("ARCO Chemical"), within the refining
and marketing operations and at corporate headquarters. The following
table summarizes the personnel-related amounts accrued as of December 31,
1997:
<TABLE>
<CAPTION>
($ Millions)
Funded Unfunded
Short-term Long-term Long-term
Terminations Benefits (a) Benefits (b) Benefits (c) Total
------------ ------------ ------------ ------------ -----
<S> <C> <C> <C> <C>
1,200 $133 $5 $12 $150
(a) Severance and ancillary benefits.
(b) Net increase in pension benefits to be paid from assets of qualified
plans.
(c) Net increase in non-qualified pension benefits and other postretire-
ment benefits to be paid from Company funds.
</TABLE>
Through June 30, 1998, approximately 920 employees have been
terminated and approximately $49 million of severance and ancillary
benefits have been paid and charged against the accrual. Payments made do
not necessarily correlate to the number of terminations due to the ability
of terminees to defer receipt of certain payments.
In the second quarter of 1998, ARCO Chemical re-evaluated its
restructuring program and reduced the number of employees to be terminated
by approximately 140. Accordingly, the termination reserve was reduced by
approximately $17 million before tax.
- 10 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE J. Income Taxes.
Provision (benefit) for taxes on income:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
(Millions) (Restated) (Restated)
<S> <C> <C> <C> <C>
Federal:
Current. . . . . . . . . . . . . $(35) $131 $(45) $273
Deferred . . . . . . . . . . . . 22 25 49 9
--- --- --- ---
(13) 156 4 282
--- --- --- ---
Foreign:
Current. . . . . . . . . . . . . (3) 19 25 71
Deferred . . . . . . . . . . . . (26) - (36) (12)
--- --- --- ---
(29) 19 (11) 59
--- --- --- ---
State:
Current. . . . . . . . . . . . . 3 37 11 70
Deferred . . . . . . . . . . . . 2 - 6 -
--- --- --- ---
5 37 17 70
--- --- --- ---
Total . . . . . . . . . . . . $(37) $212 $ 10 $411
=== === === ===
</TABLE>
- 11 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
Note J. Income Taxes (continued).
Reconciliation of provision for taxes on income with tax at federal
statutory rate:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------------------------
1998 1997
----------------- -----------------
Percent Percent
of of
Pretax Pretax
Amount Income Amount Income
------ ------ ------ ------
(Restated)
(Millions)
<S> <C> <C> <C> <C>
Income before income taxes, minority
interest and extraordinary item. . . $ 32 100.0 $ 632 100.0
===== ===== ==== =====
Tax at federal statutory rate . . . . $ 11 35.0 $ 221 35.0
Increase (reduction) in taxes
resulting from:
Subsidiary stock transactions . . . (44) (137.5) (22) (3.5)
Taxes on foreign income in
excess of statutory rate . . . . . 20 62.5 16 2.5
State income taxes (net of
federal effect). . . . . . . . . . 3 9.4 25 4.0
Tax credits . . . . . . . . . . . . (28) (87.5) (26) (4.1)
Other . . . . . . . . . . . . . . . 1 3.1 (2) (0.4)
----- ----- ---- -----
Provision (benefit) for taxes
on income. . . . . . . . . . . . . . $ (37) (115.0) $ 212 33.5
===== ===== ==== =====
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------------
1998 1997
----------------- -----------------
Percent Percent
of of
Pretax Pretax
Amount Income Amount Income
------ ------ ------ ------
(Restated)
(Millions)
<S> <C> <C> <C> <C>
Income before income taxes, minority
interest and extraordinary item. . . $ 222 100.0 $1,233 100.0
===== ====== ===== ======
Tax at federal statutory rate . . . . $ 78 35.0 $ 432 35.0
Increase (reduction) in taxes
resulting from:
Subsidiary stock transactions . . . (57) (25.7) (44) (3.6)
Taxes on foreign income in excess
of statutory rate. . . . . . . . . 40 18.0 33 2.7
State income taxes (net of
federal effect). . . . . . . . . . 11 5.0 46 3.7
Tax credits . . . . . . . . . . . . (59) (26.6) (51) (4.1)
Other . . . . . . . . . . . . . . . (3) (1.2) (5) (0.4)
----- ----- ----- ------
Provision for taxes on income . . . . $ 10 4.5 $ 411 33.3
===== ===== ===== ======
</TABLE>
- 12 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE K. Discontinued Operations.
On June 1, 1998, ARCO disposed of its U.S. coal operations to Arch
Coal. Operations disposed of included the Black Thunder and Coal Creek
mines in Wyoming, the West Elk mine in Colorado, and ARCO's 65% interest in
three mines in Utah. ARCO contributed its Wyoming coal operations and Arch
Coal transferred various of its coal operations into a new joint venture
that is 99% owned by Arch Coal and 1% owned by ARCO.
The net assets of ARCO's Australian coal mining operations are
included in the net assets of discontinued operations at June 30, 1998.
The Company expects to dispose of the Australian operations by March 31,
1999 and does not expect to incur a loss from the disposal of the U.S. and
Australian coal assets. Net proceeds from the sale of U.S. operations have
been deferred in other liabilities and credits until the ultimate gain, if
any, on disposition of all coal assets can be determined. Revenues from
the discontinued coal operations were $232 million and $362 million for the
six months ended June 30, 1998 and 1997, respectively.
In July 1998, ARCO tendered its 80,000,001 shares of ARCO Chemical
common stock to Lyondell for $57.75 per share, or total cash proceeds of
approximately $4.6 billion. ARCO expects to record an after-tax gain of
approximately $1.3 billion in the third quarter of 1998 from the sale of
the shares.
ARCO Chemical's income and net assets were reported as part of
discontinued operations in the financial statements. Revenues from the
discontinued ARCO Chemical operations were $1.7 billion and $1.9 billion
for the six months ended June 30, 1998 and 1997, respectively.
In September 1997, ARCO disposed of its 49.9% equity interest in
Lyondell. Accordingly, the 1997 financial statements were restated to
reflect ARCO's earnings from and investment in Lyondell as discontinued.
- 13 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE L. Earned Per Share.
The information necessary for the calculation of earned per share is as
follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
------------------------- -------------------------
Income Shares Per share Income Shares Per share
------ ------ --------- ------ ------ ---------
(Millions, except
per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Income from continuing
operations . . . . . . . $ 64 $409
Less: Preference stock
dividends. . . . . . . . (1) (1)
--- ---
Income from continuing
operations available
to common stockholders -
basic EPS. . . . . . . . 63 321.0 $0.19 408 321.1 $1.27
===== =====
Income from discontinued
operations, net of tax . 90 321.0 0.29 99 321.1 0.31
--- ===== ---- --- =====
Income before extra-
ordinary item available
to common stockholders -
basic EPS. . . . . . . . 153 507
Extraordinary item. . . . - (118) 321.1 (0.37)
--- --- ===== ----
Net income available to
common stockholders -
basic EPS. . . . . . . . 153 321.0 $0.48 389 321.1 $1.21
==== ====
Effect of dilutive
securities:
Contingently issuable
shares (primarily
options) . . . . . . . . 3.0 2.4
Convertible preference
stock. . . . . . . . . . 1 3.6 1 3.9
--- ----- --- -----
Net income available to
common stockholders and
assumed conversions -
diluted EPS. . . . . . . 154 327.6 $0.47 390 327.4 $1.19
===== =====
Extraordinary item. . . . - 118 327.4 0.36
--- --- =====
Income before extra-
ordinary item available
to common stockholders
and assumed conversions -
diluted EPS. . . . . . . 154 508
Income from discontinued
operations, net of tax . (90) 327.6 (0.28) (99) 327.4 (0.30)
--- ===== ---- --- ===== ----
Income from continuing
operations available to
common stockholders and
assumed conversions -
diluted EPS. . . . . . . $ 64 327.6 $0.19 $409 327.4 $1.25
=== ===== ==== === ===== ====
</TABLE>
- 14 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE L. Earned Per Share (continued).
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
------------------------- -------------------------
Income Shares Per share Income Shares Per share
------ ------ --------- ------ ------ ---------
(Millions, except
per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Income from continuing
operations . . . . . . $198 $800
Less: Preference stock
dividends. . . . . . . (1) (1)
--- ---
Income from continuing
operations available to
common stockholders -
basic EPS. . . . . . . 197 320.8 $0.61 799 321.7 $2.48
===== =====
Income from discontinued
operations, net of tax 176 320.8 0.55 191 321.7 0.60
Income before extra-
ordinary item available
to common stockholders -
basic EPS. . . . . . . 373 990
Extraordinary item. . . - (118) 321.7 (0.37)
--- --- ===== ----
Net income available to
common stockholders -
basic EPS. . . . . . . 373 320.8 $1.16 872 321.7 $2.71
==== ====
Effect of dilutive
securities:
Contingently issuable
shares (primarily
options) . . . . . . . 3.0 1.6
Convertible preference
stock. . . . . . . . . 1 3.6 1 3.9
--- ----- --- -----
Net income available
to common stockholders
and assumed conversions -
diluted EPS. . . . . . 374 327.4 $1.14 873 327.2 $2.67
===== =====
Extraordinary item . . . - 118 327.2 0.36
--- --- =====
Income before extra-
ordinary item available
to common stockholders
and assumed conversions -
diluted EPS . . . . . . 374 991
Income from discontinued
operations, net of tax. (176) 327.4 (0.54) (191) 327.2 (0.59)
--- ===== ---- --- ===== ----
Income from continuing
operations available
to common stockholders
and assumed conversions -
diluted EPS . . . . . . $198 327.4 $0.60 $800 327.2 $2.44
=== ===== ==== === ===== ====
</TABLE>
- 15 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE M. Supplemental Income Statement Information.
Taxes other than income taxes comprised the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
(Restated) (Restated)
(Millions)
<S> <C> <C> <C> <C>
Production/severance. . . . . $ 55 $ 74 $119 $186
Property. . . . . . . . . . . 30 36 70 70
Other . . . . . . . . . . . . 37 34 87 84
--- --- --- ---
Total . . . . . . . . . . . $122 $144 $276 $340
=== === === ===
</TABLE>
NOTE N. Supplemental Cash Flow Information.
Following is supplemental cash flow information for the six months
ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Gross sales and maturities of short-term investments . . $ 134 $ 1,373
Gross purchases of short-term investments. . . . . . . . (126) (1,069)
------ ------
Net cash provided by short-term investments. . . . . . . $ 8 $ 304
====== ======
Gross proceeds from issuance of notes payable. . . . . . $ 9,987 $ 2,975
Gross repayments of notes payable. . . . . . . . . . . . (7,057) (2,933)
------ ------
Net cash provided by notes payable . . . . . . . . . . . $ 2,930 $ 42
====== ======
Gross noncash provisions charged to income . . . . . . . $ 106 $ 139
Reserve reversal from partial tax audit settlements. . . - (145)
Cash payments of previously accrued items. . . . . . . . (205) (148)
------ ------
Cash payments greater than noncash provisions. . . . . . $ (99) $ (154)
====== ======
</TABLE>
Interest paid during the six-month periods ended June 30, 1998 and
1997 was $205 million and $292 million, respectively.
Income taxes paid during the six-month periods ended June 30, 1998 and
1997 were $140 million and $573 million, respectively.
- 16 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE N. Supplemental Cash Flow Information (continued).
Excluded from the Consolidated Statement of Cash Flows for the six
months ended June 30, 1998 was the issuance of 2,725,030 shares of ARCO
common stock to a consolidated subsidiary in exchange for certain property,
plant and equipment owned by the subsidiary. The transaction was recorded
at fair market value at the time of the exchange.
Changes in working capital accounts for the six-month periods ended
June 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Changes in working capital - Increase (decrease)
to cash:
Accounts receivable. . . . . . . . . . . . . . . . . $ 89 $196
Inventories. . . . . . . . . . . . . . . . . . . . . 2 (54)
Accounts payable . . . . . . . . . . . . . . . . . . (157) (262)
Other working capital. . . . . . . . . . . . . . . . (273) (168)
----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . $ (339) $ (288)
===== =====
</TABLE>
NOTE O. 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, two 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 $767 million
based on alleged injuries to natural resources resulting from mining and
mineral processing operations formerly operated by Anaconda. ARCO and the
State have lodged with the court an agreement to settle for $135 million
the State's natural resource damages at three sites. That agreement is
contingent upon the State, ARCO and others completing and lodging with the
court a related settlement agreement and upon court approval of both
agreements.
- 17 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE O. Other Commitments and Contingencies (continued).
ARCO is subject to other loss contingencies pursuant to federal, state
and local environmental laws and regulations. These require ARCO to remove
or mitigate the effects on the environment of the disposal or release of
certain chemical, mineral and petroleum substances at various sites,
perform certain restoration work on these sites and to pay damages for loss
of use and non-use values. ARCO is currently participating in
environmental assessments and cleanups under these laws at federal
Superfund and state-managed sites, as well as other clean-up sites.
ARCO may in the future be involved in additional environmental assessments
and cleanups, including restoration of natural resources and damages for
loss of use and non-use values. The amount of 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. 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, 1998, the
environmental remediation accrual was $696 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 133 sites. The number of
PRP sites in and of itself is not a relevant measure of liability, because
the nature and extent of environmental concerns varies by site and ARCO's
share of responsibility varies from sole responsibility to very little
responsibility. ARCO reviews all of the PRP sites, along with other sites
as to which no claims have been asserted, in estimating the amount of the
accrual. ARCO's future costs at these sites could exceed the amount
accrued by as much as $500 million.
Approximately 55% 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.
- 18 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE O. Other Commitments and Contingencies (continued).
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.
Note P. Subsequent Event.
On August 4, 1998, ARCO announced that its wholly owned subsidiary,
Western Midway Company, had reached agreement with Mobil Exploration &
Producing U.S. Inc. to exchange all ARCO's oil and gas producing properties
and associated facilities in California's San Joaquin Valley for certain
Mobil oil and gas properties in the Gulf of Mexico. The exchange is
contingent upon the completion of a due diligence period during which each
party has certain rights to withdraw from the exchange. The effective date
of the transaction is July 1, 1998, with closing scheduled for October 30,
1998. The exchange will result in a pre-tax loss in excess of $100 million
for ARCO to be charged against earnings in the third quarter of 1998.
In a separate agreement ARCO has agreed to sell Western Midway Company
including its newly acquired Gulf of Mexico properties to Vastar for $470
million. The purchase price is subject to adjustment at closing. ARCO
owns an 82.2% interest in Vastar.
- 19 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Second Quarter 1998 vs. Second Quarter 1997
Consolidated Earnings
The earnings decline in 1998 primarily reflected lower crude oil
prices, partially offset by increased refined products margins and sales
volumes.
The 1998 second quarter included net charges of $66 million consisting
of the writedown of a North Sea natural gas field, partially offset by a
reduction in the ARCO Chemical Company restructuring reserve established in
1997.
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.
As the result of the sale of ARCO's 80 million shares of ARCO Chemical
Company ("ARCO Chemical") common stock in July 1998, the 1998 results from
operations reflected the Chemical operations as discontinued along with the
worldwide coal operations discontinued in the first quarter 1998. In
September 1997, ARCO disposed of its 49.9% interest in Lyondell Petrochemical
Company ("Lyondell"). The 1997 results have been restated to reflect these
operations as discontinued.
After-tax Segment Earnings
<TABLE>
<CAPTION>
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Exploration and production . . . . . . . . . . . $ 17 $321
Refining and marketing . . . . . . . . . . . . . 97 68
Other operations . . . . . . . . . . . . . . . . 29 24
Interest expense . . . . . . . . . . . . . . . . (75) (1)
Other unallocated expenses . . . . . . . . . . . (4) (3)
--- ---
Income from continuing operations. . . . . . . 64 409
Discontinued operations. . . . . . . . . . . . . 90 99
Extraordinary item . . . . . . . . . . . . . . . - (118)
--- ---
Net income . . . . . . . . . . . . . . . . . . $154 $390
=== ===
</TABLE>
Exploration and Production
ARCO's earnings from worldwide oil and gas exploration and production
operations in 1998 were significantly impacted by lower crude oil prices
and to a much lesser extent a decline in crude oil and natural gas
production volumes. Exploration expense was higher primarily as a result
of the writeoff of dryholes by Vastar Resources, Inc. The results also
included a $75 million after-tax writedown in the value of a North Sea
natural gas field following the unsuccessful resolution of a sales contract
dispute.
- 20 -
<PAGE>
Average Oil and Gas Prices
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
U.S.
Petroleum liquids - per barrel (bbl)
Alaska . . . . . . . . . . . . . . . . . . . . $ 7.58 $14.65
Lower 48, including Vastar . . . . . . . . . . $10.74 $16.06
Composite average price. . . . . . . . . . . . $ 8.71 $15.11
Natural gas - per thousand cubic feet (mcf). . . $ 1.92 $ 1.72
International
Petroleum liquids - per bbl. . . . . . . . . . . $12.11 $17.06
Natural gas - per mcf. . . . . . . . . . . . . . $ 2.56 $ 2.75
</TABLE>
Petroleum Liquids and Natural Gas Production
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net Production
U.S.
Petroleum liquids - bbl/day
Alaska . . . . . . . . . . . . . . . . . . . . 339,900 374,300
Vastar . . . . . . . . . . . . . . . . . . . . 49,400 52,800
Other Lower 48 . . . . . . . . . . . . . . . . 138,600 126,900
--------- ---------
Total. . . . . . . . . . . . . . . . . . . . 527,900 554,000
Natural gas - mcf/day. . . . . . . . . . . . . . 1,120,500 1,060,100
Barrels of oil equivalent - (BOE)/day* . . . . . 714,600 730,700
International
Petroleum liquids - bbl/day. . . . . . . . . . . 82,100 79,100
Natural gas - mcf/day. . . . . . . . . . . . . . 647,800 855,400
BOE/day. . . . . . . . . . . . . . . . . . . . . 190,100 221,700
Total net production - BOE/day . . . . . . . . . 904,700 952,400
__________
* Natural gas converted at the ratio of 6 mcf to 1 barrel of liquid.
</TABLE>
The decline in U.S. petroleum liquids production reflected a 26,600
barrel-per-day decrease in Prudhoe Bay production due to natural field
decline. Increased production from the addition (effective July 1, 1997)
of the Ashtart field in Tunisia and from the Rhourde El Baguel field in
Algeria were partially offset by declines in Indonesian and United Kingdom
production.
The decline in international natural gas volumes in 1998 reflected
reduced gas takes in the United Kingdom as a result of the timing of gas
takes, reduced gas takes in Indonesia because of the economic downturn there
and reduced gas takes in China as a result of customer operating problems.
Production from the United Kingdom natural gas fields decreased by
approximately 80 million cubic feet per day, while production from
Indonesian gas fields and the South China Sea natural gas field decreased
by approximately 68 million and 58 million cubic feet per day,
respectively.
- 21 -
<PAGE>
Refining and Marketing
The higher earnings in 1998 resulted from higher margins and a 14%
increase in gasoline sales volumes. While West Coast gasoline prices were
lower than in 1997, margins improved because of falling crude oil prices.
The increased gasoline sales volumes reflected the full integration of over
200 former Thrifty Oil Co. gas stations into ARCO's retail network and
increased volumes at ARCO's retail outlets. The decline in jet fuel sales
reflected ARCO's decision to reduce its sales of jet fuel in Northern
California.
West Coast Petroleum Products Sales
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Volumes (Barrels/day)
Gasoline. . . . . . . . . . . . . . . . . . . . . . 313,900 275,800
Jet . . . . . . . . . . . . . . . . . . . . . . . . 111,800 122,400
Distillate. . . . . . . . . . . . . . . . . . . . . 78,100 78,100
Other . . . . . . . . . . . . . . . . . . . . . . . 89,600 75,100
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . 593,400 551,400
======= =======
</TABLE>
Other Operations
The 1998 and 1997 results included earnings from Lower 48 pipeline and
aluminum operations. The increase in 1998 earnings reflected improved
pipeline operations resulting from higher revenues and successful efforts
at cost reduction.
Discontinued Operations
After-tax earnings from discontinued operations totaled $90 million in
the 1998 second quarter, comprised of earnings from ARCO's interest in ARCO
Chemical Company. The 1998 second quarter results for discontinued
included no income from coal operations. Although cash proceeds were
received, the sale of U.S. coal assets will not be recognized in income
until disposition of the Company's Australian coal assets is completed and
the ultimate gain, if any, on disposition can be determined.
In the 1997 second quarter ARCO's worldwide coal operations earned $24
million after tax while the Company's interest in ARCO Chemical earned $29
million. The 1997 discontinued operations included earnings of $46 million
from ARCO's equity interest in Lyondell, which was disposed of in the third
quarter of 1997.
- 22 -
<PAGE>
Consolidated Revenues
<TABLE>
<CAPTION>
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Sales and other operating revenues
Exploration and production . . . . . . . . . . . $1,368 $2,399
Refining and marketing . . . . . . . . . . . . . 1,432 1,631
Other. . . . . . . . . . . . . . . . . . . . . . 53 55
Intersegment eliminations. . . . . . . . . . . . (289) (551)
----- -----
Total. . . . . . . . . . . . . . . . . . . . . $2,564 $3,534
===== =====
</TABLE>
The decline in exploration and production sales revenues resulted
primarily from lower petroleum liquids prices and lower natural gas and crude
oil marketing activity. Effective September 1, 1997, Vastar Resources, Inc.
("Vastar") contributed the majority of its natural gas marketing operations
to a joint venture with the Southern Company. Primarily, as a result of the
transfer of those operations, total natural gas sales volumes decreased to
2.3 billion cubic feet per day in the 1998 second quarter, down from 3.8
billion cubic feet per day in the 1997 second quarter.
Refining and marketing sales revenues primarily decreased because of
lower refined products prices, partially offset by higher refined products
volumes.
The decrease in 1998 other revenues primarily reflected the absence of
revenue from the termination of a lease agreement in the second quarter of
1998.
Consolidated Expenses
Trade purchases were lower primarily as a result of lower crude oil
prices and decreased natural gas marketing activity. Natural gas purchase
volumes decreased to .5 billion cubic feet per day in the 1998 second
quarter, down from 2.0 billion cubic feet per day in the 1997 second
quarter.
Operating expenses were lower in 1998 primarily in oil and gas
operations, reflecting decreased natural gas marketing activity and other
cost reductions.
The increased depreciation, depletion and amortization expense in 1998
includes a $110 million pre-tax writedown of a North Sea natural gas field.
The lower taxes other than income taxes in 1998 primarily resulted
from the impact of lower crude oil prices on U.S. production taxes.
The higher interest expense in 1998 reflected the absence of the
reversal of reserves for tax-related interest in the second quarter of
1997.
Income Taxes
The Company had a net tax benefit of $37 million in the 1998 second
quarter, compared to a tax provision of $212 in the 1997 second quarter.
The tax benefit in 1998 primarily reflected that the Company had an increase
in the net effect of affiliate stock transactions and slightly increased tax
credits, while income before incomes taxes decreased 95% in the second
quarter of 1998.
- 23 -
<PAGE>
Six-Month Period Ended June 30, 1998 vs. Same Six-Month Period 1997
Consolidated Earnings
The earnings decline in the first six months of 1998 primarily
reflected lower crude oil prices and lower crude oil and natural gas
volumes.
After-tax Segment Earnings
<TABLE>
<CAPTION>
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Exploration and production . . . . . . . . . . . $199 $773
Refining and marketing . . . . . . . . . . . . . 116 114
Other operations . . . . . . . . . . . . . . . . 53 37
Interest expense . . . . . . . . . . . . . . . . (144) (98)
Other unallocated expenses . . . . . . . . . . . (26) (26)
--- ---
Income from continuing operations. . . . . . . . 198 800
Discontinued operations. . . . . . . . . . . . . 176 191
Extraordinary item . . . . . . . . . . . . . . . - (118)
--- ---
Net income . . . . . . . . . . . . . . . . . . $374 $873
=== ===
</TABLE>
Consolidated Revenues
<TABLE>
<CAPTION>
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Sales and other operating revenues
Exploration and production . . . . . . . . . . . $2,906 $5,246
Refining and marketing . . . . . . . . . . . . . 2,784 3,323
Other. . . . . . . . . . . . . . . . . . . . . . 95 101
Intersegment eliminations. . . . . . . . . . . . (685) (1,244)
----- -----
Total. . . . . . . . . . . . . . . . . . . . . $5,100 $7,426
===== =====
</TABLE>
The decline in exploration and production sales revenues for the first
six months of 1998 resulted primarily from lower petroleum liquids prices
and natural gas marketing activity. Effective September 1, 1997, Vastar
contributed the majority of its natural gas marketing operations to a joint
venture with the Southern Company. Primarily, as a result of the transfer of
those operations, total natural gas sales volumes decreased to 2.3 billion
cubic feet per day for the first six months of 1998, down from 4.3 billion
cubic feet per day for the same period in 1997.
For the first six months of 1998 refining and marketing sales revenues
primarily decreased because of lower refined products prices, partially
offset by higher refined products volumes.
- 24 -
<PAGE>
Consolidated Expenses
Trade purchases for the six months ended June 30, 1998 were lower
primarily as a result of lower crude oil prices and decreased natural gas
marketing activity. Natural gas purchase volumes decreased to .5 billion
cubic feet per day in 1998, down from 2.4 billion cubic feet per day in the
same period in 1997.
Operating expenses were lower during the first half of 1998 primarily
in oil and gas operations, reflecting decreased natural gas marketing
activity and other cost reductions.
The increased depreciation, depletion and amortization expense in 1998
includes a $110 million pre-tax writedown of a North Sea natural gas field.
The higher exploration expense for the first six months of 1998
reflected increased geological and geophysical and dryhole expense in
international operations and higher dryhole expense at Vastar in the second
quarter of 1998.
The lower taxes other than income taxes in 1998 primarily resulted
from the impact of lower crude oil prices on U.S. production taxes.
For the six months ended June 30, 1998, the higher interest expense
reflected the absence of the reversal of reserves for tax-related interest
in the second quarter of 1997. Excluding the prior year reserve reversal,
interest expense was down almost $75 million in the first six months of
1998 as a result of debt retirements and capitalized interest in 1997.
Income Taxes
The Company's effective tax rate was 4.5% for the first six months of
1998, compared to 33.3% for the same period in 1997. The lower effective
tax rate in 1998 primarily reflected that the Company had an increase in
the net effect of affiliate stock transactions and increased tax credits,
while income before income taxes decreased 82% in the 1998 period.
Average Oil and Gas Prices
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
1998 1997
---- ----
<S> <C> <C>
U.S.
Petroleum liquids - per bbl
Alaska . . . . . . . . . . . . . . . . . . . $ 8.95 $16.36
Lower 48, including Vastar. . . . . . . . . . $11.71 $17.65
Composite average price . . . . . . . . . . . $ 9.92 $16.77
Natural gas - per mcf . . . . . . . . . . . . . $ 1.91 $ 2.03
International
Petroleum liquids - per bbl . . . . . . . . . . $12.35 $19.00
Natural gas - per mcf . . . . . . . . . . . . . $ 2.63 $ 2.70
</TABLE>
- 25 -
<PAGE>
Petroleum Liquids and Natural Gas Production
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net Production
U.S.
Petroleum liquids - bbl/day
Alaska . . . . . . . . . . . . . . . . . . . 351,900 386,600
Vastar . . . . . . . . . . . . . . . . . . . 50,500 51,900
Other Lower 48 . . . . . . . . . . . . . . . 139,600 125,800
Total. . . . . . . . . . . . . . . . . . . 542,000 564,300
Natural gas - mcf/day. . . . . . . . . . . . . 1,106,100 1,054,600
Barrels of oil equivalent - (BOE)/day* . . . . 726,400 740,100
International
Petroleum liquids - bbl/day. . . . . . . . . . 84,100 74,900
Natural gas - mcf/day. . . . . . . . . . . . . 747,200 867,000
BOE/day. . . . . . . . . . . . . . . . . . . . 208,600 219,400
Total net production - BOE/day . . . . . . . . 935,000 959,500
__________
* Natural gas converted at the ratio of 6 mcf to 1 barrel of liquid.
</TABLE>
Liquidity and Capital Resources
<TABLE>
<CAPTION>
1998
----
(Millions)
<S> <C>
Cash flow provided (used) by:
Operations. . . . . . . . . . . . . . . . . . . . . $ 654
Investing activities. . . . . . . . . . . . . . . . $(3,182)
Financing activities. . . . . . . . . . . . . . . . $ 2,483
</TABLE>
The net cash used by investing activities in the first six months of
1998 included expenditures for the purchase of Union Texas Petroleum for
$2.6 billion and additions to fixed assets of $1.6 billion, offset by
proceeds from asset sales, primarily U.S. coal assets, of $1.1 billion.
The net cash provided by financing activities in the first six months
of 1998 primarily included an increase of $2.9 billion in the Company's
short-term debt position offset by dividend payments of $459 million.
Cash and cash equivalents and short-term investments totaled $728
million, short-term borrowings were $4.4 billion and long-term debt due
within one year was $102 million at the end of the second quarter of 1998.
As a result of the increased use of short-term borrowing, primarily
for the purchase of UTP in the second quarter of 1998, the Company is in a
working capital deficit position of approximately $4.1 billion at June 30,
1998. On July 28, 1998, ARCO received $4.6 billion for the ARCO Chemical
shares it tendered to Lyondell and expects to recognize an after-tax gain
of approximately $1.3 billion in the third quarter of 1998. It is expected
that future cash requirements for working capital, capital expenditures,
dividends and debt repayments will come from cash generated from operating
activities, existing cash balances, and future financings.
- 26 -
<PAGE>
Statements of Financial Accounting Standards Not Yet Adopted
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 is
effective for financial statements for fiscal years beginning after
December 15, 1998. SOP 98-1 establishes criteria for determining which
costs of developing or obtaining internal-use computer software should be
charged to expense and which should be capitalized. The Company has not
yet completed evaluating the impact of the provisions of SOP 98-1.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities". SFAS No. 133 requires
companies to adopt its provisions for all fiscal quarters of all fiscal
years beginning after June 15, 1999. Earlier application of all of the
provisions of SFAS No. 133 is permitted, but the provisions cannot be
applied retroactively to financial statements of prior periods. SFAS
standardizes the accounting for derivative instruments by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. The Company has not yet
completed evaluating the impact of the provisions of SFAS No. 133.
_______________________________
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.
- 27 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
1. Reference is made to the disclosure on page 12 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 (hereinafter, the
"1997 Form 10-K Report") and on page 21 of the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998 (the "First Quarter Form
10-Q Report") regarding Montana v. ARCO, ex rel. (Case No. CV-83-317-HLN-
PGH). On June 19, 1998, ARCO and the State lodged with the court a
conditional consent decree to settle for $135 million all but a portion of
the State's Natural Resource Damage ("NRD") claims. The NRD claims of the
State not settled are for restoration at three sites for which a final
cleanup plan has not been ordered. As part of the settlement, ARCO also
will pay $80 million in settlement of its liability for cleanup at the
Stream Side Tailings Operable Unit ("SSTOU") in the Clark Fork Basin. The
State NRD settlement is conditioned upon ARCO, the United States, and the
Confederated Salish and Kootenai Tribes of the Flathead Reservation
finalizing an agreement providing for the SSTOU cleanup and settling United
States and Tribal NRD claims and upon court approval of these agreements.
2. Reference is made to the disclosure on page 12 of the Company's 1997
Form 10-K Report regarding the case of U.S. v. ARCO, et al. (Case No. CV-89-
039-BU-PGH). Litigation is proceeding on both EPA's claims (in the
approximate amount of $90 million) and ARCO's counterclaims against various
federal agencies. The proposed settlements in Montana v. ARCO, described
above, will resolve some, but not all, of the claims and counterclaims in
U.S. v. ARCO.
3. Reference is made to the disclosure on page 14 of the Company's 1997
Form 10-K Report regarding Siemens Solar Industries v. Atlantic Richfield
Company (Case No. 94-109092). On June 10, 1998, the Appellate Division of
the Supreme Court affirmed summary judgment. Siemens has filed a motion
for leave to appeal to the New York Court of Appeals.
4. On April 20, 1998, ARCO received a Finding of Violation from EPA
Region IX for alleged violations at the Los Angeles Refinery of the federal
New Source Performance Standards established for refineries under the Clean
Air Act. These standards limit emissions from affected fuel gas combustion
devices and Claus sulfur recovery plants. EPA alleges the facility was in
noncompliance for approximately 65 days in 1997. EPA has the authority to
seek penalties of up to $27,500 per day. Settlement discussions with EPA
are ongoing.
5. On May 6, 1998, two purported class actions were filed in the Court of
Chancery of the State of Delaware in New Castle County, Squyres v. Barry,
et al. (Case No. 16357NC) and McMullen v. Union Texas Petroleum, et al.
(Case No. 16358NC), against Union Texas Petroleum Company ("UTP"),
individual directors of UTP, Kohlberg Kravis Roberts and Co. ("KKR"), and
ARCO relating to ARCO's acquisition and merger of UTP. On July 28, 1998, a
purported class action was filed in the United States District Court for
the Central District of California, Squyres v. Whitmire, et al. (Case No.
98-6085), against the same defendants, except ARCO. The suits are brought
by individual shareholders of UTP on behalf of all holders of UTP common
stock and seek rescission of the transaction, damages for the allegedly
inadequate consideration being paid by ARCO for the UTP shares, and
attorneys' fees and costs. In the Delaware actions, the plaintiffs assert
that the individual director defendants and KKR, as UTP's largest
shareholder, breached fiduciary duties to other shareholders and that ARCO
aided and abetted the alleged breach of duty. In the California case, the
plaintiffs allege that the defendants violated the Securities Exchange Act
of 1934.
- 28 -
<PAGE>
Item 1. Legal Proceedings (continued).
6. On June 26, 1998, a purported class action was filed in the Court of
Chancery of the State of Delaware in New Castle County, McMullin v. Beran,
et al. (Case No. 16493NC) against ARCO, Lyondell Petrochemical Company,
ARCO Chemical Company, and the individual directors of ARCO Chemical
relating to the acquisition of ARCO Chemical by Lyondell. The suit is
brought by an individual shareholder of ARCO Chemical on behalf of all
common stockholders, other than defendants, and seeks rescission of the
transaction, damages for the allegedly inadequate consideration being paid
by Lyondell for the shares, and attorneys' fees and costs. The plaintiff
alleges that ARCO and the individual directors of ARCO Chemical, who are
alleged to be dominated and controlled by ARCO, breached fiduciary duties
to the minority shareholders.
7. Reference is made to the Company's 1997 Form 10-K Report for
information on other legal proceedings matters reported herein.
Item 5. Other.
A. PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements include certain
adjustments to the historical financial statements of the Company. Such
adjustments are made to give effect to the sale of ARCO's entire holdings
in ARCO Chemical Company ("ARCO Chemical") common stock, 80,000,001 shares,
or an 82.1% interest in ARCO Chemical at the time of the sale, July 28,
1998. These adjustments reflect the elimination of ARCO Chemical balances
from ARCO's consolidated financial statements and the receipt of $4.6
billion in cash from the sale of ARCO Chemical common stock, as well as an
after-tax gain of $1.3 billion and the estimated income taxes payable of
$1.7 billion.
The pro forma condensed statements of income have been prepared as if
the sale of the shares took place as of January 1, 1997. The pro forma
condensed balance sheet has been prepared as if the sale of the shares took
place as of June 30, 1998.
Such pro forma financial statements are not necessarily indicative of
the results of future operations, nor the results of historical operations
had the sale of ARCO Chemical shares taken place as of the assumed dates.
- 29 -
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES
(Unaudited)
PRO FORMA CONDENSED STATEMENT OF INCOME
Year Ended December 31, 1997
----------------------------------------
Pro Forma
After Giving
Effect to
(Millions except per share amounts) Historical* Adjustments Adjustments
----------- ----------- ------------
<S> <C> <C> <C>
Revenues
Sales and other operating
revenues . . . . . . . . . . . $18,047 $(3,707) $14,340
Other revenues. . . . . . . . . 414 3 417
------ ------ ------
18,461 (3,704) 14,757
------ ------ ------
Expenses
Trade purchases . . . . . . . . 7,843 (1,438) 6,405
Operating expenses. . . . . . . 3,958 (1,128) 2,830
Selling, general and
administrative expenses. . . . 1,051 (410) 641
Depreciation, depletion and
amortization . . . . . . . . . 1,675 (229) 1,446
Exploration expenses (including
undeveloped leasehold
amortization). . . . . . . . . 508 - 508
Taxes other than income taxes . 710 (70) 640
Interest. . . . . . . . . . . . 422 (79) 343
Unusual items . . . . . . . . . 242 (175) 67
------ ------ ------
16,409 (3,529) 12,880
------ ------ ------
Income before income taxes,
minority interest and
extraordinary item . . . . . . . 2,052 (175) 1,877
Provision for taxes on income . . (561) 58 (503)
Minority interest in earnings
of subsidiaries. . . . . . . . . (68) 25 (43)
------ ------ ------
Income from continuing
operations before extraordinary
item . . . . . . . . . . . . . . $ 1,423 $ (92) $ 1,331
====== ====== ======
Earned per Share
Continuing operations - Basic
(321.2 shares) . . . . . . . . $ 4.43 $ (.29) $ 4.14
Continuing operations - Diluted
(327.4 shares) . . . . . . . . $ 4.35 $ (.28) $ 4.07
____________
* As restated to give effect to the discontinuance of coal operations by
ARCO in the first quarter of 1998 and the sale of ARCO's interest in
Lyondell Petrochemical Company in the third quarter of 1997.
</TABLE>
- 30 -
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES
(Unaudited)
PRO FORMA CONDENSED STATEMENT OF INCOME
Six Months Ended June 30, 1998
----------------------------------------
Pro Forma
After Giving
Effect to
(Millions except per share amounts) Historical* Adjustments Adjustments
----------- ----------- ------------
<S> <C> <C> <C>
Revenues
Sales and other operating
revenues . . . . . . . . . . . . . $ 6,898 $(1,798) $ 5,100
Other revenues. . . . . . . . . . . 219 (19) 200
------ ------ ------
7,117 (1,817) 5,300
------ ------ ------
Expenses
Trade purchases . . . . . . . . . . 2,713 (656) 2,057
Operating expenses. . . . . . . . . 1,687 (593) 1,094
Selling, general and
administrative expenses. . . . . . 479 (94) 385
Depreciation, depletion and
amortization . . . . . . . . . . . 892 (104) 788
Exploration expenses (including
undeveloped leasehold amortization) 275 - 275
Taxes other than income taxes . . . 315 (39) 276
Interest. . . . . . . . . . . . . . 239 (36) 203
------ ------ ------
6,600 (1,522) 5,078
------ ------ ------
Income before income taxes and
minority interest . . . . . . . . . 517 (295) 222
Provision for taxes on income. . . . (97) 87 (10)
Minority interest in earnings of
subsidiaries. . . . . . . . . . . . (54) 40 (14)
------ ------ ------
Income from continuing operations. . $ 366 $ (168) $ 198
====== ====== ======
Earned per Share
Continuing operations - Basic
(320.8 shares) . . . . . . . . . . $ 1.13 $ (.52) $ .61
Continuing operations - Diluted
(327.4 shares) . . . . . . . . . . $ 1.11 $ (.51) $ .60
____________
* Reflects the discontinuance of coal operations by ARCO in the first quarter
of 1998.
</TABLE>
- 31 -
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC RICHFIELD COMPANY
(Unaudited)
PRO FORMA CONDENSED BALANCE SHEET
June 30, 1998
----------------------------------------
Pro Forma
After Giving
Effect to
(Millions) Historical Adjustments Adjustments
---------- ----------- ------------
<S> <C> <C> <C>
Assets
Cash, cash equivalents, and
short-term investments . . . . . . $ 728 $4,600 $ 5,328
Accounts receivable, inventories
and other current assets . . . . . 1,586 1,586
Investment in Union Texas Petroleum 2,646 2,646
Investments and long-term
receivables. . . . . . . . . . . . 1,800 1,800
Net property, plant and equipment . 14,308 14,308
Net assets of discontinued
operations . . . . . . . . . . . . 2,013 (1,600) 413
Deferred charges and other assets . 1,353 1,353
------ ----- ------
Total assets. . . . . . . . . . . . $24,434 $3,000 $27,434
====== ===== ======
Liabilities and Stockholders' Equity
Current liabilities . . . . . . . . $ 6,367 $1,700 $ 8,067
Long-term debt. . . . . . . . . . . 3,679 3,679
Deferred income taxes . . . . . . . 2,335 2,335
Other deferred liabilities and
credits. . . . . . . . . . . . . . 3,739 3,739
Minority interest . . . . . . . . . 251 251
Stockholders' equity:
Preference stocks. . . . . . . . . 1 1
Common stock . . . . . . . . . . . 814 814
Capital in excess of par value
of stock. . . . . . . . . . . . . 856 856
Retained earnings. . . . . . . . . 6,969 1,300 8,269
Treasury stock . . . . . . . . . . (356) (356)
Accumulated other comprehensive
income. . . . . . . . . . . . . . (221) (221)
------ ----- ------
Total stockholders' equity . . . . 8,063 1,300 9,363
------ ----- ------
Total liabilities and
stockholders' equity . . . . . . . $24,434 $3,000 $27,434
====== ===== ======
</TABLE>
- 32 -
<PAGE>
Item 5. Other (continued)
B. TIMELY SUBMISSION OF SHAREHOLDER PROPOSALS
The Securities and Exchange Commission ("SEC") requires a registrant
to give shareholders notice of deadlines for timely submission of certain
types of shareholder proposals that shareholders wish to present for a vote
at a registrant's annual meeting. These deadlines are set based on certain
SEC rules as they relate to the registrant's annual meeting date and
relevant provisions of its articles and by-laws. Set forth below are the
deadlines applicable to ARCO shareholders. ARCO's Board has not yet acted
to set the annual meeting date; the following dates are based on an assumed
meeting date of May 3, 1999 for ARCO's 1999 Annual Meeting.
The deadline for submission by shareholders of proposals (other than
for the nomination of a director) they wish included in ARCO's 1999 proxy
statement is November 16, 1998. If a shareholder wishes to submit a
nomination for director, the deadline is January 4, 1999.
In the event a shareholder does not notify ARCO by January 29, 1999 of
an intent to be present at the 1999 Annual Meeting in order to present a
proposal for a vote (other than a proposal for the nomination of a
director), the Company will have the right to exercise its discretionary
authority to vote against the proposal, if presented, without including any
information about the proposal in its proxy materials.
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, 1998 and through the date hereof.
Date of Report Item No. Financial Statements
-------------- -------- --------------------
June 3, 1998 5 None
June 18, 1998 5 None
June 29, 1998 5 None
- 33 -
<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 7, 1998 ________________________________
(signature)
Allan L. Comstock
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
- 34 -
<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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> $ 513
<SECURITIES> 215
<RECEIVABLES> 840
<ALLOWANCES> 0
<INVENTORY> 451
<CURRENT-ASSETS> 2,314
<PP&E> 32,802
<DEPRECIATION> 18,494
<TOTAL-ASSETS> 24,434
<CURRENT-LIABILITIES> 6,367
<BONDS> 3,679
0
1
<COMMON> 814
<OTHER-SE> 7,248
<TOTAL-LIABILITY-AND-EQUITY> 24,434
<SALES> 5,100
<TOTAL-REVENUES> 5,300
<CGS> 4,215
<TOTAL-COSTS> 4,490
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203
<INCOME-PRETAX> 222
<INCOME-TAX> 10
<INCOME-CONTINUING> 198
<DISCONTINUED> 176
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 374
<EPS-PRIMARY> $1.16
<EPS-DILUTED> $1.14
</TABLE>
