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, 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
March 31, 1998: 320,872,102.
<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,
------------------
1998 1997
---- ----
(Restated)
(Millions except per share amounts)
<S> <C> <C>
Revenues
Sales and other operating revenues . . . . . . . . . $3,431 $4,850
Other revenues . . . . . . . . . . . . . . . . . . . 119 130
----- -----
3,550 4,980
----- -----
Expenses
Trade purchases. . . . . . . . . . . . . . . . . . . 1,306 2,234
Operating expenses . . . . . . . . . . . . . . . . . 843 886
Selling, general and administrative expenses . . . . 231 243
Depreciation, depletion and amortization . . . . . . 404 404
Exploration expenses (including undeveloped
leasehold amortization). . . . . . . . . . . . . . 149 126
Taxes other than income taxes. . . . . . . . . . . . 175 216
Interest . . . . . . . . . . . . . . . . . . . . . . 115 166
----- -----
3,223 4,275
----- -----
Income from continuing operations before
income taxes and minority interest . . . . . . . . . 327 705
Provision for taxes on income. . . . . . . . . . . . . 90 224
Minority interest in earnings of subsidiaries. . . . . 27 21
----- -----
Income from continuing operations. . . . . . . . . . . 210 460
Income from discontinued operations, net of
income taxes of $3 (1998) and $12 (1997) . . . . . . 10 23
----- -----
Net Income . . . . . . . . . . . . . . . . . . . . . . $ 220 $ 483
===== =====
Earned per Share
Continuing operations - Basic. . . . . . . . . . . . $ .65 $ 1.43
===== =====
Continuing operations - Diluted. . . . . . . . . . . $ .64 $ 1.41
===== =====
Net income - Basic . . . . . . . . . . . . . . . . . $ .69 $ 1.50
===== =====
Net income - Diluted . . . . . . . . . . . . . . . . $ .67 $ 1.48
===== =====
Cash Dividends Paid per Share of Common Stock. . . . . $.7125 $.6875
===== =====
</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,
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . $ 535 $ 487
Short-term investments. . . . . . . . . . . . 231 222
Accounts receivable . . . . . . . . . . . . . 1,411 1,535
Inventories . . . . . . . . . . . . . . . . . 981 940
Prepaid expenses and other current assets . . 279 226
------ ------
Total current assets. . . . . . . . . . . . . 3,437 3,410
------ ------
Investments and long-term receivables:
Investments accounted for on the equity method 825 809
Other investments and long-term receivables . 1,542 1,859
------ ------
2,367 2,668
------ ------
Net property, plant and equipment . . . . . . . 16,432 16,100
Net assets of discontinued operations . . . . . 1,333 1,309
Deferred charges and other assets . . . . . . . 1,590 1,554
------ ------
Total assets. . . . . . . . . . . . . . . . . . $25,159 $25,041
====== ======
</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,
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable . . . . . . . . . . . . . . . . . $ 2,149 $ 1,555
Accounts payable. . . . . . . . . . . . . . . . 1,015 1,259
Long-term debt due within one year. . . . . . . 186 187
Taxes payable . . . . . . . . . . . . . . . . . 436 364
Other . . . . . . . . . . . . . . . . . . . . . 1,207 1,242
------ ------
Total current liabilities . . . . . . . . . . . 4,993 4,607
------ ------
Long-term debt. . . . . . . . . . . . . . . . . . 4,411 4,412
Deferred income taxes . . . . . . . . . . . . . . 2,884 2,985
Other deferred liabilities and credits. . . . . . 3,584 3,578
Minority interest . . . . . . . . . . . . . . . . 778 779
Stockholders' equity:
Preference stocks . . . . . . . . . . . . . . . 1 1
Common stock. . . . . . . . . . . . . . . . . . 807 807
Capital in excess of par value of stock . . . . 644 640
Retained earnings . . . . . . . . . . . . . . . 7,045 7,054
Treasury stock. . . . . . . . . . . . . . . . . (146) (170)
Accumulated other comprehensive income. . . . . 158 348
------ ------
Total stockholders' equity. . . . . . . . . . . 8,509 8,680
------ ------
Total liabilities and stockholders' equity. . . . $25,159 $25,041
====== ======
</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,
------------------
1998 1997
---- ----
(Millions) (Restated)
<S> <C> <C>
Cash flows from operating activities:
Net income from continuing operations. . . . . . . . . $ 210 $ 460
Adjustments to reconcile net income from
continuing operations to net cash provided by
operating activities:
Depreciation, depletion and amortization . . . . . . 404 404
Dry hole expense and undeveloped leasehold amortization 63 50
Net gain on asset sales. . . . . . . . . . . . . . . (21) (8)
Income from equity investments . . . . . . . . . . . (9) (31)
Dividends from equity investments. . . . . . . . . . 1 13
Minority interest in earnings of subsidiaries. . . . 27 21
Cash payments (greater) less than noncash provisions (53) 19
Deferred income taxes. . . . . . . . . . . . . . . . 36 (23)
Changes in working capital accounts. . . . . . . . . (196) (47)
Other. . . . . . . . . . . . . . . . . . . . . . . . 33 13
----- -----
Net cash provided by operating activities. . . . . 495 871
----- -----
Cash flows from investing activities:
Additions to fixed assets (including dry hole costs) (799) (488)
Net cash used by short-term investments. . . . . . . (8) (29)
Proceeds from asset sales. . . . . . . . . . . . . . 45 9
Investments and long-term receivables. . . . . . . . (2) (4)
Other. . . . . . . . . . . . . . . . . . . . . . . . (33) 10
----- -----
Net cash used by investing activities. . . . . . . (797) (502)
----- -----
Cash flows from financing activities:
Repayments of long-term debt . . . . . . . . . . . . (66) (393)
Proceeds from issuance of long-term debt . . . . . . 68 233
Net cash provided by notes payable . . . . . . . . . 582 17
Dividends paid . . . . . . . . . . . . . . . . . . . (229) (223)
Treasury stock purchases . . . . . . . . . . . . . . (1) (17)
Other. . . . . . . . . . . . . . . . . . . . . . . . (1) (4)
----- -----
Net cash provided (used) by financing activities . 353 (387)
----- -----
Cash flows from discontinued operations. . . . . . . . (4) 17
Effect of exchange rate changes on cash. . . . . . . . 1 (10)
----- -----
Net increase (decrease) in cash and cash equivalents . 48 (11)
Cash and cash equivalents at beginning of period . . . 487 1,429
----- -----
Cash and cash equivalents at end of period . . . . . . $ 535 $1,418
===== =====
</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 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-month periods ended March 31, 1998 and 1997 was as
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
(Millions)
<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . . $ 220 $ 483
After-tax changes in:
Net unrealized gain on investments (a) . . . (186) 65
Foreign currency translation adjustment. . . (4) (50)
---- ----
Comprehensive income . . . . . . . . . . . . . $ 30 $ 498
==== ====
(a) Primarily consists of a decline in ARCO's unrealized gain on
its investment in LUKOIL, which had a fair value of approximately
$1 billion at March 31, 1998, compared to a fair value of
approximately $1.3 billion at December 31, 1997. The unrealized
pretax gain in the LUKOIL investment at March 31, 1998, was $668
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 comprehen-
sive income) at March 31, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
(Millions)
<S> <C> <C>
Net unrealized gain on investments. . . . . . $ 420 $ 606
Foreign currency translation adjustment . . . (208) (204)
Minimum pension liability . . . . . . . . . . (54) (54)
---- ----
Accumulated other comprehensive income. . $ 158 $ 348
==== ====
</TABLE>
- 5 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE C. Interim Segment Information.
<TABLE>
<CAPTION>
March 31, 1998
- --------------
Explo- Refin-
ration ing
& Pro- & Mar- Chemi- All Unallo-
(Millions) duction keting cals Other cated Total
-------- ------ ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Sales and other
operating revenues . $ 1,538 $1,352 $ 934 $ 40 $ 2 $ 3,866
Intersegment
revenues . . . . . . (362) (12) (37) (21) (3) (435)
------ ----- ----- ----- ----- ------
Total. . . . . . . . . $ 1,176 $1,340 $ 897 $ 19 $ (1) $ 3,431
====== ===== ===== ===== ===== ======
Income from con-
tinuing operations . $ 182 $ 19 $ 84 $ 24 $ (99) $ 210
Income from discon-
tinued operations. . - - - - 10 10
------ ----- ----- ----- ----- ------
Net income . . . . . . $ 182 $ 19 $ 84 $ 24 $ (89) $ 220
====== ===== ===== ===== ===== ======
Segment assets . . . . $13,211 $3,657 $4,069 $2,460 $1,762 $25,159
====== ===== ===== ===== ===== ======
December 31, 1997
- -----------------
(Restated)
Segment assets . . . . $13,269 $3,561 $4,116 $2,458 $1,637 $25,041
====== ===== ===== ===== ===== ======
</TABLE>
<TABLE>
<CAPTION>
March 31, 1997
- --------------
(Restated)
Explo- Refin-
ration ing
& Pro- & Mar- Chemi- All Unallo-
(Millions) duction keting cals Other cated Total
------- ------ ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Sales and other
operating revenues . $ 2,847 $1,692 $1,029 $ 44 $ 2 $ 5,614
Intersegment revenues. (671) (6) (62) (21) (4) (764)
------ ----- ----- ----- ----- ------
Total. . . . . . . . . $ 2,176 $1,686 $ 967 $ 23 $ (2) $ 4,850
====== ===== ===== ===== ===== ======
Income from contin-
uing operations. . . $ 452 $ 46 $ 50 $ 43 $ (131) $ 460
Income from discon-
tinued operations. . - - - - 23 23
------ ----- ----- ----- ----- ------
Net income . . . . . . $ 452 $ 46 $ 50 $ 43 $ (108) $ 483
====== ===== ===== ===== ===== ======
/TABLE>
As discussed in Note J, the Company's coal operations have been
reported as discontinued at March 31, 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 were included as part of "all other" for segment purposes. The
prior period has been restated to conform to the current presentation.
- 6 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE D. Investments.
At March 31, 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
March 31, 1998 and 1997, 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 March 31:
</TABLE>
<TABLE>
<CAPTION>
1998 1997
---- ----
(Millions)
<S> <C> <C>
Aggregate fair value . . . . . . . . . . . . . . $1,675 $1,842
Gross unrealized holding losses. . . . . . . . . 2 7
Gross unrealized holding gains . . . . . . . . . (684) (478)
----- -----
Amortized cost . . . . . . . . . . . . . . . . . $ 993 $1,371
===== =====
</TABLE>
Investment activity for the three months ended March 31 was as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(Millions)
<S> <C> <C>
Gross purchases. . . . . . . . . . . . . . . . . $4,802 $2,641
Gross sales. . . . . . . . . . . . . . . . . . . 124 592
Gross maturities . . . . . . . . . . . . . . . . 4,598 2,551
</TABLE>
Gross realized gains and losses were insignificant and were determined by
the specific identification method.
NOTE E. Inventories.
Inventories at March 31, 1998 and December 31, 1997 comprised the
following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
(Restated)
(Millions)
<S> <C> <C>
Crude oil and petroleum products. . . . . . $ 302 $ 247
Chemical products . . . . . . . . . . . . . 424 439
Other products. . . . . . . . . . . . . . . 24 24
Materials and supplies. . . . . . . . . . . 231 230
---- ----
Total . . . . . . . . . . . . . . . . . . $ 981 $ 940
==== ====
</TABLE>
- 7 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE F. Capital Stock.
Detail of the Company's capital stock was as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
(Thousands)
<S> <C> <C>
$3.00 Cumulative convertible preference
stock, par $1 . . . . . . . . . . . . . . . . $ 55 $ 56
$2.80 Cumulative convertible preference
stock, par $1 . . . . . . . . . . . . . . . . 605 616
Common stock, par $2.50 . . . . . . . . . . . . 807,290 806,800
------- -------
Total. . . . . . . . . . . . . . . . . . . $807,950 $807,472
======= =======
</TABLE>
NOTE G. Capitalization of Interest.
Interest expense excludes capitalized interest of $18 million and $3
million for the three-month periods ended March 31, 1998 and 1997,
respectively.
NOTE H. Restructuring Programs.
During 1997, the Company undertook several restructuring actions,
primarily at ARCO Chemical Company, within the refining and marketing
operations and at corporate headquarters. The following table summarizes
the personnel-related amounts accrued as of December 31, 1997:
<TABLE>
<CAPTION>
($ 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
pension plans.
(c) Net increase in non-qualified pension benefits and other postretire-
ment benefits to be paid from Company funds.
</TABLE>
Through March 31, 1998, approximately 700 employees have been terminated
and approximately $40 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.
- 8 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE I. Income Taxes.
Provision for taxes on income:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Federal:
Current . . . . . . . . . . . . . . . . $ 17 $162
Deferred. . . . . . . . . . . . . . . . 39 (13)
--- ---
56 149
--- ---
Foreign:
Current . . . . . . . . . . . . . . . . 31 52
Deferred. . . . . . . . . . . . . . . . (9) (10)
--- ---
22 42
--- ---
State:
Current . . . . . . . . . . . . . . . . 6 33
Deferred. . . . . . . . . . . . . . . . 6 -
--- ---
12 33
--- ---
Total . . . . . . . . . . . . . . . . $ 90 $224
=== ===
</TABLE>
Reconciliation of provision for taxes on income with tax at federal
statutory rate:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------
1998 1997
------------------ -----------------
Percent Percent
of of
Pretax Pretax
Amount Income Amount Income
------ ------- ------ -------
(Restated)
(Millions)
<S> <C> <C> <C> <C>
Income from continuing operations
before income taxes and minority
interest. . . . . . . . . . . . . . $ 327 100.0 $705 100.0
==== ===== === =====
Tax at federal statutory rate. . . . $ 114 35.0 $247 35.0
Increase (reduction) in taxes
resulting from:
Dividend exclusion . . . . . . . . - - (8) (1.1)
Subsidiary stock transaction . . . (13) (4.0) (22) (3.1)
Taxes on foreign income in excess
of statutory rate. . . . . . . . 15 4.6 14 2.0
State income taxes (net of federal
effect). . . . . . . . . . . . . 8 2.4 21 3.0
Tax credits. . . . . . . . . . . . (31) (9.5) (25) (3.5)
Other. . . . . . . . . . . . . . . (3) (1.0) (3) (0.5)
---- ----- --- -----
Provision for taxes on income. . . . $ 90 27.5 $224 31.8
==== ===== === =====
</TABLE>
- 9 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE J. Discontinued Operations.
In March 1998, ARCO signed agreements to dispose of its U.S. coal oper-
ations with Arch Coal. Operations covered by these agreements 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. A subsidiary
of ARCO will sell the Colorado and Utah coal operations to Arch Coal.
Simultaneously, ARCO will contribute its Wyoming coal operations and
Arch will transfer various of its coal operations into a new joint venture
that will be 99% owned by Arch and 1% owned by ARCO. The Company expects
the transaction to be completed by the end of the second quarter of 1998.
The net assets of discontinued operations at March 31, 1998 also include
the net assets of ARCO's Australian coal mining operations. 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. Revenues from the discontinued coal operations were $141
million and $203 million for the three months ended March 31, 1998 and 1997,
respectively.
NOTE K. Earned Per Share.
The information necessary for the calculation of earned per share is
as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998
-----------------------------
Income Shares Per share
------ ------ ---------
(Millions, except per share amounts)
<S> <C> <C> <C>
Income from continuing operations . . . . . . $209.9
Less: Preference stock dividends. . . . . . . (.5)
-----
Income from continuing operations available to
common stockholders - basic EPS . . . . . . 209.4 320.6 $0.65
===== ====
Income from discontinued operations, net of tax 10.4
-----
Net income available to common
stockholders - basic EPS. . . . . . . . . . 219.8 320.6 $0.69
====
Effect of dilutive securities:
Contingently issuable shares (primarily options) 2.9
Convertible preference stock. . . . . . . . . .5 3.7
----- -----
Net income available to common stockholders and
assumed conversions - diluted EPS . . . . . 220.3 327.2 $0.67
===== ====
Income from discontinued operations, net of tax (10.4)
-----
Income from continuing operations available to
common stockholders and assumed
conversions - diluted EPS . . . . . . . . . $209.9 327.2 $0.64
===== ===== ====
</TABLE>
- 10 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE K. Earned Per Share (Continued).
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997
----------------------------
Income Shares Per share
------ ------ ---------
(Millions, except per share amounts)
<S> <C> <C> <C>
Income from continuing operations . . . . . . . $460.3
Less: Preference stock dividends. . . . . . . . (.5)
-----
Income from continuing operation available to
common stockholders - basic EPS . . . . . . . 459.8 322.2 $1.43
===== ====
Income from discontinued operations, net of tax 22.6
-----
Net income available to common
stockholders - basic EPS . . . . . . . . . . 482.4 322.2 $1.50
====
Effect of dilutive securities:
Contingently issuable shares (primarily options) .8
Convertible preference stock. . . . . . . . . . .5 4.0
----- -----
Net income available to common stockholders and
assumed conversions - diluted EPS . . . . . . 482.9 327.0 $1.48
===== ====
Income from discontinued operations, net of tax (22.6)
-----
Income from continuing operations available to
common stockholders and assumed
conversions - diluted EPS . . . . . . . . . . $460.3 327.0 $1.41
===== ===== ====
</TABLE>
NOTE L. Supplemental Income Statement Information.
Taxes other than income taxes comprised the following:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Production/severance. . . . . . . . . . . . . . . $ 64 $112
Property. . . . . . . . . . . . . . . . . . . . . 49 44
Other . . . . . . . . . . . . . . . . . . . . . . 62 60
--- ---
Total . . . . . . . . . . . . . . . . . . . . . $175 $216
=== ===
</TABLE>
- 11 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE M. Supplemental Cash Flow Information.
Following is supplemental cash flow information for the three months
ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Gross sales and maturities of short-term investments. . $ 64 $ 611
Gross purchases of short-term investments . . . . . . . (72) (640)
------ ------
Net cash used by short-term investments . . . . . . . . $ (8) $ (29)
====== ======
Gross proceeds from issuance of notes payable . . . . . $ 5,916 $ 1,707
Gross repayments of notes payable . . . . . . . . . . . (5,334) (1,690)
------ ------
Net cash provided by notes payable. . . . . . . . . . . $ 582 $ 17
====== ======
Gross noncash provisions charged to income. . . . . . . $ 75 $ 98
Cash payments of previously accrued items . . . . . . . (128) (79)
------ ------
Cash payments (greater) less than noncash provisions. . $ (53) $ 19
====== ======
</TABLE>
Interest paid during the three-month periods ended March 31, 1998 and
1997 was $128 million and $186 million, respectively.
Income taxes paid during the three-month periods ended March 31, 1998
and 1997 were $37 million and $109 million, respectively.
Changes in working capital accounts for the three-month periods ended
March 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
(Restated)
(Millions)
<S> <C> <C>
Increase (decrease) to cash
Accounts receivable. . . . . . . . . . . . . $ 113 $ 217
Inventories. . . . . . . . . . . . . . . . . (48) 9
Accounts payable . . . . . . . . . . . . . . (238) (305)
Other working capital. . . . . . . . . . . . (23) 32
---- ----
Total. . . . . . . . . . . . . . . . . . . $(196) $ (47)
==== ====
</TABLE>
- 12 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE N. 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 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 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 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 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
wherewithal of the other responsible parties. At March 31, 1998, the
environmental remediation accrual was $759 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.
- 13 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE N. 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 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 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 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.
- 14 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE O. Subsequent Event.
On May 4, 1998, ARCO announced that it has signed a definitive merger
agreement with Union Texas Petroleum ("UTP") under which ARCO will acquire
for cash all outstanding shares of UTP common stock for $29 per share in a
transaction valued at approximately $3.3 billion, including debt and
preferred stock of UTP. The agreement was approved unanimously by both
boards of directors.
Under the terms of the merger agreement, ARCO will commence an all-cash
tender offer for all of UTP's outstanding common stock on or prior to May 8,
1998. Any shares not purchased in the tender offer will be acquired for $29
per share cash pursuant to a merger after completion of the tender offer.
As of March 31, 1998, UTP had approximately 85.25 million shares outstanding.
The transaction is subject to usual closing conditions, including regulatory
approvals. ARCO excepts the tender offer will be completed by the end of
the second quarter.
UTP is a Houston-based oil and gas company with 1997 sales of $909
million and assets of $2.0 billion. UTP has major operations in Indonesia,
the North Sea, Venezuela and Pakistan.
- 15 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
First Quarter 1998 vs. First Quarter 1997
Consolidated Earnings
The earnings decline in 1998 primarily reflected lower crude oil
prices and, to a lesser extent, lower U.S. natural gas prices, the absence
of earnings from Lyondell Petrochemical Company ("Lyondell") and lower
refining and marketing margins, partially offset by higher earnings from
ARCO Chemical Company ("ARCO Chemical") and lower interest expense.
For the first quarter of 1998, a special items benefit of $8 million
consisted of a deferred tax benefit, partially offset by charges for future
environmental remediation.
There were no net special items for the first quarter of 1997 as
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.
After-tax Segment Earnings
<TABLE>
<CAPTION>
1998 1997
---- ----
(Millions)
<S> <C> <C>
Exploration and production . . . . . . . . . . . $ 182 $ 452
Refining and marketing . . . . . . . . . . . . . 19 46
Chemicals. . . . . . . . . . . . . . . . . . . . 84 50
Other operations . . . . . . . . . . . . . . . . 24 43
Interest expense . . . . . . . . . . . . . . . . (82) (112)
Other unallocated expenses . . . . . . . . . . . (17) (19)
---- ----
Income from continuing operations. . . . . . . 210 460
Discontinued operations. . . . . . . . . . . . . 10 23
---- ----
Net income . . . . . . . . . . . . . . . . . . $ 220 $ 483
==== ====
</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 lesser extent, lower U.S. natural gas prices. A $23 million
increase in exploration expense in the 1998 first quarter was primarily
geological and geophysical and dryhole expenses associated with
international exploration.
- 16 -
<PAGE>
Average Oil & Gas Prices
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
U.S.
Petroleum liquids - per barrel (bbl)
Alaska . . . . . . . . . . . . . . . . . . . $10.26 $17.98
Lower 48, including Vastar . . . . . . . . . $12.68 $19.29
Composite average price. . . . . . . . . . . $11.10 $18.38
Natural gas - per thousand cubic feet (mcf). . $ 1.89 $ 2.32
International
Petroleum liquids - per bbl. . . . . . . . . . $12.59 $20.79
Natural gas - per mcf. . . . . . . . . . . . . $ 2.69 $ 2.64
</TABLE>
Petroleum Liquids and Natural Gas Production
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net Production
U.S.
Petroleum liquids - bbl/day
Alaska . . . . . . . . . . . . . . . . . 364,100 398,900
Vastar . . . . . . . . . . . . . . . . . 51,600 51,100
Other Lower 48 . . . . . . . . . . . . . 140,500 124,800
Total. . . . . . . . . . . . . . . . . 556,200 574,800
Natural gas - mcf/day. . . . . . . . . . . 1,091,700 1,049,200
Barrels of oil equivalent (BOE)/day* . . . 738,100 749,700
International
Petroleum liquids - bbl/day. . . . . . . . 86,200 70,400
Natural gas - mcf/day. . . . . . . . . . . 847,600 878,400
BOE/day. . . . . . . . . . . . . . . . . . 227,500 216,800
Total net production BOE/day . . . . . . . . 965,600 966,500
____________
* 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 maintenance downtime and natural field declines in the Prudhoe Bay
field in Alaska. Increased production from the Rhourde El Baguel field in
Algeria and from the addition (effective July 1, 1997) of the Ashtart
field in Tunisia were the primary reasons for the increase in international
liquids production.
The reduction in international natural gas volumes in 1998 reflected
higher natural gas takes in the United Kingdom, more than offset by lower
natural gas takes from Indonesia gas fields and the Yacheng 13 field in the
South China Sea. Production from the United Kingdom natural gas fields
increased by approximately 55 million cubic feet per day, while production
from Indonesia gas fields and the Yacheng 13 field decreased by
approximately 62 million and 20 million cubic feet per day, respectively.
- 17 -
<PAGE>
Refining and Marketing
In the 1998 first quarter, refining and marketing margins decreased as
realized prices for gasoline, jet fuel and diesel all fell due to higher
West Coast inventories. The excess inventories on the West Coast were
caused by high levels of jet fuel imports from Asia, where the financial
crisis reduced demand, and the weather-related impact from above-normal
rainfall. Higher operating expenses in the first quarter of 1998 reflected
primarily $25 million before tax in turnaround expenses.
The integration of over 200 Thrifty gasoline retail sites into ARCO's
retailing network in California and the newly acquired sites in Vancouver,
British Columbia contributed to an 11% increase in retail gasoline volumes.
West Coast Petroleum Products Sales
<TABLE>
<CAPTION>
1998 1997
---- ----
Volumes (barrels/day)
<S> <C> <C>
Gasoline . . . . . . . . . . . . . . . . . . . . 295,400 265,000
Jet. . . . . . . . . . . . . . . . . . . . . . . 110,200 118,900
Distillate . . . . . . . . . . . . . . . . . . . 77,900 77,700
Other. . . . . . . . . . . . . . . . . . . . . . 63,400 61,600
------- -------
Total. . . . . . . . . . . . . . . . . . . . . 546,900 523,200
======= =======
</TABLE>
Chemicals
For the chemicals segment, reflecting ARCO's 82.3% interest in ARCO
Chemical, the 1998 earnings were primarily attributable to higher core
product (propylene oxide (PO), PO derivatives, and toluene di-isocyanate
(TDI)) volumes and ARCO Chemical's cost reduction program. Selling,
general and administrative and research and development expenses decreased
$20 million. Core product margins also improved as lower feedstock costs
were only partially offset by lower sales prices. Those margin
improvements were partially offset by margin decreases in co-products,
methyl tertiary butyl ether (MTBE) and styrene monomer (SM).
Average sales prices were generally lower in 1998, reflecting lower
feedstock costs, ongoing competition in PO derivatives and TDI markets, the
negative effects of a stronger U.S. dollar on foreign sales, lower prices
in Asian markets and lower prices for co-products, MTBE and SM.
Other Operations
The 1998 results from ARCO's other operations included the earnings
from Lower 48 pipeline and aluminum operations. The 1997 first quarter
included $30 million in after-tax earnings from ARCO's equity interest in
Lyondell. ARCO disposed of its interest in Lyondell in the third quarter
of 1997.
- 18 -
<PAGE>
Discontinued Operations
In March 1998, ARCO signed agreements to dispose of its U.S. coal oper-
ations with Arch Coal. Operations covered by these agreements include 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. A subsidiary
of ARCO will sell the Colorado and Utah coal operations to Arch Coal.
Simultaneously, ARCO will contribute its Wyoming coal operations and
Arch Coal will transfer various of its coal operations into a new joint
venture that will be 99% owned by Arch Coal and 1% owned by ARCO.
The lower earnings in 1998 from ARCO's discontinued coal operations
primarily resulted from lower sales prices and volumes.
Consolidated Revenues
<TABLE>
<CAPTION>
1998 1997
---- ----
(Millions)
<S> <C> <C>
Sales and other operating revenues
Exploration and production . . . . . . . . . . . $1,538 $2,847
Refining and marketing . . . . . . . . . . . . . 1,352 1,692
Chemicals. . . . . . . . . . . . . . . . . . . . 934 1,029
Other . . . . . . . . . . . . . . . . . . . . . 42 46
Intersegment eliminations. . . . . . . . . . . . (435) (764)
----- -----
Total. . . . . . . . . . . . . . . . . . . . . $3,431 $4,850
===== =====
</TABLE>
The decline in exploration and production sales and other operating
revenues resulted primarily from lower natural gas marketing activity and
lower petroleum liquids prices. 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. As a
result of the transfer of those operations, total natural gas sales
volumes decreased to 2.4 billion cubic feet per day in the 1998 first
quarter, down from 4.8 billion cubic feet per day in the 1997 first
quarter.
Refining and marketing sales and other operating revenues decreased
primarily because of lower refined products prices, partially offset by
higher gasoline volumes.
Consolidated Expenses
Trade purchases were lower primarily as a result of lower natural gas
marketing activity and crude oil prices.
The lower operating expenses in 1998 primarily reflected the absence
of charges for future environmental remediation related to the adoption of
a new accounting standard in the first quarter of 1997 and the absence of
gas marketing delivery charges.
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 lower interest expense in 1998 resulted from a $1.7 billion
reduction of long-term debt in 1997.
- 19 -
<PAGE>
Income Taxes
The Company's effective tax rate was 27.5% in the 1998 first quarter,
compared to 31.8% in the 1997 first quarter. The lower effective tax rate
in 1998 primarily reflected that the Company had approximately the same
level of tax credits in both periods, while income before income taxes was
more than 50% lower in the first quarter of 1998 compared to the same
period in 1997.
Liquidity and Capital Resources
<TABLE>
<CAPTION>
1998
----
(Millions)
<S> <C>
Cash flow provided (used) by:
Operations . . . . . . . . . . . . . . . . . . . $ 495
Investing activities . . . . . . . . . . . . . . $(797)
Financing activities . . . . . . . . . . . . . . $ 353
</TABLE>
The net cash used by investing activities in the first quarter 1998
included expenditures for additions to fixed assets of $799 million. The
Company expects total capital expenditures for additions to fixed assets to
approximate $3.8 billion for the full year 1998.
The net cash provided by financial activities in the first quarter of
of 1998 included net proceeds of $582 million from the issuance of short-
term debt and proceeds of $68 million from the issuance of long-term debt.
These proceeds were partially offset by repayments of long-term debt of
$66 million and dividend payments of $229 million.
Cash and cash equivalents and short-term investments totaled $766
million, and short-term borrowings were $2.3 billion at the end of the
first quarter of 1998.
Primarily as a result of the $1.7 billion repayments of long-term debt
in 1997 and the increased use of short-term borrowing, the Company is in a
working capital deficit position of approximately $1.6 billion at March 31,
1998. It is expected that future cash requirements for working capital
requirements, capital expenditures, dividends and debt repayments will come
from cash generated from operating activities, existing cash balances, and
future financings. In addition, ARCO expects to receive proceeds from its
disposal of its U.S. coal assets of $1.14 billion.
On May 4, 1998, ARCO announced that it has signed a definitive merger
agreement with Union Texas Petroleum ("UTP") under which ARCO will acquire
for cash all outstanding shares of UTP common stock for $29 per share in a
transaction valued at approximately $3.3 billion, including debt and
preferred stock of UTP. ARCO expects the tender offer to be completed by
the end of the second quarter of 1998 and plans to finance the transaction
using commercial paper and other short-term borrowings backed by existing
and additional bank facilities. ARCO expects the transaction will add
140,000 barrels per day of oil equivalent ("BOE") to 1998 production, and
proved reserves of 573 million BOE. UTP is a Houston-based oil and gas
company with 1997 sales of $909 million and assets of $2.0 billion.
____________________
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.
- 20 -
<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") regarding Montana v. ARCO, ex
rel. (Case No. CV-83-317-HLN-PGH). The State's claim, as of January 1,
1998, was for damages of $767 million for alleged injuries to natural
resources resulting from mining and mineral processing operations.
2. Reference is made to the disclosure on page 14 of the 1997 Form
10-K Report regarding Stanley Marshall, et al. v. ARCO (Case No. 3217). On
September 8, 1997, a jury found in favor of the plaintiffs and on March 19,
1998, the trial court entered the Second Modified Judgment on the verdict
awarding $3.8 million in actual damages, $50 million in exemplary damages,
$13.4 million in attorneys fees, and $1.7 million in pre-judgment interest.
3. Reference is made to the disclosure on page 14 of the 1997 Form
10-K Report regarding ARCO, et al. v. UNOCAL (Case No. 95-2379-KMW-JRx).
The inequitable conduct phase was tried in December 1997 without a jury.
No decision on that phase has been rendered by the court. The court also
has to rule on UNOCAL's claim for $2.6 million in attorneys fees. After
final judgment is entered, an appeal to the Court of Appeals for the
Federal Circuit is available.
4. Reference is made to the disclosure on pages 14-15 of the 1997
Form 10-K Report regarding Aguilar, et al. v. Atlantic Richfield, et al.
(Case No. 700810). The defendants have appealed from the order granting a
new trial, and the plaintiffs have cross-appealed from the summary
judgment.
5. Reference is made to the Company's 1997 Form 10-K Report for
information on other legal proceeding matters reported therein.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting of stockholders was held on May 4, 1998.
The stockholders elected all the Company's nominees for director, who
constitute the entire Board of Directors. The Stockholders also approved
the appointment of Coopers & Lybrand L.L.P. as the Company's independent
auditors for 1998. The votes were as follows:
1. Election of Directors.
<TABLE>
<CAPTION>
Votes
Votes For Withheld
--------- --------
<S> <C> <C>
Frank D. Boren 274,263,633 1,772,330
Mike R. Bowlin 274,305,184 1,730,779
John Gavin 274,171,357 1,864,606
Kent Kresa 274,336,291 1,699,672
Arnold G. Langbo 274,356,484 1,679,479
David T. McLaughlin 274,269,955 1,766,008
John B. Slaughter 274,184,205 1,851,758
Gary L. Tooker 274,337,126 1,698,837
Henry Wendt 271,207,865 4,828,098
</TABLE>
- 21 -
<PAGE>
2. Appointment of Coopers & Lybrand L.L.P.
For 274,550,338
Against 610,960
Abstain 874,665
3. Stockholders' proposal requesting the review and development of
guidelines for country selection and report to stockholders.
For 8,521,090
Against 228,183,603
Abstain 15,242,504
Broker Non-Votes 24,088,766
4. Stockholders' proposal requesting additional reporting of political
contributions.
For 11,518,902
Against 229,007,827
Abstain 11,420,468
Broker Non-Votes 24,088,766
5. Stockholders' proposal request for company investigation.
For 7,438,512
Against 228,464,575
Abstain 16,044,110
Broker Non-Votes 24,088,766
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule.
99 Press Release dated May 4, 1998 announcing ARCO's merger
agreement with Union Texas Petroleum.
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the quarter
ended March 31, 1998 and through the date hereof.
- 22 -
<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 5, 1998 _____________________________
ALLAN L. COMSTOCK
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
- 23 -
<PAGE>
<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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> $ 535
<SECURITIES> 231
<RECEIVABLES> 1,411
<ALLOWANCES> 0
<INVENTORY> 981
<CURRENT-ASSETS> 3,437
<PP&E> 36,094
<DEPRECIATION> 19,662
<TOTAL-ASSETS> 25,159
<CURRENT-LIABILITIES> 4,993
<BONDS> 4,411
0
1
<COMMON> 807
<OTHER-SE> 7,701
<TOTAL-LIABILITY-AND-EQUITY> 25,159
<SALES> 3,431
<TOTAL-REVENUES> 3,550
<CGS> 2,728
<TOTAL-COSTS> 2,877
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115
<INCOME-PRETAX> 327
<INCOME-TAX> 90
<INCOME-CONTINUING> 210
<DISCONTINUED> 10
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 220
<EPS-PRIMARY> $0.69
<EPS-DILUTED> $0.67
</TABLE>
ARCO [LOGO] Media Relations
515 South Flower Street
Los Angeles CA 90071-2201
Telephone 213 486 3385
Facsimile 213 486 0169
FOR IMMEDIATE RELEASE May 4, 1998
ARCO ANNOUNCES MERGER AGREEMENT WITH
UNION TEXAS PETROLEUM
$3.3 BILLION DEAL SUBSTANTIALLY INCREASES ARCO'S
INTERNATIONAL PRODUCTION AND RESERVES
KKR, CONTROLLING 25.6% OF UNION TEXAS STOCK, SIGNS
COMMITMENT TO TENDER UNION TEXAS INTEREST TO ARCO
LOS ANGELES AND HOUSTON -- ARCO (NYSE: ARC) and Union
Texas Petroleum (NYSE: UTH) announced today that they have
signed a definitive merger agreement under which ARCO will
acquire for cash all outstanding shares of Union Texas
common stock for $29 per share in a transaction valued at
approximately $3.3 billion, including debt and preferred
stock of Union Texas. The agreement was approved unanimously
by the Boards of Directors of both companies.
In connection with the transaction, ARCO has obtained a
commitment from Kohlberg Kravis Roberts & Co. to tender its
holdings of 25.6 percent of the outstanding Union Texas
common shares pursuant to the tender offer.
ARCO Chairman and Chief Executive Officer Mike R.
Bowlin called the agreement "an important building block"
for the company. "This acquisition is consistent with our
strategy of building scale and presence in 5 to 6 core
producing areas as a means of creating shareholder value,"
Bowlin added. "Over 90 percent of Union Texas' assets are
located in ARCO's core producing areas, specifically Venezuela,
Indonesia, the North Sea and Alaska. The combination of the
two companies solidifies ARCO's position as a
<PAGE>
Page 2
significant player in those regions and is another step
toward accomplishing our goal of becoming a great global
player."
Bowlin noted that "the transaction is especially
attractive to ARCO because of the exceptional degree of
overlap between the assets of the two companies and the
ability to implement significant cost reductions as a
consequence." Bowlin said he expects the combination to
eventually yield after-tax cost savings of at least $85
million per year.
The transaction is expected to add 140,000 barrels per
day of oil equivalent (BOE) to ARCO's 1998 production.
Union Texas expects strong production growth over the near
term from assets such as the Britannia field in the North
Sea, the Boqueron and DZO concessions in Venezuela, and the
Alpine field in Alaska.
The transaction will also add 573 million barrels of
proved reserves for a gross cost of $5.76 per BOE. ARCO
estimates it is paying approximately $5 per proved BOE
based on costs attributable to producing oil and gas assets.
In addition, probable and possible reserves also have been
identified for future development.
"In addition to strengthening our core areas," Bowlin
noted, "Union Texas offers several new venture options to
ARCO, ranging from its long-established operations in
Pakistan to its growing position in Kazakhstan and
Azerbaijan in the Caspian region. Finally, Union Texas'
long-term experience in Indonesia's LNG business should
prove valuable as we continue development and marketing of
ARCO's Tangguh gas reserves."
<PAGE>
Page 3
John Whitmire, Chairman and Chief Executive
Officer of Union Texas, said that "ARCO's tender offer
reflects the proven value and potential of Union Texas
Petroleum. Over the past two years, Union Texas' management
team and our employees around the world have made
significant progress in creating exciting growth prospects
for our company in areas such as Venezuela, Kazakhstan,
China and Northern Africa. I believe it was Union Texas'
growth performance that attracted ARCO to our organization."
Bowlin said he expects the acquisition to be accretive
to operating cash flow in the first year and only modestly
dilutive to earnings through next year. He noted that there
is little downside risk in this transaction as Union Texas'
production from known resources is rising and the cost
reductions anticipated are totally within ARCO's control.
ARCO expects the tender offer will be completed by the
end of the company's second quarter. ARCO plans to finance
the transaction using commercial paper and other short-term
borrowings backed by existing and additional bank facilities.
Under the terms of the merger agreement, ARCO will
commence an all-cash tender offer for all of Union Texas'
outstanding common stock on or prior to May 8, 1998. Any
shares not purchased in the tender offer will be acquired
for $29 per share in cash pursuant to a merger after
completion of the tender offer. As of March 31, 1998, Union
Texas had approximately 85.25 million shares outstanding.
The transaction is subject to usual closing conditions,
including regulatory approvals.
<PAGE>
Page 4
Union Texas Petroleum is a Houston-based oil and gas
company with 1997 sales of $909 million and assets of $2.0
billion. In addition to its Caspian Sea exploration
projects and major operations in Indonesia, the North Sea
and Venezuela, the company also has operations in Pakistan,
where it produces approximately 45 percent of the country's
domestic oil output.
ARCO is a Los Angeles-based integrated oil and gas
company with 1997 earnings of $1.8 billion and global assets
of $25.3 billion. Worldwide operations include all aspects
of exploration, production and marketing of crude oil,
natural gas, and natural gas liquids, as well as refining,
marketing and transportation of petroleum products. ARCO is
also the majority owner of ARCO Chemical Company.
# # #
[Some of the matters discussed in this news release are
forward-looking statements that involve risks and
uncertainties. Actual results could differ materially based
on numerous factors, including the realized level of crude
oil and natural gas production and other risks detailed from
time to time in the company's SEC reports, including the
1997 report on Form 10-K.]
For information call:
ARCO: (Media) Albert Greenstein, 213-486-3384;
(Investors) Dennis Schiffel, 213-486-1511
UTP: (Media) Carol Cox, 713-968-2714;
(Investors) John Zimmerman, 713-968-2740
