Item 3. Legal Proceedings
Eleven proceedings instituted by governmental authorities are pending or known to be contemplated against Amoco and certain of its subsidiaries under federal, state and local environmental laws, each of which could result in monetary sanctions in excess of $100,000. No individual proceeding is, nor are the proceedings as a group, expected to have a material adverse effect on Amoco's liquidity, consolidated financial position or results of operations. Amoco estimates that in the aggregate the monetary sanctions reasonably likely to be imposed from these proceedings amount to approximately $5.4 million.
The Internal Revenue Service ("IRS") has challenged the application of certain foreign income taxes as credits against the Corporation's U.S. taxes that otherwise would have been payable for the years 1980 through 1989. On June 18, 1992, the IRS issued a statutory Notice of Deficiency for additional taxes in the amount of $466 million, plus interest, relating to 1980 through 1982. The Corporation has filed a petition in the U.S. Tax Court contesting the IRS statutory Notice of Deficiency. Trial on the matter is scheduled to commence in April 1995. A comparable adjustment of foreign tax credits for each year has been proposed for the years 1983 through 1989 based upon subsequent IRS audits. Similar challenges could arise relating to years subsequent to 1989. The Corporation believes that the foreign income taxes have been reflected properly in its U.S. federal tax returns. The Corporation is confident that it will prevail in the litigation. Consequently, this dispute is not expected to have a material adverse effect on the liquidity, results of operations, or the consolidated financial position of the Corporation.
On January 21, 1994, a judgment was entered by the Superior Court of the State of California, County of Los Angeles, in favor of Amoco Chemical Company and Amoco Reinforced Plastics Company, subsidiaries of Amoco, against certain underwriters at Lloyd's of London and various other British and European insurance carriers, in AMOCO CHEMICAL COMPANY, et al, vs. CERTAIN UNDERWRITERS AT LLOYD'S OF LONDON, et al. In that case Amoco alleged that the defendant insurers wrongfully refused to pay for the defense and settlement of product liability lawsuits arising from Amoco Reinforced Plastics Company's manufacture of irrigation and sewer pipe in the 1970's. Judgment was entered for $36 million in compensatory damages and $377 million in punitive damages. Motions for a new trial and judgment notwithstanding the verdict filed by the defendants have been denied. The trial court entered a remittitur (reduction) of the punitive damages to $71 million. A modified judgment reflecting the remittitur was entered on April 15, 1994, in the amount of $110 million. The defendants have filed an appeal. Accordingly, it is impossible at this time to predict the ultimate outcome of this case, however, it is not expected to have a material effect on the liquidity or consolidated financial position of Amoco.
Amoco has various other suits and claims pending against it among which are several class actions for substantial monetary damages which in Amoco's opinion are not meritorious. While it is impossible to estimate with certainty the ultimate legal and financial liability in respect to these other suits and claims, Amoco believes that, while the aggregate amount could be significant, it will not be material in relation to its liquidity or its consolidated financial position.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the quarter ended December 31, 1994.
__________________________ PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
The principal public trading market for Amoco common stock is the New York Stock Exchange. Amoco common stock is also traded on the Chicago, Pacific, Toronto, and four Swiss stock exchanges. The following table sets forth the high and low share sales prices of Amoco common stock as reported on the New York Stock Exchange and cash dividends paid for the periods presented.
Market Prices Cash Dividends High Low Per Share First quarter . . . . . . . . . $ 56 1/8 $ 50 7/8 $ .55 Second quarter. . . . . . . . . $ 60 $ 51 1/8 $ .55 Third quarter . . . . . . . . . $ 61 1/4 $ 56 3/4 $ .55 Fourth quarter. . . . . . . . . $ 64 1/8 $ 57 1/2 $ .55 First quarter . . . . . . . . . $ 58 1/2 $ 48 1/8 $ .55 Second quarter. . . . . . . . . $ 59 1/4 $ 53 5/8 $ .55 Third quarter . . . . . . . . . $ 58 3/8 $ 52 3/8 $ .55 Fourth quarter. . . . . . . . . $ 59 $ 51 1/2 $ .55
Year-end 1994 and 1993 market prices were $59 1/8 and 52 7/8, respectively.
Amoco had 134,776 shareholders of record at December 31, 1994.
On January 24, 1995, the board of directors declared a quarterly cash dividend rate of 60 cents per share, an increase of 5 cents per share, or 9 percent, over the previous rate.
Item 6.
Item 6. Selected Financial Data
The following selected financial data, as it relates to the years 1990 through 1994, have been derived from the consolidated financial statements of Amoco, including the consolidated statement of financial position at December 31, 1994 and 1993 and the related consolidated statement of income and consolidated statement of cash flows for the three years ended December 31, 1994, and the notes thereto, appearing elsewhere herein.
1994 1993 1992 1991 1990 (millions of dollars, except per-share amounts and ratios) Income statement data--Year ended December 31: Sales and other operating revenues (excluding consumer excise taxes) . $ 26,048 $ 25,336 $ 25,280 $ 25,325 $ 28,010 Net income (1) . . . . . $ 1,789 $ 1,820 $ 850 $ 1,173 $ 1,913 Net income per share (1) $ 3.60 $ 3.66 $ 1.71 $ 2.36 $ 3.77 Cash dividends per share $ 2.20 $ 2.20 $ 2.20 $ 2.20 $ 2.04 Ratio of earnings to fixed charges (2) . . . . 8.9 8.0 3.5 5.0 6.5 Balance sheet data-At December 31: Total assets . . . . . . $ 29,316 $ 28,486 $ 28,453 $ 30,510 $ 32,209 Long-term debt . . . . . $ 4,387 $ 4,037 $ 5,005 $ 4,470 $ 5,012 Shareholders' equity . . $ 14,382 $ 13,665 $ 12,960 $ 14,156 $ 14,068 Shareholders' equity per share . . . . . . . . . . $ 28.97 $ 27.53 $ 26.11 $ 28.52 $ 28.02
(1) Excludes cumulative effects of accounting changes of $(924) million in 1992, or $(1.86) per share, and $311 million in 1991, or $.62 per share. (2) Earnings consist of income before income taxes and fixed charges; fixed charges include interest on indebtedness, rental expense representative of an interest factor, and adjustments for certain companies accounted for by the equity method.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with the consolidated financial statements and accompanying notes and supplemental information.
1994 1993 1992 (millions of dollars except per-share amounts) Income before the cumulative effects of accounting changes . . . . . . . . . . $ 1,789 $ 1,820 $ 850 Cumulative effects of accounting changes -- -- (924) Net income (loss) . . . . . . . . . . . $ 1,789 $ 1,820 $ (74) Income per share before the cumulative effects of accounting changes . . . . . $ 3.60 $ 3.66 $ 1.71 Net income (loss) per share . . . . . . $ 3.60 $ 3.66 $ (.15)
Consolidated net income for 1994 was $1,789 million, compared with $1,820 million earned in 1993. A net loss of $74 million was incurred in 1992, after charges of $924 million related to the cumulative effects of adopting Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting for Income Taxes."
Return on shareholders' equity and return on capital employed were 12.8 and 10.2 percent, respectively, in 1994, compared with 13.7 and 10.6 percent, respectively, in 1993.
Year-to-year comparisons in net income were affected by the unusual items that are summarized in the table below:
incr./(decr.) net income 1994 1993 1992 (millions of dollars) Crude oil excise tax settlement . . . $ 270 $ -- $ -- Restructurings . . . . . . . . . . . (256) (170) (805) Environmental provisions . . . . . . (60) -- -- Gains on dispositions . . . . . . . . 45 190 -- Tax obligations and other . . . . . . 62 60 90 Sharjah natural gas settlement . . . -- -- 90
Earnings in 1994 benefited from settlements of crude oil excise taxes ("COET") of $270 million, a gain of $45 million related to the disposition of certain European oil and gas properties and tax adjustments relating to prior years totaling $62 million. Earnings in 1994 were reduced by charges of $256 million relating to Amoco's restructuring of operations, as discussed further on pages 31 and 32, and provisions for future environmental remediation expenditures relating to past operations totaling $60 million. Earnings for 1993 included gains of $190 million associated with the disposition of certain Canadian
properties and investments, and net tax benefits of $60 million. Adversely affecting 1993 results were after-tax charges of $170 million associated with the writedown of Congo exploration and production operations to current recoverable value. Excluding these items, 1994 earnings were about the same as 1993.
Results of operations in 1994 reflected strong chemical earnings resulting from higher margins and volumes in major product lines. Refining, marketing and transportation earnings declined $408 million mainly because of lower refined product margins. Exploration and production earnings decreased in 1994 primarily as a result of lower energy prices.
Sales and other operating revenues totaled $26 billion for 1994, 3 percent higher than the $25.3 billion in 1993, primarily resulting from increased chemical and natural gas sales volumes, and higher prices for chemical products.
Costs and expenses on a worldwide basis amounted to $27.9 billion in 1994, 7 percent above 1993. Operating expenses of $4.7 billion were essentially level with 1993. Current-year restructuring charges of $169 million related to facility closings and dispositions; higher chemical manufacturing expenses resulting from new plant acquisitions in late 1993; and increased production costs overseas, were offset by the absence of the $210 million charge in 1993 related to the writedown of Congo exploration and production operations to current recoverable value. Exploration expenses increased $104 million primarily related to drilling activity. Selling and administrative expenses for 1994 were up 20 percent, primarily resulting from second-quarter 1994 restructuring charges of $225 million related to the severance of approximately 3,800 employees most of which are expected to occur by year-end 1995. Taxes other than income taxes increased over $500 million, resulting from higher consumer excise taxes.
1993 vs. 1992
Adjusting for unusual items and accounting changes, 1993 earnings were 18 percent, or $265 million, above the 1992 level, as a result of higher refined product margins in refining, marketing and transportation operations and improved chemical results. Also contributing to the improvement were higher U.S. natural gas prices and volumes and lower worldwide exploration and operating expenses.
Costs and expenses totaled $26 billion in 1993, 4 percent lower than 1992. Operating expenses declined primarily reflecting the absence of 1992 restructuring charges of $757 million associated with losses on asset dispositions, partly offset by 1993 charges of $210 million related to the writedown of Congo exploration and production operations. The decline in selling and administrative expense primarily reflected the absence of 1992 restructuring charges of $457 million mainly related to severances. Also contributing to the decline in total expenses were
lower dry hole costs worldwide, which were $118 million lower than in 1992.
Industry Segments
Results on a segment basis for the five years ended December 31, 1994 are presented below.
*Other operations include investments in laser manufacturing, photovoltaics and biotechnology; offshore contract drilling; interests in real estate development; and other activities.
U. S. Exploration and Production 1994 1993 1992 1991 1990 Average U.S. selling price Crude oil (dollars per barrel) . . . . . $14.82 $15.96 $17.79 $18.31 $21.60 Natural gas liquids (dollars per barrel) . . . . . 9.39 10.79 11.43 11.69 12.84 Natural gas (dollars per mcf) . . . . . . . 1.66 1.88 1.65 1.52 1.83
In the United States, the exploration and production segment earned $848 million in 1994, compared with $811 million in 1993 and $778 million in 1992. In those years U.S. operations were affected by several items that are summarized in the table below:
incr./(decr.) earnings 1994 1993 1992 (millions of dollars) Crude oil excise tax settlement . . . . . $ 90 $ -- $ -- Environmental provisions . . . . . . . . -- (63) -- Tax obligations . . . . . . . . . . . . . -- (25) -- Restructurings . . . . . . . . . . . . . (47) -- (94)
Adjusting the respective periods for the items shown, 1994 results were $94 million below 1993 mainly as a result of lower energy prices. Also contributing to the decline were lower crude oil production volumes. Partly offsetting were higher natural gas volumes, lower production costs, and lower depreciation, depletion and amortization expense.
Amoco's U.S. natural gas prices averaged about $2 per thousand cubic feet ("mcf") during the first four months of 1994. Prices then declined throughout much of the remainder of the year, reflecting increased supply and the impact of mild winter weather on demand.
Amoco's crude oil prices began the year around $12 per barrel and increased almost $5 per barrel by July, reflecting an improved worldwide supply-demand balance. Prices declined gradually for the remainder of the year, averaging $14.82, a decline of more than $1 per barrel compared with 1993.
U.S. natural gas production averaged 2.5 billion cubic feet per day in 1994, 3 percent above 1993. Crude oil and natural gas liquids ("NGL") production averaged 292,000 barrels per day in 1994, 4 percent below 1993. NGL production in 1994 was essentially level with 1993, while crude oil production declined 6 percent, reflecting normal field declines.
Non-U.S. Exploration and Production
Operations outside the United States were affected by the items as shown below.
incr./(decr.) earnings 1994 1993 1992 (millions of dollars) Gains on dispositions . . . . . . . . . . $ 45 $ 190 $ -- Restructurings . . . . . . . . . . . . . (20) (170) (258) Sharjah natural gas settlement . . . . . -- -- 90 Norwegian tax legislation . . . . . . . . -- -- (39)
Canadian exploration and production operations earned $125 million in 1994. In 1993 earnings of $338 million included a gain of $120 million on the sale of 65 percent of Amoco's equity investment in Crestar Energy Inc. ("Crestar"). Amoco also sold a significant portion of non- core properties in 1993, benefiting results by $70 million. Excluding these items, 1994 earnings were $23 million lower than 1993 results, primarily reflecting lower crude oil and natural gas production volumes. Also contributing to the decline were higher dry hole costs and other exploration expenses of $70 million before tax. Partly offsetting were higher natural gas prices, which were about 6 percent above 1993 levels. Crude oil and NGL production, and natural gas production averaged 13 percent and 10 percent below the 1993 levels, respectively, primarily reflecting divestments of non-core Canadian properties.
Exploration and production activities in Europe incurred losses of $63 million in 1994 and $100 million in 1993. Included in 1994 results was a gain of $45 million on property dispositions. Crude oil and natural gas production in the North Sea was higher in 1994, following completion of projects in late 1993. These favorable effects and higher natural gas prices were partly offset by lower crude oil prices, higher exploration expenses of $27 million before tax, unfavorable currency effects of $29 million and higher expenses associated with activity in Eurasia. Crude and NGL production averaged 66,000 barrels per day in 1994, compared with 51,000 in 1993; natural gas production averaged 335 million cubic feet in 1994, up 29 percent compared with 1993.
Exploration and production operations in other areas earned $77 million in 1994, compared with a loss of $54 million in 1993. Included in 1993 results were charges of $170 million related to the writedown of Congo operations to current recoverable value. Exclusive of these charges, results for 1994 were $39 million below 1993 mainly due to unfavorable currency effects of $25 million, lower crude oil prices and charges of $18 million related to the relinquishment of the Myanmar concession. Partly offsetting were lower exploration expenses and increased natural gas production, which averaged 552 million cubic feet per day in 1994, 4 percent higher than 1993, reflecting increased production in Trinidad. Crude oil and NGL production averaged 237,000 barrels per day in 1994, essentially level with 1993.
1993 vs. 1992
United States exploration and production operations earned $811 million in 1993 compared with $778 million in 1992. Excluding unusual items, 1993 results were $27 million above 1992 earnings, mainly as a result of higher natural gas prices and volumes and lower exploration expenses. Partly offsetting were lower crude oil prices and production volumes.
In 1993 earnings outside the United States for exploration and production operations totaled $184 million, compared with $93 million in 1992. The increase in 1993 mainly resulted from gains on the divestment of a portion of the Crestar shares and other Canadian property dispositions of $190 million; decreased restructuring charges, which were $88 million lower in 1993 than in 1992; and the absence of 1992 charges of $39 million relating to the effects of Norwegian tax legislation. Partly offsetting were lower crude oil prices, unfavorable currency effects, higher expenses associated with increased activity in Eurasia and the absence of the $90 million Sharjah natural gas settlement.
Outlook
Uncertainty and volatility in crude oil and natural gas prices will continue to affect the oil industry. While results will be influenced by energy prices, Amoco will benefit from both past and ongoing cost
reduction programs. Amoco plans to continue to evaluate and divest marginal properties and underperforming assets. Amoco's exploration efforts will continue to target areas that offer the most potential for adding value. Amoco plans to pursue attractive new business opportunities worldwide, to adjust its actions to political and socioeconomic uncertainties, and to capitalize on its extensive natural gas resources.
Refining, Marketing and Transportation
United States 1994 1993 1992 1991 1990 Cents per gallon: Average selling price Gasoline . . . . . . . . . . 63.4 66.4 71.3 74.7 83.4 Total refined products . . . 54.5 57.5 60.9 64.9 72.9 Average cost of crude input . . 38.4 39.6 44.6 45.5 55.0 Percent: Refinery capacity utilization 97.5 96.9 95.3 90.9 91.8 Refinery yield . . . . . . . 107.2 106.8 106.9 106.9 106.3
Worldwide refining, marketing and transportation operations, which include U.S. petroleum products and Canadian natural gas liquids activities, earned $418 million for 1994, compared with earnings of $826 million for 1993 and $462 million for 1992. Earnings in 1994 declined $408 million compared with 1993, primarily due to lower U.S. refined product margins. Refined product margins decreased almost two cents per gallon from 1993 levels, resulting in part from a very competitive U.S. market. Overall selling prices averaged 55 cents per gallon in 1994, down from 58 cents per gallon in 1993.
Also affecting 1994 earnings were charges of $60 million related to estimated future cost of environmental remediation activities, and restructuring charges of $41 million, primarily associated with severances. Included in 1993 earnings were unusual items favorably affecting results by $109 million.
Refined product sales volumes in the United States averaged 1,177,000 barrels per day in 1994 compared with 1,131,000 barrels per day in 1993. Gasoline sales volumes were up 3 percent in 1994 while distillate sales increased 5 percent.
Refining capacity utilization rate of 98 percent in 1994 compared with a 1993 utilization rate of 97 percent, reflecting continued operating efficiencies, despite unexpected disruptions and downtime in 1994.
Canadian supply and marketing activities earned $86 million in 1994, 15 percent below 1993 results, primarily reflecting lower prices for NGL. Canadian NGL sales volumes of 173,000 barrels per day in 1994 were essentially level with 1993.
1993 vs. 1992
In 1993 earnings of $826 million compared with 1992 earnings of $462 million. The 1993 earnings improvement primarily resulted from higher refined product margins and lower operating costs.
Outlook
In a highly competitive environment, Amoco's operations are continually challenged to control costs and improve operating efficiencies. Amoco's earnings will continue to be affected by price volatility of crude oil and the overall industry supply-demand balance for refined products. Amoco will focus on emphasizing Amoco brand product quality and improving its position as a convenience retailer. Environmental initiatives, including a commitment to provide a product slate that is responsive to environmental concerns and regulations, will require additional investment in refining and marketing facilities. Amoco will continue to upgrade facilities and improve operating efficiencies.
Chemicals
Chemical operations earned $538 million for 1994, compared with earnings of $240 million in 1993 and a loss of $94 million in 1992. Results for 1994 included restructuring charges of $36 million, primarily related to severance costs. Adjusting for these charges, 1994 earnings improved $334 million over 1993 due to higher margins and sales volumes for major product lines, particularly purified terephthalic acid ("PTA") and olefins, reflecting strong consumer demand.
Sales volumes for PTA were up 11 percent in 1994, as worldwide demand for PTA continued to grow. Olefins sales volumes were 14 percent higher than last year, reflecting strong growth in both domestic and export demand. The overall chemicals capacity utilization rates were 91 percent in 1994 and 88 percent in 1993.
1993 vs. 1992
In 1993 chemical operations earned $240 million compared with a loss of $94 million in 1992. Adjusting for $265 million in 1992 restructuring charges, 1993 earnings were up $69 million over 1992 resulting from the benefits of cost-containment efforts, restructuring and a strong worldwide PTA market.
Outlook
Chemical operations are affected by the worldwide economic environment and the chemical products supply-demand balance. Amoco's
earnings will continue to benefit from both past and ongoing process- improvement and cost-control programs. Amoco will continue to aggressively develop its international business to capitalize on the rapidly growing demand for petrochemical products in the international markets, particularly those in Asia. Amoco also plans to continue to broaden its current commodity chemical portfolio and looks to diversify into specialty chemical and polymer conversion businesses.
Other Operations
Other operations include investments in laser manufacturing, photovoltaics and biotechnology; offshore contract drilling; interests in real estate development; and other activities.
Other operations incurred a loss of $155 million in 1994, compared with losses of $45 million and $179 million, respectively, for 1993 and 1992. Included in 1994 losses were restructuring charges of $78 million, primarily related to the disposition of a hazardous-waste incineration facility in Kimball, Nebraska. In late 1994, Amoco signed a letter of intent to sell this facility; the sale is anticipated to close in 1995. The higher losses in 1994 compared with 1993 also reflected lower offshore contract drilling revenues. Also, 1993 included gains on the sale of certain operations as Amoco continued its efforts to review the strategic fit of these activities. In 1993, the Corporation sold its 49 percent interest in a fertilizer manufacturing venture in Trinidad, and its interest in Ok Tedi Mining Ltd. in Papua New Guinea. Included in 1992 were charges of $99 million for anticipated losses on the disposition of non-strategic investments.
Corporate Activities
Corporate activities, including net interest and other corporate expenses, reported net income of $1 million for 1994, compared with net expenses of $196 million for 1993 and $210 million in 1992. The 1994 income included interest income of $180 million related to the COET settlement, favorable tax adjustments relating to prior years of $33 million and restructuring charges of $34 million; the 1993 loss included prior-year tax benefits of $101 million and losses associated with early retirement of higher interest-rate debt; and 1992 included favorable adjustments of $70 million primarily related to revised estimates of tax obligations and early retirement of debt, and charges of $38 million for work force reductions. Adjusting for these items over the years shown, net expense decreased $75 million between 1993 and 1994, primarily resulting from lower net interest expense and favorable currency effects. Net expenses increased $11 million between 1992 and 1993.
Restructuring
In July 1994, Amoco announced that the organizational structure of the Corporation was being changed to improve profitability, increase
operating flexibility and position the company for long-term growth. The Corporation's strategies are now carried out by 17 business groups. A newly created Shared Services organization provides support services to the business groups.
Approximately 3,800 positions are expected to be eliminated by year- end 1995. Additional positions will be eliminated in 1996 as a result of ongoing process redesign to improve efficiencies in support functions. In conjunction with the restructuring, an after-tax charge of $256 million was accrued in the second quarter of 1994. Charges against the accrual associated with severance in 1994, representing approximately 2,000 employees, totaled about $64 million after tax. See Note 2 to the Consolidated Financial Statements. To date, savings resulting from the restructuring have not been material. It is anticipated that by 1996 benefits related to lower employment costs and other cost reductions could approximate $400 million after tax.
Additional costs of approximately $200 million after tax, which have not been accrued, are expected to be incurred through 1996 to reflect costs for system redesign, relocations, work consolidation and development of new processes in support of the reorganization. In 1994, costs related to these activities were not material. Most of these additional costs are expected to occur in 1995.
Liquidity and Capital Resources
In 1994, cash flow from operating activities was $4.3 billion, compared with $3.5 billion in 1993 and $3 billion in 1992.
Total debt was $4.6 billion at year-end 1994. Debt as a percent of debt-plus-equity was 24.3 percent at December 31, 1994, compared with 27.1 percent at year-end 1993.
Working capital was $1,618 million at year-end 1994, compared with $751 million at year-end 1993. At year-end 1994, the Corporation's current ratio was 1.32 to 1 compared with the current ratio at December 31, 1993 of 1.14 to 1. As a matter of policy, Amoco practices asset and liability management techniques that are designed to minimize its investment in non-cash working capital. This does not impair operational capability or flexibility since the Corporation has ready access to both short-term and long-term debt markets.
Amoco's short-term liquidity position is better than the reported figures indicate since the inventory component of working capital is valued in part under the LIFO method whereas other elements of working capital are reported at amounts more indicative of their current values. If inventories were valued at current replacement costs, it is estimated that inventories would have been $1,100 million higher at December 31, 1994. As a result, the level of working capital would rise and an increase in the current ratio would result.
Cash dividends paid in 1994 totaled $1,092 million, or $2.20 per share. The quarterly cash dividend was raised to 60 cents per share in January 1995, and increase of 5 cents per share, or 9 percent, over the previous rate.
In 1994, the Corporation completed a contract with subsidiaries of Associates Corporation of North America ("Associates") whereby Associates purchased certain of Amoco's receivables; Associates now issues and processes Amoco's credit cards. Proceeds from the sale of credit card receivables were largely used to reduce short-term obligations.
The Corporation believes its strong financial position will permit the financing of its business needs and opportunities in an orderly manner. It is anticipated that ongoing operations will be financed primarily by internally generated funds. Short-term obligations, such as commercial paper borrowings, give the Corporation the flexibility to meet short-term working capital and other temporary requirements. At December 31, 1994, bank lines of credit available to support commercial paper borrowings were $490 million, all of which were supported by commitment fees. To maintain flexibility, a $500 million shelf registration statement for debt securities remains on file with the Securities and Exchange Commission to permit ready access to capital markets.
Amoco is routinely exposed to hydrocarbon commodity price risk. It manages a portion of that risk mainly through the use of futures and swaps contracts generally to achieve market prices on specific purchase and sales transactions. See Note 4 to the Consolidated Financial Statements. Also during 1994, Amoco used futures and swaps to fix the sales price of approximately 15 percent of the Corporation's U.S. natural gas production for the months of April through December, which benefited earnings by about $20 million after tax.
The Corporation has provided in its accounts for the reasonably estimable future costs of probable environmental remediation obligations. These amounts relate to various refining and marketing sites, chemical locations, and oil and gas operations, including multiparty sites at which Amoco has been identified as a potentially responsible party by the U.S. Environmental Protection Agency. Such estimated costs will be refined over time as remedial requirements and regulations become better defined. However, any additional costs cannot be reasonably estimated at this time due to uncertainty of timing, the magnitude of contamination, future technology, regulatory changes and other factors. Although future costs could be significant, they are not expected to be material in relation to Amoco's liquidity or consolidated financial position. In total, the accrued liability represents a reasonable best estimate of Amoco's remediation liability. See Notes 1 and 21 to the Consolidated Financial Statements.
The Corporation and its subsidiaries maintain insurance coverage for environmental pollution resulting from the sudden and accidental release of pollutants. Various deductibles of up to $50 million per occurrence could apply, depending on the type of incident involved. Coverage for
other types of environmental obligations is not generally provided, except when required by regulation or contract. The financial statements do not reflect any significant recovery form claims under prior or current insurance coverage.
At December 31, 1994, the Corporation's reserves for future environmental remediation costs totaled $725 million, of which $467 million related to refining and marketing sites. The Corporation also maintains reserves associated with dismantlement, restoration and abandonment of oil and gas properties, which totaled $627 million at December 31, 1994.
Capital expenditures resulting from existing environmental regulations, primarily related to refining and marketing sites, totaled $198 million in 1994. Excluded from that total was $479 million for operating costs and amounts spent on research and development, and $119 million of mandated and voluntary spending charged against the remediation liability. Amoco's 1995 estimated capital spending for environmental cleanup and protection projects is expected to be approximately $180 million; spending for remediation in 1995 is expected to approximate the 1994 level.
1994 1993 1992 1991 1990 (millions of dollars) Capital and exploration expenditures Exploration and production United States . . . . . . . . . . . $ 820 $ 669$ 472 $ 965 $1,023 Canada . . . . . . . . . . . . . . 408 275 166 294 285 Europe . . . . . . . . . . . . . . 279 493 538 549 331 Other . . . . . . . . . . . . . . . 687 682 578 690 706 Refining, marketing and transportation . . . . . . . . . . . 451 685 806 689 617 Chemicals . . . . . . . . . . . . . . 467 370 320 520 582 Other operations . . . . . . . . . . 48 126 60 142 81 Corporate . . . . . . . . . . . . . . 45 46 56 82 89 Total . . . . . . . . . . . . $3,205 $3,346$2,996 $3,931 $3,714 Petroleum exploration expenditures charged to income (included above) United States . . . . . . . . . . $ 113 $ 90$ 140 $ 262 $ 230 Canada . . . . . . . . . . . . . . 117 47 72 73 89 Europe . . . . . . . . . . . . . . 178 151 150 144 99 Other . . . . . . . . . . . . . . 225 241 300 311 275 Total . . . . . . . . . . . . $ 633 $ 529$ 662 $ 790 $ 693
Capital and exploration expenditures in 1994 totaled $3.2 billion, compared with $3.3 billion spent in 1993. Capital and exploration expenditures of $4.2 billion have been approved for 1995, an increase of 31 percent over 1994 spending. It is expected that more than half of the spending will go to upstream projects, with about 60 percent of that amount going to projects outside the United States. Areas outside the United States where Amoco continues to work on major exploration and production projects include Egypt, China, the North Sea, Trinidad and the
former Soviet Union. Major new expenditures for 1995 also include higher spending for development of natural gas resources in North America. The balance of capital outlays is anticipated to be used for chemicals, refining, marketing and transportation operations, including a substantial investment in construction of a chemical plant in Malaysia to produce PTA. It is anticipated that the 1995 capital and exploration expenditures budget will be financed primarily by funds generated internally. The planned expenditure level is subject to adjustment as changing economic conditions may indicate.
Item 8.
Item 8. Financial Statements and Supplemental Information Index to Financial Statements and Supplemental Information Page
Report of Independent Accountants . . . . . . . . . . . . . . . . . . 37 Consolidated Financial Statements: Consolidated Statement of Income . . . . . . . . . . . . . . . . . 38 Consolidated Statement of Financial Position . . . . . . . . . . . 39 Consolidated Statement of Shareholders' Equity . . . . . . . . . . 40 Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . 41 Notes to Consolidated Financial Statements . . . . . . . . . . . . 42 Financial Statement Schedule: Valuation and Qualifying Accounts (Schedule VIII) . . . . . . . 83 Supplemental Information: Quarterly Results and Stock Market Data . . . . . . . . . . . . . 69 Oil and Gas Exploration and Production Activities . . . . . . . . 70
Separate financial statements of subsidiary companies not consolidated, and of 50 percent or less owned companies accounted for by the equity method, have been omitted since, if considered in the aggregate, they would not constitute a significant subsidiary.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Amoco Corporation
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Amoco Corporation and its subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Amoco Corporation's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
In 1992, Amoco Corporation changed its method of accounting for income taxes and for postretirement benefits other than pensions, as discussed in Notes 15 and 19, respectively, to the financial statements.
PRICE WATERHOUSE LLP
Chicago, Illinois February 28, 1995
AMOCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(The accompanying notes are an integral part of these statements.)
AMOCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(The successful efforts method of accounting is followed for costs incurred in oil and gas producing activities.) (The accompanying notes are an integral part of these statements.)
AMOCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(The accompanying notes are an integral part of these statements.)
AMOCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31 1994 1993 1992 (millions of dollars) Cash flows from operating activities: Net income (loss) . . . . . . . . . . . . . $ 1,789 $ 1,820 $ (74) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion, amortization, and retirements and abandonments . . . . . . 2,239 2,193 2,440 (Increase) decrease in receivables . . . . (137) (18) 476 (Increase) decrease in inventories . . . . 68 (89) 130 Increase (decrease) in payables and accrued liabilities . . . . . . . . . . . 492 (371) (788) Deferred taxes and other items . . . . . . (122) (44) (88) Cumulative effects of accounting changes . -- -- 924 Net cash provided by operating activities 4,329 3,491 3,020
Cash flows from investing activities: Capital expenditures . . . . . . . . . . . (2,572) (2,817) (2,334) Proceeds from dispositions of property and other assets . . . . . . . . . . . . . . . 335 594 452 New investments, advances and business acquisitions . . . . . . . . . . . . . . . (91) (200) (126) Proceeds from sales of investments . . . . 176 256 8 Other . . . . . . . . . . . . . . . . . . . (18) (2) 18 Net cash used in investing activities . . . (2,170) (2,169) (1,982)
Cash flows from financing activities: New long-term obligations . . . . . . . . . 438 1,313 3,061 Repayment of long-term obligations . . . . (138) (2,286) (3,147) Cash dividends paid . . . . . . . . . . . . (1,092) (1,092) (1,091) Issuances of common stock . . . . . . . . . 29 27 25 Acquisitions of common stock . . . . . . . (41) (32) (29) Increase (decrease) in short-term obligations . . . . . . . . . . . . . . . (783) 677 (152) Net cash used in financing activities . . . (1,587) (1,393) (1,333) Increase (decrease) in cash and marketable securities . . . . . . . . . . . . . . . . . 572 (71) (295)
Cash and marketable securities-beginning of year . . . . . . . . . . . . . . . . . . . . 1,217 1,288 1,583 Cash and marketable securities-end of year . $ 1,789 $ 1,217 $ 1,288
(The accompanying notes are an integral part of these statements.)
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Accounting Policies
Principles of consolidation
The operations of all significant subsidiaries in which the Corporation directly or indirectly owns more than 50 percent of the voting stock are included in the consolidated financial statements. The Corporation also consolidates its proportionate share of assets, liabilities and results of operations of oil and gas joint ventures and undivided interest pipeline companies. Investments in other companies in which less than a majority interest is held are generally accounted for by the equity method.
Inventories
Inventories are carried at the lower of current market value or cost. Cost is determined under the last-in, first-out ("LIFO") method for the majority of inventories of crude oil, petroleum products and chemical products. The costs of remaining inventories are determined on the first-in, first-out ("FIFO") or average cost methods.
Costs incurred in oil and gas producing activities
The Corporation follows the successful efforts method of accounting. Costs of property acquisitions, successful exploratory wells, all development costs (including CO2 and certain other injected materials in enhanced recovery projects) and support equipment and facilities are capitalized. Unsuccessful exploratory wells are expensed when determined to be non-productive. Production costs, overhead and all exploration costs other than exploratory drilling are charged against income as incurred.
Depreciation, depletion and amortization
Generally, depreciation of plant and equipment, other than oil and gas facilities, is computed on a straight-line basis over the estimated economic lives of the facilities. Depletion of the cost of producing oil and gas properties, amortization of related intangible drilling and development costs and depreciation of tangible lease and well equipment are recognized using the unit-of-production method.
The portion of costs of unproved oil and gas properties estimated to be non-productive is amortized over projected holding periods.
The estimated costs to dismantle, restore and abandon oil and gas properties are recognized over the properties' productive lives on the unit-of-production method.
Retirements
Upon normal retirement or replacement of facilities, the gross book value less salvage is charged to accumulated depreciation. Gains or losses from abnormal retirements or sales are credited or charged to income.
Maintenance and repairs
All maintenance and repair costs are charged against income, while significant improvements are capitalized.
Derivative contracts
The Corporation periodically enters into futures, swaps, forwards and option contracts to manage its exposure to price fluctuations on hydrocarbon transactions and its exposure to exchange rate fluctuations on its debt denominated in foreign currencies. Recognized gains, losses and cash flows from hedge contracts are reported as components of the related transactions.
Translation of foreign currencies
The U.S. dollar has been determined to be the appropriate functional currency for essentially all operations except foreign chemical operations.
Environmental liabilities
The Corporation has provided in its accounts for the reasonably estimable future costs of probable environmental remediation obligations relating to current and past activities, including obligations for previously disposed assets or businesses. In the case of long-lived cleanup projects, the effects of inflation and other factors, such as improved application of known technologies and methodologies, are considered in determining the amount of estimated liabilities. The liability is undiscounted and primarily consists of costs such as site assessment, monitoring, equipment, utilities and soil and ground water treatment and disposal. The estimated environmental remediation obligation has not been reduced for probable recoveries from third parties, which are recorded as assets.
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net Income Per Share
Net income per share of common stock is based on the monthly weighted average number of shares outstanding during the year.
Note 2. Acquisitions, Dispositions and Special Items
In 1994, earnings included benefits of $270 million related to final settlements with the Internal Revenue Service involving crude oil excise taxes ("COET") assessed in the 1980s. Of this amount, $180 million represented interest on the settlements. Earnings also included a gain of $45 million on the sale of certain European oil and gas properties.
As a result of the organizational restructuring, a charge of $394 million ($256 million after-tax) was accrued in the second quarter of 1994. Included in selling and administrative expenses were charges of $225 million ($146 million after-tax) related to employee-termination costs directly associated with the severance of approximately 3,800 employees expected to occur by year-end 1995. Of the 3,800 employees, approximately 2,000 represent personnel in accounting, information technology and other related support staff; the remainder are employees associated with business group operations. Approximately 75 percent of the total terminations are professionals, managers and supervisors. In 1994, charges against the accrual relating to the elimination of about 2,000 positions totaled $64 million after tax. As of December 31, 1994, the accrual balance associated with restructuring was $82 million after tax ($126 million before tax), which was considered adequate for all future severances to which the company has committed. Included in operating expenses were charges of $169 million ($110 million after-tax) related to a reduction in carrying value of assets that will be divested. Disposition of these assets, including a hazardous-waste incineration facility that is not yet in commercial production, will not have a material effect on revenues, depreciation or income.
In 1993, new investments, advances and business acquisitions totaled $200 million, including the purchase of Phillips Fibers Corporation. Proceeds from dispositions of property and other assets and from sales of investments totaled $850 million, including certain non-strategic properties and investments in Canada for approximately $471 million.
Earnings in 1993 included gains of $120 million relating to the Corporation's disposition of 65 percent of the equity investment in a Canadian company, Crestar Energy Inc., in connection with its initial public offering. Also included were gains of $70 million associated with the disposition of certain Canadian properties. Earnings in 1993 included after-tax charges of $170 million associated with the writedown
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
of Congo exploration and production operations to current recoverable value.
Earnings in 1992 were reduced by after-tax charges of $805 million, as part of a strategic reassessment of business operations. These charges included $473 million for costs of restructuring business units and related charges, including anticipated losses on the disposition of oil and gas properties and other non-strategic assets and investments; $181 million for charges related to work force reductions; and $151 million for other reserves and adjustments. Substantially all of these restructuring efforts have been completed. Earnings were favorably affected by $90 million related to the settlement of natural gas contracts in Sharjah. Also favorably affecting earnings were benefits of $90 million associated with revised estimates of tax obligations and retirement of debt.
Note 3. Cash Flow Information
The Consolidated Statement of Cash Flows provides information about changes in cash and cash equivalents, including cash in excess of daily requirements that is invested in marketable securities, substantially all of which have a maturity of three months or less when acquired. The effect of foreign currency exchange rate fluctuations on total cash and marketable securities balances was not significant.
Net cash provided by operating activities reflects cash payments for interest and income taxes as follows: 1994 1993 1992 (millions of dollars) Interest paid . . . . . . . . . . $ 297 $ 367 $ 550
Income taxes paid . . . . . . . . $ 903 $ 632 $ 974
Note 4. Financial Instruments and Hedging Activities
All financial instruments held by the Corporation are for purposes other than trading. All derivatives are either exchange traded or with major financial institutions, and the risk of credit loss is considered remote. A significant portion of Amoco's receivables are from other oil and gas and chemical companies. Although collection of these receivables could be influenced by economic factors affecting these industries, the risk of significant loss is considered remote.
The carrying values of receivables, payables, marketable securities and short-term obligations approximate their fair value. The estimated
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
fair value of long-term debt outstanding as of December 31, 1994 and 1993 was $4,342 million and $4,264 million, respectively. The estimated fair value of marketable securities and debt were based on quoted market prices for the same or similar issues, or the current rates offered to the Corporation for issues with the same remaining maturities.
The Corporation conducts its business primarily in U.S. dollars. Significant exposures to foreign currency exchange risk are reduced through the use of financial instruments, primarily by hedging of foreign currency borrowings. The following table shows the amount of long-term debt, including current portions, denominated in foreign currencies as of December 31, 1994 and 1993, and the face amounts of foreign currency forward and option contracts that have been designated as hedges of that debt:
1994 1993 Long-Term Long-Term Debt Hedge* Debt Hedge*
(millions of U.S. dollars) British pound sterling . . . . . . $ 596 $ 909 $ 565 $ 873
Canadian dollar . . . . . . . . . . $ 231 $ 348 $ 77 $ 45
* Includes tax effects.
The hedge contracts generally have the same maturities as the related debt. The carrying value and fair value of the forward and option contracts were not material at December 31, 1994 and 1993.
The Corporation also enters into futures contracts and forward swaps to manage its exposure to price fluctuation on hydrocarbon transactions. The crude oil futures contracts generally match the pricing of specific purchase transactions to market prices at delivery dates. The net effect of natural gas futures and swaps is to convert specific sales contracts from fixed prices to market prices. Natural gas swap contracts outstanding at December 31, 1994 and 1993 totaled 151 and 24 trillion British thermal units ("Btus"), respectively. Most contracts are for a remaining term of less than one year, while contracts representing 43 trillion Btus of natural gas have terms that extend from one to five years. While these contracts have no carrying value, their fair value, representing the estimated amount that would have been required to terminate the swaps at year-end 1994, was an unfavorable $28 million.
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In the normal course of business, the Corporation has entered into contracts for the purchase of transportation capacity, materials and services over terms of up to 20 years. The remaining minimum payments required under these contracts at December 31, 1994, totaled $709 million. At December 31, 1994, contingent liabilities of the Corporation included guarantees of $54 million on outstanding loans of others. The Corporation also has entered into various pipeline throughput and deficiency contracts with affiliated companies. These agreements supported an estimated $7 million of affiliated company borrowings at December 31, 1994. The fair value of these commitments is immaterial.
Note 5. Inventories
Inventories at December 31, 1994 and 1993, are shown in the following table:
December 31 1994 1993 (millions of dollars) Crude oil and petroleum products . . . . . . . $ 349 $ 415 Chemical products . . . . . . . . . . . . . . . 375 377 Other products and merchandise . . . . . . . . 24 21 Materials and supplies . . . . . . . . . . . . 294 297 Total . . . . . . . . . . . . . . . . . . . . $ 1,042 $ 1,110
During the year ended December 31, 1993, the Corporation reduced certain inventory quantities which were valued at lower LIFO costs prevailing in prior years. The effect of this reduction was to increase net income by approximately $50 million. The similar effect in 1994 was not material.
Inventories carried under the LIFO method represented approximately 51 percent of total year-end inventory carrying values in 1994 and 47 percent in 1993. It is estimated that inventories would have been approximately $1,100 million higher than reported on December 31, 1994, and approximately $900 million higher on December 31, 1993, if the quantities valued on the LIFO basis were instead valued on the FIFO basis.
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6. Property, Plant and Equipment
Investment in properties at December 31, 1994 and 1993, detailed by industry segment, was as follows:
December 31 1994 1993 Gross Net Net (millions of dollars) Exploration and production: United States . . . . . . . . . . $ 15,559 $ 6,957 $ 6,935 Non-U.S. . . . . . . . . . . . . 13,771 5,037 5,008 Refining, marketing and transportation . . . . . . . . . . 9,940 5,654 5,797 Chemicals . . . . . . . . . . . . . 5,727 2,956 2,668 Other operations . . . . . . . . . 752 534 546 Corporate . . . . . . . . . . . . . 700 405 415 Total . . . . . . . . . . . . . $ 46,449 $ 21,543 $ 21,369
Note 7. Short-Term Obligations
Amoco's short-term obligations consist of notes payable and commercial paper. Notes payable as of December 31, 1994, totaled $7 million at an average annual interest rate of 5.7 percent, compared with $71 million at an average annual interest rate of 3.2 percent at year-end 1993. Commercial paper borrowings at December 31, 1994, were $217 million at an average annual interest rate of 5.9 percent compared with $936 million at an average annual interest rate of 3.4 percent as of December 31, 1993.
Bank lines of credit available to support commercial paper borrowings of the Corporation amounted to $490 million at both December 31, 1994 and 1993. All of these were supported by commitment fees.
The Corporation also maintains compensating balances with a number of banks for various purposes. Such arrangements do not legally restrict withdrawal or usage of available cash funds. In the aggregate, they are not material in relation to total liquid assets.
Note 8. Accounts Payable
Accounts payable at December 31, 1994 and 1993, included liabilities in the amount of $306 million and $304 million, respectively, for checks
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
issued in excess of related bank balances but not yet presented for collection.
Note 9. Long-Term Debt
Amoco's long-term debt resides principally with two Amoco subsidiaries--Amoco Company and Amoco Canada. Amoco Company functions as the principal holding company for substantially all of Amoco's petroleum and chemical operations, except Canadian petroleum operations and selected other activities.
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The components of long-term debt and year-end rates are summarized as follows: December 31 1994 1993 (millions of dollars) Amoco Company 8 5/8% Debentures due 2016 . . . . . . . . . . . $ 52 $ 102 9 3/4% Debentures due 2016 . . . . . . . . . . . 58 78 9 7/8% Debentures due 2016 . . . . . . . . . . . 25 25 Environmental and other industrial development obligations . . . . . . . . . . . . . . . . . . . 649 619 U.K. Loans-6.7% Sterling(1) . . . . . . . . . . . 596 565 -5.6% U.S. dollar(1) . . . . . . . . . 195 195 Other indebtedness . . . . . . . . . . . . . . . 535 435 Subtotal . . . . . . . . . . . . . . . . . . . 2,110 2,019 Less current maturities . . . . . . . . . . . . . 24 52 Total Amoco Company . . . . . . . . . . . . . . 2,086 1,967 Amoco Canada 6 3/4% Debentures due 2005 . . . . . . . . . . . 299 299 7 1/4% Notes due 2002 . . . . . . . . . . . . . . 299 299 6 3/4% Debentures due 2023 . . . . . . . . . . . 296 296 7.95% Debentures due 2022 . . . . . . . . . . . . 296 296 7 1/4% Notes due 2002 . . . . . . . . . . . . . . 254 254 7 3/8% Subordinated Exchangeable Debentures (SEDs) due 2013(2) . . . . . . . . . . . . . . . . 458 457 Other . . . . . . . . . . . . . . . . . . . . . . 35 36 Subtotal . . . . . . . . . . . . . . . . . . . 1,937 1,937 Less current maturities . . . . . . . . . . . . . -- -- Total Amoco Canada . . . . . . . . . . . . . . 1,937 1,937 Other subsidiaries (less current maturities) . . . 364 133 Total long-term debt . . . . . . . . . . . . . . . $ 4,387 $ 4,037
(1)Weighted average interest rate at December 31, 1994. (2)The SEDs are exchangeable for Amoco common stock at $52.50 per share.
Amoco Corporation guarantees the outstanding public debt obligations of Amoco Company. Amoco Corporation and Amoco Company guarantee the notes and debentures of Amoco Canada, except for the SEDs.
AmProp Inc., a real estate subsidiary, had long-term debt secured by real estate assets, totaling $61 million at year-end 1994, and $88 million at year-end 1993, which is not guaranteed by Amoco Corporation or Amoco Company.
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Annual maturities of total long-term debt during the next five years, including the portion classified as current, are $24 million in 1995, $720 million in 1996, $211 million in 1997, $247 million in 1998 and $134 million in 1999.
Note 10. Capital Stock
There were 800,000,000 shares of common stock without par value authorized at December 31, 1994. Details concerning share transactions are shown below:
In addition, there are 50 million shares of voting preferred stock and 50 million shares of non-voting preferred stock authorized. As of December 31, 1994, none of the preferred stock had been issued.
Note 11. Leases
The Corporation leases various types of properties, including service stations, tankers, buildings, railcars and other facilities, some of which are subleased to others, through operating leases. Some of the leases and subleases provide for contingent rentals based on refined product throughput.
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Summarized below as of December 31, 1994, are future minimum rentals payable and related sublease rental income for operating leases.
Rentals Rental Payable Income (millions of dollars) 1995 . . . . . . . . . . . . . . . . $ 191 $ 167 1996 . . . . . . . . . . . . . . . . 163 100 1997 . . . . . . . . . . . . . . . . 146 45 1998 . . . . . . . . . . . . . . . . 135 7 1999 . . . . . . . . . . . . . . . . 126 4 After 1999 . . . . . . . . . . . . . 487 28 Total minimum rentals . . . . . . . $ 1,248 $ 351
Rental expense and related rental income applicable to operating leases for the three years ended December 31, 1994, are summarized below:
1994 1993 1992 (millions of dollars)
Minimum rental expense . . . . . . . . . . $ 252 $ 229 $ 253 Contingent rental expense . . . . . . . . . 19 16 23 Total . . . . . . . . . . . . . . . . . . 271 245 276 Less--Related rental income . . . . . . . . 172 84 85 Net rental expense . . . . . . . . . . . $ 99 $ 161 $ 191
Note 12. Foreign Currency
A foreign currency gain of $24 million was reflected in income in 1994, compared with gains of $47 million and $129 million for 1993 and 1992, respectively. In addition, a net translation gain of $32 million in 1994, and net translation losses of $18 million and $27 million for 1993 and 1992, respectively, were reflected in the foreign currency translation adjustment account in shareholders' equity.
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 13. Interest Expense
The Corporation capitalizes interest cost related to the financing of major projects under development. All other interest is expensed as incurred. The components of interest expense are summarized in the following table: 1994 1993 1992 (millions of dollars) Short-term obligations . . . . . . . . $ 19 $ 14 $ 13 Long-term obligations . . . . . . . . . 269 285 320 Total external financing . . . . . . 288 299 333 Other interest expense . . . . . . . . 30 39 (67) 318 338 266 Less--capitalized interest . . . . . . -- 13 19 Net interest expense . . . . . . . . $ 318 $ 325 $ 247
Note 14. Research and Development Expenses
Research and development costs are expensed as incurred and amounted to $255 million in 1994, $292 million in 1993 and $300 million in 1992.
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 15. Taxes
Effective January 1, 1992, the Corporation adopted SFAS No. 109. The cumulative effect was to increase deferred income tax liabilities as of January 1, 1992, and reduce net income by $68 million ($.14 per share). Also, 1992 net income before the cumulative effect was $215 million ($.43 per share) greater than it would have been under the previous method.
The aggregate federal and foreign deferred income tax balance represents the tax effect of the following items at December 31: 1994 1993 (millions of dollars) Tax credit and loss carryforwards . . . . . . $ 912 $ 630 Exploration costs . . . . . . . . . . . . . . 304 286 Postretirement benefits . . . . . . . . . . . 516 503 Environmental costs . . . . . . . . . . . . . 387 380 Other . . . . . . . . . . . . . . . . . . . . 578 507 Gross deferred tax assets . . . . . . . . . . 2,697 2,306 Deferred tax asset valuation allowance . . . (720) (573) Net deferred tax assets . . . . . . . . . . . $ 1,977 $ 1,733
Accelerated depreciation . . . . . . . . . . $ 3,403 $ 3,367 Intangible drilling costs . . . . . . . . . . 707 679 Other . . . . . . . . . . . . . . . . . . . . 340 289 Deferred tax liabilities . . . . . . . . . . $ 4,450 $ 4,335
The increase in the deferred tax asset valuation allowance primarily reflects an increase in foreign tax credit carryforwards for which realization is considered unlikely.
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The provision for income taxes is composed of:
1994 1993 1992 (millions of dollars) Federal--current . . . . . . . . . . . $ 392 $ 104 $ 326 --deferred . . . . . . . . . . . (74) 162 (366) Foreign--current . . . . . . . . . . . 422 479 533 --deferred . . . . . . . . . . . (47) (77) (370) State and local . . . . . . . . . . . . 9 19 30 $ 702 $ 687 $ 153
The following is a reconciliation between the provision for income taxes and income taxes determined by applying the federal statutory rate to income before income taxes:
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Taxes other than income taxes include: 1994 1993 1992 (millions of dollars) Consumer excise taxes . . . . . . . . . . . . . $ 3,409 $ 2,824 $ 2,738 Production and severance taxes United States . . . . . . . . . . . . . . . . 112 128 121 Foreign . . . . . . . . . . . . . . . . . . . 73 110 363 Property taxes . . . . . . . . . . . . . . . . 289 315 287 Social Security, corporation and other taxes . 270 271 235 $ 4,153 $ 3,648 $ 3,744
Undistributed earnings of certain foreign subsidiaries and joint-venture companies aggregated $499 million on December 31, 1994, which, under existing law, will not be subject to U.S. tax until distributed as dividends. Since the earnings have been or are intended to be indefinitely reinvested in foreign operations, no provision has been made for any U.S. taxes that may be applicable thereto. Furthermore, any taxes paid to foreign governments on those earnings may be used in whole or in part, as credits against the U.S. tax on any dividends distributed from such earnings. It is not practicable to estimate the amount of unrecognized deferred U.S. taxes on these undistributed earnings.
Note 16. Stock Option Plans
The Corporation's stock option plans approved by shareholders provide for the granting of options with or without stock appreciation rights ("SARs") to key, managerial and other eligible employees to buy Corporation common stock at not less than 100 percent of the fair market value at the date of grant. Such options may be incentive stock options to the extent provided in the Internal Revenue Code. Options granted under the plans prior to 1994 normally extend for 10 years and generally become exercisable two years after the date of the grant. Options granted in 1994 become exercisable 50 percent one year after the date of grant and 100 percent two years after the date of grant. Options with SARs permit holders to surrender exercisable options in exchange for payment determined by the amount by which the market value of the shares on the dates the rights are exercised exceeds the grant price. No options were granted with SARs in 1994. Such payments can be made in shares, cash or a combination at the discretion of the administering committee.
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Option plan transactions in 1993 and 1994 are summarized in the following table:
Thousands Price Range of Shares Per Share Options outstanding on Jan. 1, 1993 . . . . 9,259 $25.03 - 54.88 Granted . . . . . . . . . . . . . . 2,199 $53.69 - 57.44 Exercised . . . . . . . . . . . . . (615) $25.03 - 54.13 Surrendered or terminated . . . . . (172) $44.06 - 57.44 Canceled upon exercise of SARs . . (112) $25.03 - 52.44 Options outstanding on Dec. 31, 1993 . . . 10,559 $28.25 - 57.44 Granted . . . . . . . . . . . . . . 2,295 $55.06 - 57.88 Exercised . . . . . . . . . . . . . (684) $28.25 - 54.13 Surrendered or terminated . . . . . (454) $44.06 - 57.44 Canceled upon exercise of SARs . . (121) $28.25 - 42.50 Options outstanding on Dec. 31, 1994 . . . 11,595 $29.81 - 57.88
Of the total options outstanding on December 31, 1994, 499,140 were with SARs. Stock options for 7,537,234 shares were exercisable at year-end 1994. No options may be granted under the current plan after December 31, 2001.
The Corporation's restricted stock grant plans provide for the awarding of shares of Corporation common stock to selected employees of Amoco and its participating subsidiaries, including officers and directors. Shares issued under the plans may not be sold or otherwise transferred for a minimum period as established at the time of the grant. The shares generally are subject to forfeiture if the recipient's employment terminates during the specified period unless such termination is due to death, total disability or involuntary retirement. Shares issued have dividend and voting rights identical to other outstanding shares of the Corporation's common stock. During 1994, 57,735 shares were issued under the current plans. No restricted shares may be issued under the current plan after December 31, 2001.
Note 17. Employee Compensation Programs
Management incentive compensation plans approved by shareholders provide for the granting of awards to key, managerial and other eligible executives of the Corporation and certain subsidiaries. Amounts charged against earnings in anticipation of awards to be made later were $15 million in 1994, $10 million in 1993 and $8 million in 1992. Awards made in 1994, 1993 and 1992 amounted to $21 million, $13 million and $16 million, respectively.
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Amoco Performance Share Plan, which became effective in 1992, allocates Amoco stock to eligible employees when the Corporation's total return to shareholders meets or exceeds the average return achieved by a select group of competitors. In 1994, the return on Amoco stock, based on the average return for the past three years, was above the competitor three-year average. As a result, employees earned stock equal to 3.5 percent of compensation. No contributions were made on behalf of employees in 1993 as the return on Amoco common stock was below the competitor average. In 1992 the return on Amoco stock was above the competitor average, resulting in employees earning stock equal to 4.4 percent of compensation. The amounts charged to expense in 1994 and 1992 were $59 million and $77 million, respectively.
Note 18. Retirement Plans
The Corporation and its subsidiaries have a number of defined benefit pension plans covering most employees. Plan benefits are generally based on employees' years of service and average final compensation. Essentially all of the cost of these plans is borne by the Corporation. The Corporation makes contributions to the plans in amounts that are intended to provide for the cost of pension benefits over the service lives of employees.
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The funded status of the plans as of December 31 for 1994 and 1993 was as follows:
* Accumulated benefits totaling $266 million and $192 million were non- vested at December 31, 1994 and 1993, respectively.
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The actuarial assumptions used for the Corporation's principal pension plans for 1994 and 1993 were as follows:
1994 1993
Discount rate for service and interest cost . . . . . . 7.0% 7.5% Discount rate for the projected benefit obligation . . 8.5% 7.0% Rate of compensation increase for the projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . 5.0% 5.0% Long-term rate of return on assets . . . . . . . . . . 10.0% 10.0%
The components of net pension cost for the past three years were as follows:
1994 1993 1992 (millions of dollars) Service cost--benefits earned during the period . . . . . . . . . . . . . . . . . $ 113 $ 102 $ 114 Interest cost on projected benefit obligation . . . . . . . . . . . . . . . 221 204 221
Actual loss (gain) on assets . . . . . . 53 (302) (141) Less--unrecognized (loss) gain . . . . . (311) 50 (124) Recognized gain on assets . . . . . . . . (258) (252) (265) Curtailment loss (gain) . . . . . . . . . 21 -- (51) Amortization of unrecognized amounts . . 22 1 11 Net pension cost . . . . . . . . . . . . $ 119 $ 55 $ 30
Most employees are also eligible to participate in defined contribution plans by contributing a portion of their compensation. The Corporation matches contributions up to specified percentages of each employee's compensation. Matching contributions charged to income were $99 million in 1994, $96 million in 1993 and $100 million in 1992.
Note 19. Other Postretirement Benefits
The Corporation and its subsidiaries provide certain health care and life insurance benefits for retired employees. Substantially all of the Corporation's domestic employees and employees in certain foreign countries are provided these benefits through insurance companies whose premiums are based on benefits paid during the year. Effective January 1, 1992, the Corporation adopted SFAS No. 106, which requires that the cost of such benefits be recognized during employees' years of active service. The cumulative effect of the accounting change relating to benefits attributable to years of service prior to 1992 was to reduce
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1992 net income by $856 million ($1.72 per share). In addition, the effect of adopting SFAS No. 106 in 1992 was to reduce net income by $64 million ($.13 per share). During 1992, the Corporation approved plan amendments which reduced the accumulated obligation by $270 million, which is being amortized prospectively.
The status of the Corporation's unfunded plans as of December 31 for 1994 and 1993 was as follows:
1994 1993 (millions of dollars) Accumulated benefit obligation Retirees . . . . . . . . . . . . . . . . . . . . . $ 603 $ 668 Fully eligible active plan participants . . . . . 156 116 Other active plan participants . . . . . . . . . . 281 475 Total . . . . . . . . . . . . . . . . . . . . . . 1,040 1,259 Unrecognized net gains (losses) . . . . . . . . . . . 240 (56) Unrecognized prior service gains . . . . . . . . . . 215 247 Accrued postretirement benefit cost . . . . . . . . . $ 1,495 $ 1,450
The actuarial assumptions used for the Corporation's principal postretirement benefit plans for 1994 and 1993 were as follows:
1994 1993 Discount rate for service and interest cost . . . . . 7.0% 8.0% Discount rate for the accumulated benefit obligation 8.5% 7.0% Rate of compensation increase for the accumulated benefit obligation . . . . . . . . . . . . . . . . . 5.0% 5.0% Assumed current year health care cost trend rate --retirees under 65 . . . . . . . . . . . . . . . 11.1% 12.0% --Medicare eligible retirees . . . . . . . . . . . 8.5% 9.0% Assumed ultimate trend rate . . . . . . . . . . . . . 5.0% 5.0% Year ultimate health care cost rate will be achieved 2002 2002 Effect of 1% increase in health care cost trend rates (millions) --annual aggregate service and interest costs . . $ 18 $ 17 --accumulated postretirement benefit obligation . $ 93 $144
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The components of net postretirement benefit costs for the past three years were as follows:
1994 1993 1992 (millions of dollars) Service cost--benefits earned during the period . . . . . . . . . . . . . . . . . $ 34 $ 32 $ 44 Interest cost on accumulated benefit obligation . . . . . . . . . . . . . . . 89 97 105 Amortization and other . . . . . . . . . (33) (22) (10) Net postretirement benefit cost . . . . . $ 90 $ 107 $ 139
Note 20. Litigation
The Internal Revenue Service ("IRS") has challenged the application of certain foreign income taxes as credits against the Corporation's U.S. taxes that otherwise would have been payable for the years 1980 through 1989. On June 18, 1992, the IRS issued a statutory Notice of Deficiency for additional taxes in the amount of $466 million, plus interest, relating to 1980 through 1982. The Corporation has filed a petition in the U.S. Tax Court contesting the IRS statutory Notice of Deficiency. Trial on the matter is scheduled to commence in April 1995. A comparable adjustment of foreign tax credits for each year has been proposed for the years 1983 through 1989 based upon subsequent IRS audits. Similar challenges could arise relating to years subsequent to 1989. The Corporation believes that the foreign income taxes have been reflected properly in its U.S. federal tax returns. The Corporation is confident that it will prevail in the litigation. Consequently, this dispute is not expected to have a material adverse effect on liquidity, results of operations, or the consolidated financial position of the Corporation.
Note 21. Other Contingencies
Amoco is subject to federal, state and local environmental laws and regulations. Amoco is currently participating in the cleanup of numerous sites pursuant to such laws and regulations. The reasonably estimable future costs of probable environmental obligations, including Amoco's probable costs for obligations for which Amoco is jointly and severally liable, and for assets or businesses that were previously disposed, have been provided for in the Corporation's results of operations. These estimated costs represent the amount of expenditures expected to be incurred in the future to remediate sites with known environmental obligations. The accrued liability represents a reasonable best estimate of Amoco's remediation liability. As the scope of the obligations
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
becomes better defined, there may be changes in the estimated future costs, which could result in charges against the company's future results of operations. The ultimate amount of any such future costs, and the range within which such costs can be expected to fall, cannot be determined. Although the costs could be significant, they are not expected to have a material effect on Amoco's liquidity or consolidated financial position.
Note 22. Summarized Financial Data--Amoco Company
The Corporation's principal subsidiary, Amoco Company, is the holding company for substantially all petroleum and chemical operating subsidiaries except Amoco Canada. Amoco guarantees the outstanding public debt obligations of Amoco Company.
Summarized financial data for Amoco Company are presented as follows: 1994 1993 1992 (millions of dollars) For the years ended December 31: Revenues (including excise taxes) . . . . $ 27,841 $ 25,930 $ 25,698 Operating profit . . . . . . . . . . . . $ 2,470 $ 2,595 $ 1,760 Net income(1) . . . . . . . . . . . . . . $ 1,878 $ 1,803 $ 1,226 At December 31: Current assets . . . . . . . . . . . . . $ 5,399 $ 4,383 $ 4,644 Total assets . . . . . . . . . . . . . . $ 24,549 $ 23,513 $ 23,645 Current liabilities . . . . . . . . . . . $ 4,142 $ 3,976 $ 3,949 Long-term obligations(2) . . . . . . . . $ 6,190 $ 1,967 $ 2,811 Deferred credits . . . . . . . . . . . . $ 4,584 $ 4,441 $ 4,257 Minority interest . . . . . . . . . . . . $ 5 $ -- $ -- Shareholder's equity(2) . . . . . . . . . $ 9,628 $ 13,129 $ 12,628
(1) Excludes cumulative effects of accounting changes of $(702) million in 1992. (2) Change reflects dividends in 1994 to Amoco Corporation of intercompany notes receivable from subsidiaries.
Annual maturities of long-term debt during the next five years, including the portion classified as current, are $24 million in 1995, $658 million in 1996, $187 million in 1997, $247 million in 1998 and $134 million in 1999.
Note 23. Segment and Geographic Data
The Corporation operates in several industry segments. Petroleum operations include exploration and production ("E&P") and refining,
AMOCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
marketing and transportation ("RM&T") segments. The E&P segment is engaged in exploring for, developing and producing crude oil and natural gas and extraction of natural gas liquids ("NGL"). The RM&T segment is responsible for petroleum refining operations, the marketing of all refined petroleum products and the transportation and wholesale marketing of NGL and domestic natural gas. This segment also encompasses transportation of crude oil to refineries via marine vessels and pipelines and associated supply and trading activities. The chemical segment manufactures and sells various petroleum-based chemical products. Other operations include investments in technology companies, offshore contract drilling, real estate interests, and other activities.
Intersegment and intergeographic sales are accounted for at prices that approximate arm's-length market prices. Operating profits include all revenues and expenses of the reportable segment, except for income taxes and equity in earnings of unconsolidated companies. Income taxes are generally assigned to the operations that give rise to the tax effects.
Identifiable assets are those used in the operations of each segment or area, including intersegment or intergeographic receivables. Corporate assets consist primarily of cash, marketable securities and the unamortized cost of purchased tax benefits. Intersegment and intergeographic sales and receivables are eliminated in determining consolidated revenue and identifiable asset totals. Information by Industry Segment and Geographic Area is summarized in the tables on pages 65 to 68.
Statement of Information by Industry Segment
(millions of dollars) Petroleum Operations Exploration Refining, and Marketing and Chemical Production Transportation Operations Year 1994 Revenues other than intersegment sales . . . . . . . . . . . . . $ 2,568 $ 22,555 $ 4,593 Intersegment sales . . . . . . 3,892 976 69 Total revenues . . . . . . . $ 6,460 $ 23,531 $ 4,662 Operating profit . . . . . . . $ 1,585 $ 591 $ 684 Equity in earnings of others . 4 31 98 General corporate amounts . . . Interest expense . . . . . . . Income taxes . . . . . . . . . (602) (204) (244) Net income . . . . . . . . . $ 987 $ 418 $ 538 Depreciation and related charges $ 1,531 $ 444 $ 195 Capital expenditures . . . . . $ 1,561 $ 451 $ 467 Identifiable assets . . . . . . $ 13,390 $ 7,881 $ 4,375 Equity investments and related advances . . . . . . . . . . . $ 34 $ 32 $ 351
Other Consol- Operations Corporate idated*
Year 1994 Revenues other than intersegment sales . . . . . . . . . . . . . $ 144 $ 30,362 Intersegment sales . . . . . . -- -- Total revenues . . . . . . . $ 144 $ 30,362 Operating profit . . . . . . . $ (248) $ 2,612 Equity in earnings of others . -- 133 General corporate amounts . . . $ 64 64 Interest expense . . . . . . . (318) (318) Income taxes . . . . . . . . . 93 255 (702) Net income . . . . . . . . . $ (155) $ 1 $ 1,789 Depreciation and related charges $ 32 $ 37 $ 2,239 Capital expenditures . . . . . $ 48 $ 45 $ 2,572
Identifiable assets . . . . . . $ 586 $ 2,678 $ 28,896 Equity investments and related advances . . . . . . . . . . . $ 3 420 Total assets . . . . . . . . $ 29,316
* After elimination of intersegment transactions.
Statement of Information by Industry Segment
(millions of dollars) Petroleum Operations Exploration Refining, and Marketing and Chemical Production Transportation Operations Year 1993 Revenues other than intersegment sales . . . . . . . . . . . . . $ 2,631 $ 22,021 $ 3,699 Intersegment sales . . . . . . 4,057 893 74 Total revenues . . . . . . . $ 6,688 $ 22,914 $ 3,773 Operating profit . . . . . . . $ 1,563 $ 1,237 $ 321 Equity in earnings of others . -- 30 60 General corporate amounts . . . Interest expense . . . . . . . Income taxes . . . . . . . . . (568) (441) (141) Net income . . . . . . . . . $ 995 $ 826 $ 240 Depreciation and related charges $ 1,518 $ 419 $ 182 Capital expenditures . . . . . $ 1,590 $ 685 $ 370 Identifiable assets . . . . . . $ 13,822 $ 8,108 $ 3,938 Equity investments and related advances . . . . . . . . . . . $ 31 $ 32 $ 234
Other Consol- Operations Corporate idated*
Year 1993 Revenues other than intersegment sales . . . . . . . . . . . . . $ 166 $ 28,617 Intersegment sales . . . . . . 24 -- Total revenues . . . . . . . $ 190 $ 28,617 Operating profit . . . . . . . $ (75) $ 3,046 Equity in earnings of others . (1) 89 General corporate amounts . . . $ (303) (303) Interest expense . . . . . . . (325) (325) Income taxes . . . . . . . . . 31 432 (687) Net income . . . . . . . . . $ (45) $ (196) $ 1,820 Depreciation and related charges $ 30 $ 44 $ 2,193 Capital expenditures . . . . . $ 126 $ 46 $ 2,817
Identifiable assets . . . . . . $ 633 $ 2,051 $ 28,185 Equity investments and related advances . . . . . . . . . . . $ 4 301 Total assets . . . . . . . . $ 28,486
* After elimination of intersegment transactions.
Statement of Information by Industry Segment
(millions of dollars) Petroleum Operations Exploration Refining, and Marketing and Chemical Production Transportation Operations Year 1992 Revenues other than intersegment sales . . . . . . . . . . . . . $ 2,812 $ 21,282 $ 3,807 Intersegment sales . . . . . . 4,165 981 113 Total revenues . . . . . . . $ 6,977 $ 22,263 $ 3,920 Operating profit . . . . . . . $ 1,149 $ 664 $ (174) Equity in earnings of others . (2) 25 31 General corporate amounts . . . Interest expense . . . . . . . Income taxes . . . . . . . . . (276) (227) 49 Net income (loss) . . . . . . $ 871 $ 462 $ (94) Depreciation and related charges $ 1,751 $ 390 $ 189 Capital expenditures . . . . . $ 1,092 $ 806 $ 320 Identifiable assets . . . . . . $ 13,909 $ 8,135 $ 3,592 Equity investments and related advances . . . . . . . . . . . $ 85 $ 26 $ 188
Other Consol- Operations Corporate idated*
Year 1992 Revenues other than intersegment sales . . . . . . . . . . . . . $ 155 $ 28,219 Intersegment sales . . . . . . 48 -- Total revenues . . . . . . . $ 203 $ 28,219 Operating profit . . . . . . . $ (225) $ 1,414 Equity in earnings of others . (9) 45 General corporate amounts . . . $ (209) (209) Interest expense . . . . . . . (247) (247) Income taxes . . . . . . . . . 55 246 (153) Cumulative effects of accounting changes . . . . . . . . . (924) Net income (loss) . . . . . . $ (179) $ (210) $ (74) Depreciation and related charges $ 61 $ 49 $ 2,440 Capital expenditures . . . . . $ 60 $ 56 $ 2,334
Identifiable assets . . . . . . $ 633 $ 2,199 $ 27,951 Equity investments and related advances . . . . . . . . . . . $ 203 502 Total assets . . . . . . . . $ 28,453
*After elimination of intersegment transactions.
(1) After elimination of intergeographic transactions. (2) Includes cumulative effects of accounting changes of $(924) million in 1992.
AMOCO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
1. Quarterly Results and Stock Market Data
2. Oil and Gas Exploration and Production Activities
Supplemental information about oil and gas exploration and production activities is reported in compliance with SFAS No. 69, "Disclosures about Oil and Gas Producing Activities."
Results of Operations for Oil and Gas Producing Activities
Certain data for 1993 have been reclassified.
Oil and gas production revenues reflect the market prices of net production sold or transferred, with appropriate adjustments for royalties, net profits interest and other contractual provisions. Other revenues in 1994 include the U.S. COET settlement; other revenues in 1993 include Canadian gains on dispositions of properties and investments. Taxes other than income include production and severance taxes and property taxes. Other production costs are lifting costs incurred to operate and maintain productive wells and related equipment, including such costs as operating labor, repairs and maintenance, materials, supplies and fuel consumed. Also included are operating costs of field natural gas liquids plants, because the Corporation includes the operations of these plants in the exploration and production segment. Production costs include related administrative expenses and depreciation applicable to support equipment associated with production activities.
Exploration expenses include the costs of geological and geophysical activity, carrying and retaining undeveloped properties and drilling exploratory wells determined to be non-productive. Depreciation, depletion and amortization expense relates to capitalized costs incurred in acquisition, exploration and development activities and does not include depreciation applicable to support equipment. Included in other related costs are significant, non-recurring items and purchases of natural gas for field natural gas liquids plants. Significant, non- recurring items include $102 million for restructuring in 1994; $210 million for the writedown of Congo operations to current recoverable value and U.S. environmental charges of $96 million in 1993; and restructuring charges of $566 million in 1992.
Income taxes are generally assigned to the operations that give rise to the tax effects. Results of operations do not include interest expense and general corporate amounts nor their associated tax effects.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
The standardized measure of discounted future net cash flows relating to proved oil and gas reserves is prescribed by SFAS No. 69. The statement requires measurement of future net cash flows through assignment of a monetary value to proved reserve quantities and changes therein using a standardized formula. The amounts shown are based on prices and costs at the end of each period, legislated tax rates and a 10 percent annual discount factor. Because the calculation assumes static economic and political conditions and requires extensive judgment in estimating the timing of production, the resultant future net cash flows are not necessarily indicative of the fair market value of estimated proved reserves, but provide a reference point that may assist the user in projecting future cash flows.
Summarized below is the standardized measure of discounted future net cash flows relating to proved oil and gas reserves at December 31, 1994, 1993 and 1992.
Future cash inflows are computed by applying the year-end prices of oil and gas to proved reserve quantities as reported in the tables under
the heading "Estimated Proved Reserves." Future price changes are considered only to the extent provided by contractual arrangements. Future development and production costs are estimated expenditures to develop and produce the proved reserves based on year-end costs and assuming continuation of existing economic conditions. Future income taxes are calculated by applying appropriate statutory tax rates to future pre-tax net cash flows from proved oil and gas reserves less recovery of the tax basis of proved properties, and adjustments for permanent differences.
Statement of Changes in Standardized Measure of Discounted Future Net Cash Flows
The following table details the changes in the standardized measure of discounted future net cash flows for the three years ended December 31, 1994:
Certain data for 1993 have been reclassified.
The price of crude oil has fluctuated over the past several years, and price changes have had significant effects on the computed future cash flows over the period shown. Because the price of crude oil is likely to remain volatile in the future, price changes can be expected to continue to significantly affect the standardized measure of future net cash flows.
Estimated Proved Reserves
Net proved reserves of crude oil (including condensate), natural gas liquids ("NGL") and natural gas at the beginning and end of 1994, 1993 and 1992, with the detail of changes during those years, are presented below. Reported quantities include reserves in which the Corporation holds an economic interest under production-sharing and other types of operating agreements with foreign governments. The estimates were prepared by Corporation engineers and are based on current technology and economic conditions. The Corporation considers such estimates to be reasonable and consistent with current knowledge of the characteristics and extent of proved production. These estimates include only those amounts considered to be proved reserves and do not include additional amounts that may result from extensions of currently proved areas, or amounts that may result from new discoveries in the future, or from application of secondary or tertiary recovery processes not yet determined to be commercial. Proved developed reserves are those reserves that are expected to be recovered through existing wells with existing equipment and operating methods.
*Excludes non-leasehold NGL production attributable to processing plant ownership of approximately 10 million barrels for each of 1992, 1993 and 1994.
Capitalized Costs
The following table summarizes capitalized costs for oil and gas exploration and production activities, and the related accumulated depreciation, depletion and amortization.
Costs Incurred
Property acquisition costs include costs incurred to purchase, lease or otherwise acquire oil and gas properties. Exploration costs include the costs of geological and geophysical activity, carrying and retaining undeveloped properties and drilling and equipping exploratory wells. Development costs include the costs of drilling and equipping development wells, CO2 and certain other injected materials for enhanced recovery projects and facilities to extract, treat and gather and store oil and gas. Exploration and development costs include administrative expenses and depreciation applicable to support equipment associated with these activities. Costs incurred summarized below include both amounts expensed and capitalized.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Part III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The information required by this item with respect to directors is incorporated by reference to pages 3-10 of Amoco's Proxy Statement dated March 13, 1995. Also, see heading "Executive Officers of the Registrant" on page 19 of this Form 10-K.
Item 11.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to pages 11-19 of Amoco's Proxy Statement dated March 13, 1995. Information related to the Board Compensation and Organization Committee Report on Executive Compensation and the Cumulative Total Shareholder Return Five-Year Comparison graph are identified separately therein and are not incorporated herein.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to pages 3, 10, 13 and 14 of Amoco's Proxy Statement dated March 13, 1995.
Item 13.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to page 10 of Amoco's Proxy Statement dated March 13, 1995.
Part IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. and 2. Financial Statements and Schedules
See Index to Financial Statements and Supplemental Information on page 36.
Schedules not included in this Form 10-K have been omitted because they are either not applicable or the required information is shown in the financial statements or notes thereto.
3. Exhibits
See Index to Exhibits on page 84.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended December 31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Chicago, and State of Illinois, on the 21st day of March, 1995.
AMOCO CORPORATION (Registrant)
JOHN L. CARL John L. Carl Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 21, 1995.
Signatures Titles
Chairman of the Board, President, H. LAURANCE FULLER * and Director H. Laurance Fuller (Principal Executive Officer)
Executive Vice President and Chief JOHN L. CARL* Financial Officer John L. Carl (Principal Financial Officer)
J. R. REID Vice President and Controller J. R. Reid (Principal Accounting Officer)
L. D. THOMAS* Vice Chairman and Director L. D. Thomas
PATRICK J. EARLY* Vice Chairman and Director Patrick J. Early
DONALD R. BEALL* Director Donald R. Beall
Signatures Titles
RUTH BLOCK* Director Ruth Block
JOHN H. BRYAN* John H. Bryan Director
ERROLL B. DAVIS, JR.* Director Erroll B. Davis, Jr.
RICHARD FERRIS* Director Richard Ferris
F. A. MALJERS* Director F. A. Maljers*
ROBERT H. MALOTT* Director Robert H. Malott
W. E. MASSEY* Director W. E. Massey
MARTHA R. SEGER* Director Martha R. Seger
MICHAEL WILSON* Michael Wilson Director
RICHARD D. WOOD* Director Richard D. Wood
*By JOHN L. CARL Individually and as Attorney-in-Fact John L. Carl
SCHEDULE VIII
AMOCO CORPORATION
VALUATION AND QUALIFYING ACCOUNTS(1)
(1) Reserves were deducted from the assets to which they apply in the Consolidated Statement of Financial Position.
(2) Accounts written off less recoveries and other adjustments.
AMOCO CORPORATION
INDEX TO EXHIBITS