Item 3. Legal Proceedings
The information required by this item is incorporated by reference to Item 3 of Amoco Corporation's 1997 Annual Report on Form 10-K.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
Not required.
_________________ PART II
Item 5.
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
All of the common stock of the registrant is owned by its parent company; therefore, there is no market for such stock.
Item 6.
Item 6. Selected Financial Data
Not required.
Item 7.
Item 7. Management's Narrative Analysis of Results of Operations
Results of Operations
1997 Compared With 1996
The Company earned $2,274 million in 1997 compared with $2,402 million in 1996. Earnings in 1997 included $271 million of net gains from asset dispositions, primarily the sale of non-core oil and gas properties in the United States. Asset sales in the United States, including the sale of a natural gas pipeline unit in Texas, generated proceeds of about $1.2 billion. Additional sales of U.S. oil and gas properties are expected to be completed in 1998.
Benefiting 1996 earnings was a gain of $97 million from the sale of Amoco's polystyrene foam products business, and a fourth- quarter gain of $90 million from the drawdown of inventories valued under the last-in first-out ("LIFO") method.
Adjusting both years for these items, 1997 earnings were $2,003 million compared with 1996 earnings of $2,215 million. Earnings in 1997 benefited from higher natural gas prices and improved refining operations and petroleum product sales margins. Also benefiting 1997 results were continued efficiencies accruing from Amoco's Shared Services operations. Adversely affecting 1997 earnings were lower crude oil prices and lower production volumes. Chemical earnings were below 1996 levels, as excess industry capacity put downward pressure on sales prices and margins, especially paraxylene.
Sales and other operating revenues totaled $28.5 billion for 1997, about the same as in 1996. Natural gas revenues increased five percent primarily as the result of higher prices. Chemical revenues increased by five percent, as higher sales volumes associated with capacity additions and acquisitions more than offset lower prices. Crude oil and refined products revenues declined eight and four percent, respectively, mainly reflecting lower prices.
Other income of $1,045 million in 1997 was $471 million above 1996, primarily reflecting the gain on U.S. non-core exploration and production ("E&P") property dispositions.
Costs and expenses totaled $30 billion, an increase of two percent from 1996. Operating expenses increased nine percent primarily resulting from higher refinery maintenance costs and costs associated with the start-up of production in Venezuela and Bolivia, increased activity in Trinidad and higher maintenance costs related to operations in the North Sea and the United States. Interest expense increased $225 million in 1997, reflecting an increase in long-term debt, as well as interest expense associated with revised estimates of tax obligations. Lower selling and administrative expenses, exploration expenses and costs for purchased materials and products were partly offsetting. Net income also benefited from favorable prior-year tax adjustments.
Depreciation, depletion, amortization, and retirements and abandonments for 1997 included charges of $133 million, primarily related to the anticipated sale or other disposition of certain non-core chemical operations. During 1997 these assets generated net income of $9 million on a carrying value of $339 million, before the impairment charge.
Liquidity and Capital Resources
Cash flows from operating activities totaled $3.7 billion in 1997, compared with $3.5 billion in 1996. Working capital totaled $1,277 million at December 31, 1997, compared with $1,435 million at December 31, 1996. The Company's current ratio was 1.25 to 1 at year-end 1997. As a matter of policy, Amoco Company practices asset and liability management techniques that are designed to minimize its investment in non-cash working capital. This does not impair operational flexibility since the Company has ready access to both short- and long-term debt markets.
Debt to debt-plus-equity ratio on outstanding public obligations was 21.7 percent at December 31, 1997, compared with 17.4 percent at December 31, 1996. Including debt with affiliates, the ratio was 39.5 at December 31, 1997, and 36.8 percent at year-end 1996.
The Company believes that its strong financial position will permit the financing of business needs and opportunities as they arise. During 1997, Amoco Company issued $300 million of ten- year, 6.5% guaranteed notes and $200 million of seven-year, 6.25% guaranteed notes. A $500 million shelf registration for debt securities is on file with the Securities and Exchange Commission to permit ready access to capital markets.
Amoco Corporation and Amoco Company guarantee the notes, bonds and debentures of Amoco Canada Petroleum Company Ltd. Contingent liabilities of the Company include guarantees of $200 million of outstanding loans of an equity affiliate.
In 1997, proceeds from dispositions of property and other assets included approximately $1.2 billion from the sale of U.S. non-core oil and gas properties and an intrastate natural gas pipeline unit in Texas. These sales were part of the corporation's strategy to upgrade and refocus the U.S. portfolio of E&P assets. Other income included related gains on property dispositions, which increased after-tax earnings by $377 million. Other current assets included properties held for sale with a net book value of $312 million.
Proceeds from dispositions of property and other assets in 1996 included $310 million received from the sale of Amoco's polystyrene foam products business.
New investments in 1997 included approximately $865 million in cash for interests in Pan American Energy LLC in Argentina and Empresa Petrolera Chaco in Bolivia. In 1996, the Company acquired the alpha-olefins and related businesses of Albemarle Corporation for $535 million.
Capital and exploration expenditures, excluding the above- mentioned acquisitions, totaled $3,426 million for 1997 compared with $3,994 million spent during 1996. Expenditures in 1997 included E&P spending associated with construction of facilities in Trinidad, Venezuela, Colombia and the Gulf of Mexico and continuation of programs in Egypt and the North Sea. Chemical spending in 1997 related to expansion of facilities.
Investments in affiliates totaled $1,391 million at December 31, 1997. The investments reflect the Company's remaining interest in certain European chemical operations, of which 95 percent ownership was transferred to Amoco Corporation in 1994. Also reflected were the Company's purchases of Amoco Corporation's common stock.
The following table summarizes selected liquidity information for the last three years as of December 31:
1997 1996 1995 Debt to debt-plus-equity ratio on outstanding public debt obligations ... 21.7 17.4 20.0 Debt to debt-plus- equity ratio including debt with affiliates ...... 39.5 36.8 40.7 Current ratio ............. 1.25 1.29 1.16 Ratio of earnings to fixed charges* ............ 11.8 14.2 11.6
* Earnings consist of income before income taxes and fixed charges; fixed charges include interest on outstanding public debt obligations, rental expense representative of an interest factor, and adjustments for certain companies accounted for by the equity method. Including debt with affiliates, the ratio of earnings to fixed charges was 5.0 as of December 31, 1997, 5.5 as of December 31, 1996, and 4.4 as of December 31, 1995.
Item 8.
Item 8. Financial Statements and Supplemental Information
Index to Financial Statements and Supplemental Information
Page Financial Statements: Basis of Financial Statement Preparation ...... 7
Condensed Consolidated Statement of Income .... 8
Condensed Consolidated Statement of Financial Position .......................... 9
Condensed Consolidated Statement of Cash Flows 10
Supplemental Information: Supplemental Oil and Gas Exploration and Production Activities ....................... 11
Quarterly Financial Data ...................... 11
Separate financial statements 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.
Financial Statements
Basis of Financial Statement Preparation
The Company is a wholly owned subsidiary of Amoco and its presently outstanding public debt securities are guaranteed by Amoco. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 53, summarized financial data of the Company appear in a note to Amoco's 1997 audited consolidated financial statements. Such financial statements, together with the Report of Independent Accountants thereon of Amoco's 1997 Annual Report on Form 10-K are incorporated herein by reference.
The unaudited condensed financial statements of the Company contained herein do not include all information and footnotes necessary for a complete presentation of results of operations and financial position in conformity with generally accepted accounting principles and should be read in conjunction with Amoco's audited consolidated financial statements.
AMOCO COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31,
1997 1996 1995 (millions of dollars) Revenues: Sales and other operating revenues ............... $28,490 $28,669 $24,404 Consumer excise taxes .... 3,451 3,386 3,339 Other income ............. 1,045 574 596 Total revenues ......... 32,986 32,629 28,339
Costs and Expenses: Purchased crude oil, natural gas, petroleum products and merchandise 15,973 16,067 12,778 Operating expenses ....... 4,468 4,091 3,991 Petroleum exploration expenses, including exploratory dry holes .. 529 548 498 Selling and administrative expenses ............... 1,823 1,915 1,723 Taxes other than income taxes .................. 4,141 4,129 3,954 Depreciation, depletion, amortization, and retirements and abandonments ........... 2,043 1,986 2,304 Interest expense: Affiliates.............. 509 496 491 Other................... 265 53 180 Total costs and expenses 29,751 29,285 25,919
Income before income taxes . 3,235 3,344 2,420 Income taxes ............... 961 942 622 Net income ................. $ 2,274 $ 2,402 $ 1,798
AMOCO COMPANY
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
December 31, 1997 1996 ASSETS (millions of dollars) Current Assets: Cash ................................... $ 78 $ 222 Marketable securities--at cost ......... 768 767 Accounts and notes receivable (less allowances of $7 at December 31, 1997, and $14 at December 31, 1996) .. 3,676 3,899 Inventories ............................ 876 820 Prepaid expenses, income taxes and other 1,044 653 Total current assets ................. 6,442 6,361
Investments and Other Assets: Affiliates ............................. 1,391 1,464 Other .................................. 2,957 1,376 4,348 2,840 Properties--at cost, less accumulated depreciation, depletion and amorti- zation of $23,798 at December 31, 1997, and $24,151 at December 31, 1996 (The successful efforts method of accounting is followed for costs incurred in oil and gas producing activities) .......... 19,272 20,007 Total assets ......................... $30,062 $29,208
LIABILITIES AND SHAREHOLDER'S EQUITY Current Liabilities: Current portion of long-term obligations $ 146 $ 74 Short-term obligations ................. 576 442 Accounts payable ....................... 2,497 2,663 Accrued liabilities .................... 872 916 Taxes payable (including income taxes) . 1,074 831 Total current liabilities ............ 5,165 4,926
Long-Term Obligations: Affiliate debt ......................... 4,739 4,731 Other debt ............................. 2,791 2,190 Capitalized leases ..................... 80 76 7,610 6,997
Deferred Credits and Other Non-Current Liabilities: Income taxes ........................... 2,781 2,592 Other .................................. 1,882 1,932 4,663 4,524 Minority Interest ...................... 119 131 Shareholder's Equity ................... 12,505 12,630 Total liabilities and shareholder's equity ............................. $30,062 $29,208
AMOCO COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31, 1997 1996 1995 (millions of dollars) Cash Flows From Operating Activities: Net income ......................... $ 2,274 $ 2,402 $ 1,798 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, amortization, and retirements and abandonments ................. 2,043 1,986 2,304 Decrease(increase) in receivables .. 141 (1,290) 142 (Decrease)increase in payables and accrued liabilities .......... (48) 392 56 Other .............................. (747) 11 (575) Net cash provided by operating activities ..................... 3,663 3,501 3,725
Cash Flows From Investing Activities: Capital expenditures ............... (2,897) (3,351) (2,938) Proceeds from dispositions of property and other assets ........ 1,424 604 180 New investments, advances and business acquisitions............. (1,234) (756) (818) Other .............................. 214 25 80 Net cash used in investing activities ..................... (2,493) (3,478) (3,496)
Cash Flows From Financing Activities: New long-term obligations .......... 1,253 265 412 Repayment of long-term obligations . (380) (277) (144) Distributions to Amoco Corporation . (2,320) (198) (989) Issuance of minority interest preferred stock................... - - 100 Increase in short-term ............. obligations ...................... 134 176 154 Net cash used in financing activities ..................... (1,313) (34) (467)
Decrease in Cash and Marketable Securities .............. (143) (11) (238) Cash and Marketable Securities-- Beginning of Year .................. 989 1,000 1,238 Cash and Marketable Securities-- End of Year ........................ $ 846 $ 989 $ 1,000
Supplemental Information
1. Supplemental Oil and Gas Exploration and Production Activities
The supplemental information about oil and gas exploration and production activities for the Company is essentially the same as reported by Amoco, if Canadian exploration and production information is excluded. Therefore, the information with respect to supplemental oil and gas exploration and production activities is incorporated by reference to Amoco Corporation's 1997 Annual Report on Form 10-K. Information related to Canadian petroleum operations is identified separately therein and is not incorporated herein.
2. Quarterly Financial Data
Summarized quarterly financial data for the years ended December 31, 1997 and 1996 are as follows:
Revenues Operating Profit* Net Income* 1997 1996 1997 1996 1997 1996 First ... $7,153 $7,404 $ 892 $ 899 $ 556 $ 598 Second .. $7,826 $8,026 $ 916 $ 803 $ 546 $ 510 Third ... $8,299 $8,272 $ 999 $ 908 $ 468 $ 566 Fourth .. $9,708 $8,927 $1,013 $1,125 $ 704 $ 728
*Fourth-quarter 1997 net income included net gains of $271 million primarily associated with asset dispositions, including the sale of certain non-core oil and gas properties in the United States. Net income in the fourth quarter of 1996 included a gain of $90 million related to LIFO inventory levels. Third-quarter 1996 results included a gain on the sale of Amoco's polystyrene foam products business of $97 million.
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
Not required.
Item 11.
Item 11. Executive Compensation
Not required.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Not required.
Item 13.
Item 13. Certain Relationships and Related Transactions
Not required.
______________ PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1 and 2.The financial statements, supplemental financial information and financial statement schedules, together with the report thereon of Price Waterhouse LLP dated February 24, 1998, appearing in Amoco Corporation's 1997 Annual Report on Form 10-K are incorporated by reference in Item 8 of this Form 10-K. Information related to Canadian petroleum operations is identified separately therein and is not incorporated herein. With the exception of the aforementioned information and the information incorporated in Items 1, 2, and 3 hereof, Amoco Corporation's 1997 Annual Report on Form 10-K is not deemed to be filed as part of this report.
3. Exhibits - See attached Index to Exhibits.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended December 31, 1997.
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 20th day of March, 1998.
Amoco Company (Registrant)
JOHN L. CARL John L. Carl (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 20, 1998.
Signatures Titles
JOHN L. CARL President and Director John L. Carl (Principal Executive Officer)
W. R. HUTCHINSON Vice President, Treasurer, and W. R. Hutchinson Director (Principal Financial Officer)
JUDITH G. BOYNTON Vice President and Controller Judith G. Boynton (Principal Accounting Officer)
DANIEL B. PINKERT Vice President and Director Daniel B. Pinkert
AMOCO COMPANY
INDEX TO EXHIBITS Exhibit Number Exhibit
3(a) The Certificate of Incorporation of the registrant is incorporated herein by reference to Exhibit 3(a) to the registrant's Annual Report on Form 10-K for the year ended December 31, 1989.
3(b) By-laws of the registrant are incorporated herein by reference to Exhibit 3(b) to the registrant's Annual Report on Form 10-K for the year ended December 31, 1989.
4 The registrant will provide to the Securities and Exchange Commission upon request copies of instruments defining the rights of holders of long-term debt of the registrant and its consolidated subsidiaries.
9 None.
10 None.
11 None required.
12 Statement Setting Forth Computation of Ratio of Earnings to Fixed Charges for the five years ended December 31, 1997. *
13 Amoco Corporation's 1997 Annual Report on Form 10-K is incorporated herein by reference as described in this 1997 Form 10-K. *
16 None.
18 None.
19 None.
21 None required.
23 None required.
24 None.
27 Financial Data Schedule for the year ended December 31, 1997. *
28 None. ____________ * Included herein.