1 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- --------------- Commission File Number 1-1204 ---------------------- AMERADA HESS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 13-4921002 (I.R.S. employer identification number) 1185 AVENUE OF THE AMERICAS, NEW YORK, N.Y. (Address of principal executive offices) 10036 (Zip Code) (Registrant's telephone number, including area code is (212) 997-8500) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- At June 30, 1997, 91,739,105 shares of Common Stock were outstanding. - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME (in thousands, except per share data) <TABLE> <CAPTION> Three Months Six Months Ended June 30 Ended June 30 ----------------------- ---------------------- 1997 1996 1997 1996 ---------- ---------- --------- ---------- <S> <C> <C> <C> <C> REVENUES SALES (excluding excise taxes) and other operating revenues $1,833,960 $2,094,840 $4,230,790 $4,309,377 Non-operating revenues Asset sales 16,463 429,009 16,463 429,009 Other 28,401 19,907 47,669 37,918 ---------- ---------- ---------- ---------- Total revenues 1,878,824 2,543,756 4,294,922 4,776,304 ---------- ---------- ---------- ---------- COSTS AND EXPENSES Cost of products sold and operating expenses 1,360,588 1,597,520 3,231,487 3,242,391 Exploration expenses, including dry holes 79,143 61,489 129,323 123,175 Selling, general and administrative expenses 158,806 151,570 307,880 301,702 Interest expense 33,755 41,902 67,407 94,707 Depreciation, depletion, amortization and lease impairment 170,331 183,559 367,826 385,108 Provision for income taxes 34,544 131,269 144,754 186,797 ---------- ---------- ---------- ---------- Total costs and expenses 1,837,167 2,167,309 4,248,677 4,333,880 ---------- ---------- ---------- ---------- NET INCOME $ 41,657 $ 376,447 $ 46,245 $ 442,424 ========== ========== ========== ========== NET INCOME PER SHARE $ .45 $ 4.04 $ .50 $ 4.75 ========== ========== ========== ========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 92,256 93,132 92,604 93,077 COMMON STOCK DIVIDENDS PER SHARE $ .15 $ .15 $ .30 $ .30 </TABLE> See accompanying notes to consolidated financial statements. 1
3 PART I - FINANCIAL INFORMATION (CONT'D.) AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEET (in thousands of dollars) <TABLE> <CAPTION> A S S E T S JUNE 30, DECEMBER 31, 1997 1996 ------------ ------------ <S> <C> <C> CURRENT ASSETS Cash and cash equivalents $ 186,957 $ 112,522 Accounts receivable 520,339 848,129 Inventories 993,253 1,272,312 Other current assets 141,450 193,881 ------------ ------------ Total current assets 1,841,999 2,426,844 ------------ ------------ INVESTMENTS AND ADVANCES 233,159 218,573 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT Total - at cost 12,090,972 11,902,419 Less reserves for depreciation, depletion, amortization and lease impairment 7,114,764 6,995,136 ------------ ------------ Property, plant and equipment - net 4,976,208 4,907,283 ------------ ------------ DEFERRED INCOME TAXES AND OTHER ASSETS 296,439 231,781 ------------ ------------ TOTAL ASSETS $ 7,347,805 $ 7,784,481 ============ ============ L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y CURRENT LIABILITIES Accounts payable - trade $ 481,099 $ 666,172 Accrued liabilities 429,898 501,369 Deferred revenue 2,003 103,031 Taxes payable 314,694 258,723 Notes payable 155,000 18,000 Current maturities of long-term debt 189,685 189,685 ------------ ------------ Total current liabilities 1,572,379 1,736,980 ------------ ------------ LONG-TERM DEBT 1,493,771 1,660,998 ------------ ------------ CAPITALIZED LEASE OBLIGATIONS 39,058 50,818 ------------ ------------ DEFERRED LIABILITIES AND CREDITS Deferred income taxes 586,316 616,900 Other 350,279 335,154 ------------ ------------ Total deferred liabilities and credits 936,595 952,054 ------------ ------------ STOCKHOLDERS' EQUITY Preferred stock, par value $1.00 Authorized - 20,000,000 shares for issuance in series -- -- Common stock, par value $1.00 Authorized - 200,000,000 shares Issued - 91,739,105 shares at June 30, 1997; 93,073,305 shares at December 31, 1996 91,739 93,073 Capital in excess of par value 755,210 754,559 Retained earnings 2,565,235 2,613,920 Equity adjustment from foreign currency translation (106,182) (77,921) ------------ ------------ Total stockholders' equity 3,306,002 3,383,631 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,347,805 $ 7,784,481 ============ ============ </TABLE> See accompanying notes to consolidated financial statements. 2
4 PART I - FINANCIAL INFORMATION (CONT'D.) AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS Six Months Ended June 30 (in thousands) <TABLE> <CAPTION> 1997 1996 --------- ----------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 46,245 $ 442,424 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, depletion, amortization and lease impairment 367,826 385,108 Exploratory dry hole costs 76,466 67,039 Pre-tax gain on asset sales (16,463) (429,009) Changes in operating assets and liabilities 343,315 121,270 Deferred income taxes and other items (25,640) (10,556) --------- ----------- Net cash provided by operating activities 791,749 576,276 --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (611,958) (330,666) Proceeds from asset sales and other 59,873 877,164 --------- ----------- Net cash provided by (used in) investing activities (552,085) 546,498 --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in notes payable 137,000 (77,200) Long-term borrowings 29,000 -- Repayment of long-term debt and capitalized lease obligations (205,910) (1,027,558) Cash dividends paid (41,637) (41,794) Common stock acquired (81,965) -- --------- ----------- Net cash used in financing activities (163,512) (1,146,552) --------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,717) 1,857 --------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 74,435 (21,921) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 112,522 56,071 --------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 186,957 $ 34,150 ========= =========== </TABLE> See accompanying notes to consolidated financial statements. 3
5 PART I - FINANCIAL INFORMATION (CONT'D.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) Note 1 - The financial statements included in this report reflect all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the Company's consolidated financial position at June 30, 1997 and December 31, 1996, and the consolidated results of operations for the three and six-month periods ended June 30, 1997 and 1996 and the consolidated cash flows for the six-month periods ended June 30, 1997 and 1996. The unaudited results of operations for the interim periods reported are not necessarily indicative of results to be expected for the full year. Certain notes and other information have been condensed or omitted from these interim financial statements. Such statements, therefore, should be read in conjunction with the consolidated financial statements and related notes included in the 1996 Annual Report to Stockholders, which have been incorporated by reference in the Corporation's Form 10-K for the year ended December 31, 1996. Note 2 - Inventories consist of the following: <TABLE> <CAPTION> June 30, December 31, 1997 1996 -------- ---------- <S> <C> <C> Crude oil and other charge stocks $341,579 $ 441,071 Refined and other finished products 554,452 734,141 Materials and supplies 97,222 97,100 -------- ---------- Total inventories $993,253 $1,272,312 ======== ========== </TABLE> Note 3 - The provision for income taxes consisted of the following: <TABLE> <CAPTION> Three months Six months ended June 30 ended June 30 ------------------------ ------------------------- 1997 1996 1997 1996 -------- -------- --------- -------- <S> <C> <C> <C> <C> Current $ 44,620 $101,992 $ 145,406 $177,776 Deferred (10,076) 29,277 (652) 9,021 -------- -------- --------- -------- Total $ 34,544 $131,269 $ 144,754 $186,797 ======== ======== ========= ======== </TABLE> Note 4 - Foreign currency exchange transactions are reflected in selling, general and administrative expenses. The net effect, after applicable income taxes, amounted to losses of $1,832 and $449, respectively, for the three and six-month periods ended June 30, 1997 compared to gains of $516 and $2,643 for the corresponding periods of 1996. 4
6 PART I - FINANCIAL INFORMATION (CONT'D.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) Note 5 - The Corporation uses futures, forwards, options and swaps to reduce the impact of fluctuations in the prices of crude oil, natural gas and refined products. These contracts correlate to movements in the value of inventory and the prices of crude oil and natural gas, and as hedges, any resulting gains or losses are recorded as part of the hedged transaction. Net deferred losses resulting from the Corporation's hedging activities were approximately $6,000 at June 30, 1997, including $1,000 of unrealized losses. Note 6 - Interest cost related to certain long-term construction projects has been capitalized in accordance with FAS No. 34. During the three and six-month periods ended June 30, 1997, interest cost of $1,770 and $3,287, respectively, was capitalized. There was no interest capitalized for the corresponding periods of 1996. Note 7 - In the second quarter of 1997, the Corporation refinanced its revolving credit agreements in the United States and the United Kingdom. These agreements were replaced with a new revolving credit facility with an available global borrowing capacity of $2,000,000. The Corporation's United Kingdom and Norwegian subsidiaries may borrow on an unguaranteed basis subject to sub-limits of $1,000,000 and $250,000, respectively. Other subsidiaries may borrow with a parent company guarantee. The new facility is due in 2002 and may be extended with the consent of the lenders. Capacity may be increased by $400,000, also with lender approval. Borrowings bear interest at a margin above the London Interbank Offered Rate ("LIBOR") based on the Corporation's capitalization ratio. The current borrowing rate is .165% above LIBOR. Facility fees of .11% per annum are payable on the amount of the credit line. 5
7 PART I - FINANCIAL INFORMATION (CONT'D.) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. RESULTS OF OPERATIONS Income excluding asset sales for the second quarter of 1997 amounted to $31 million compared with $26 million for the second quarter of 1996. Income excluding asset sales for the first half of 1997 was $35 million compared with $92 million for the first half of 1996. Net gains on asset sales amounted to $11 million in 1997 and $350 million in 1996. The after-tax results by major operating activity for the three and six month periods ended June 30, 1997 and 1996 were as follows (in millions): <TABLE> <CAPTION> Three months Six months ended June 30 ended June 30 ----------------- ------------------ 1997 1996 1997 1996 ---- ----- ----- ----- <S> <C> <C> <C> <C> Exploration and production $ 64 $ 31 $ 161 $ 99 Refining, marketing and shipping 3 35 (53) 79 Corporate (7) (6) (14) (11) Interest expense (29) (34) (59) (75) ---- ----- ----- ----- Income excluding asset sales 31 26 35 92 Net gains on asset sales 11 350 11 350 ---- ----- ----- ----- Net income $ 42 $ 376 $ 46 $ 442 ==== ===== ===== ===== Net income per share $.45 $4.04 $ .50 $4.75 ==== ===== ===== ===== </TABLE> The 1997 asset sale represents the sale of a small onshore United States natural gas property. The 1996 asset sales reflect the disposals of the Corporation's Canadian operations, certain United States oil and gas properties and Abu Dhabi assets. Excluding asset sales, earnings from exploration and production activities increased by $33 million in the second quarter of 1997 and $62 million in the first half of 1997, compared with the corresponding periods of 1996. The increases were primarily due to higher crude oil selling prices (including the effects of hedging) in the United States, increased earnings of a foreign equity investment and lower effective income tax rates on foreign earnings. 6
8 PART I - FINANCIAL INFORMATION (CONT'D.) RESULTS OF OPERATIONS (CONTINUED) The Corporation's average selling prices, including the effects of hedging, were as follows: <TABLE> <CAPTION> Three months Six months ended June 30 ended June 30 ----------------------- ----------------------- 1997 1996 1997 1996 -------- -------- -------- -------- <S> <C> <C> <C> <C> Crude oil and natural gas liquids (per barrel) United States $ 17.92 $ 15.41 $ 19.29 $ 15.61 Foreign 17.66 19.12 19.61 18.66 Natural gas (per Mcf) United States(*) 2.11 2.20 2.42 2.42 Foreign 2.32 1.79 2.34 1.75 </TABLE> (*) Includes sales of purchased gas. The increase in the United States crude oil selling price indicated above largely reflects improved hedging results in 1997. The increase in the average foreign natural gas price reflects higher selling prices in the United Kingdom and the absence of lower priced Canadian gas in 1997. The Corporation's Canadian operations were sold in April 1996. The Corporation's net daily worldwide production was as follows: <TABLE> <CAPTION> Three months Six months ended June 30 ended June 30 -------------------- --------------------- 1997 1996 1997 1996 ------- ------- ------- ------- <S> <C> <C> <C> <C> Crude oil and natural gas liquids (barrels per day) United States 43,158 55,197 43,018 56,186 Foreign 164,867 182,980 178,297 190,201 ------- ------- ------- ------- Total 208,025 238,177 221,315 246,387 ======= ======= ======= ======= Natural gas (Mcf per day) United States 313,570 361,114 319,728 381,062 Foreign 250,823 316,373 286,857 446,641 ------- ------- ------- ------- Total 564,393 677,487 606,585 827,703 ======= ======= ======= ======= </TABLE> 7
9 PART I - FINANCIAL INFORMATION (CONT'D.) RESULTS OF OPERATIONS (CONTINUED) United States crude oil and natural gas production was lower in 1997, principally reflecting asset sales in the second and third quarters of 1996. The decrease in foreign crude oil production reflects lower United Kingdom volumes due to temporary production interruptions on certain fields, partially offset by production from new fields. 1996 asset sales also contributed to reduced foreign crude oil and natural gas production, particularly the sale of the Corporation's Canadian operations. Depreciation, depletion, amortization and lease impairment charges were lower in 1997 primarily reflecting the lower production volumes discussed above. Exploration expenses were higher in the second quarter of 1997, due to increased activity in the North Sea and other international areas, partially offset by reduced exploration expenses in the United States. The effective income tax rate on foreign exploration and production earnings was lower in 1997, primarily due to lower Petroleum Revenue Taxes ("PRT") in the United Kingdom, reflecting lower pre-tax earnings from PRT paying fields and increased deductible allowances. Income taxes were also reduced by the utilization of a net operating loss carryforward of a foreign subsidiary. It is expected that this subsidiary will be in a taxable position in the second half of the year. The Corporation's exploration and production earnings are subject to changes in the selling prices of crude oil and natural gas, the level of exploration spending, the extent of field maintenance, effective income tax rates and other factors. The Corporation anticipates that a substantial amount of its 1997 exploration expenditures will be incurred in the third quarter. Refining, marketing and shipping operations had income of $3 million in the second quarter of 1997 compared with $35 million in the second quarter of 1996. The decrease was due to lower refined product margins. Selling prices decreased by approximately $2.00 per barrel, while product costs, accounted for on the first-in, first-out and average cost methods, decreased to a lesser extent. In the first half of 1997, refining, marketing and shipping operations incurred a loss of $53 million compared with income of $79 million in the first half of 1996. Refined product margins were lower in 1997, including margins for distillates and residual fuel oils which were negatively impacted by the relatively mild winter on the east coast of the United States. A substantial amount of the 1997 loss related to a refining subsidiary for which income tax benefits are not provided due to a cumulative loss carryforward. Refined product sales volumes amounted to 95 million barrels in the first half of 1997 compared with 101 million barrels in the first half of 1996. Refining and marketing earnings will continue to be volatile because of competitive industry conditions and other supply and demand factors, including the effects of weather. 8
10 PART I - FINANCIAL INFORMATION (CONT'D.) RESULTS OF OPERATIONS (CONTINUED) Interest expense (after-tax) decreased by 15% in the second quarter of 1997 and 21% in the first half of 1997, compared with the corresponding periods of 1996, due to lower debt levels. Interest in the second half of 1997 is expected to approximate the amount incurred in the corresponding period of 1996. Corporate expenses were comparable in the second quarters of 1997 and 1996, but increased slightly in the first half of 1997 compared with the first half of 1996. The increase resulted largely from Corporate income tax adjustments. Sales and other operating revenues decreased by 12% in the second quarter of 1997, principally reflecting lower sales volumes and selling prices of refined products. Sales and operating revenues in the first half of 1997 were 2% below the corresponding period of 1996 due to lower refined product sales volumes. Non-operating revenues included the gain of $429 million from the Corporation's program of asset sales in the first half of 1996. Selling, general and administrative expenses include approximately $16 million and $12 million in the first half of 1997 and 1996, respectively, for the Corporation's financial reengineering project and related systems and software. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities, including changes in operating assets and liabilities, amounted to $792 million in the first half of 1997 compared with $576 million in the first half of 1996. The increase was primarily due to changes in working capital components. Cash flow resulting from net income excluding asset sales, adjusted for non-cash charges, amounted to $479 million and $553 million in the first half of 1997 and 1996, respectively. In 1996, the Corporation generated proceeds of approximately $860 million from asset sales, resulting in a substantial decrease in debt. Total debt was $1,898 million at June 30, 1997 compared with $1,939 million at December 31, 1996, resulting in debt to total capitalization ratios of 36.5% and 36.4%, respectively. At June 30, 1997, the Corporation had additional borrowing capacity available under its revolving credit agreement of $1,523 million and additional unused lines of credit under uncommitted arrangements with banks of $378 million. In the second quarter of 1997, the Corporation refinanced its revolving credit agreements in the United States and the United Kingdom with a $2 billion, five-year, unsecured global revolving credit facility. The new facility replaced $2.2 billion in credit facilities, which would have begun to expire in 1999. The new facility has interest rate differentials and fees which are lower than under the credit agreements that were replaced. 9
11 PART 1 - FINANCIAL INFORMATION (CONT'D.) LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Since inception of the Corporation's stock repurchase program in August 1996, through June 30, 1997, 1,756,400 shares have been purchased at a cost of approximately $91 million, including $82 million in 1997. In the second quarter of 1997, the Corporation received approximately $25 million under a United Kingdom court ruling in a legal dispute related to a natural gas pipeline partially owned by the Corporation. A substantial amount of the after-tax gain has been deferred pending the outcome of an appeal of the ruling. The Corporation uses futures, forwards, options and swaps to reduce the effects of fluctuations in the prices of crude oil, natural gas and refined products. These instruments are used to set the selling prices of crude oil, natural gas and refined products and the related gains or losses are an integral part of the Corporation's selling prices. At June 30, 1997, the Corporation had open hedge positions equal to 6% of its estimated worldwide crude oil production over the next twelve months. In certain circumstances, hedge counterparties may elect to purchase up to an additional 1% of this production. The Corporation also had open contracts equal to 3% of its estimated United States natural gas production over the next twelve months and approximately 1% of its production for the succeeding twelve months. The Corporation had hedges covering 64% of its refining and marketing inventories and had additional short positions approximating 6% of refined products to be manufactured in the next twelve months. As market conditions change, the Corporation will adjust its hedge positions. Capital expenditures in the first half of 1997 amounted to $612 million compared with $331 million in the first half of 1996. Capital expenditures in 1997 include $155 million for the acquisition of oil and gas properties in the United Kingdom North Sea and a chain of retail marketing properties in Florida. Capital expenditures for exploration and production activities were $507 million in the first half of 1997 compared with $314 million in the first six months of 1996. Capital expenditures for the remainder of 1997 are currently expected to be approximately $700 million, the majority of which is expected to be financed by internally generated funds and the remainder by increased long-term borrowings. 10
12 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. The Annual Meeting of Stockholders of the Registrant was held on May 7, 1997. The Inspectors of Election reported that 78,343,285 shares of Common Stock of the Registrant were represented in person or by proxy at the meeting, constituting 84.9% of the votes entitled to be cast. At the meeting, stockholders voted upon the election of five nominees for the Board of Directors for the three-year term expiring in 2000 and the ratification of the selection by the Board of Directors of Ernst & Young LLP as the independent auditors of the Registrant for the fiscal year ended December 31, 1997. With respect to the election of directors, the inspectors of election reported as follows: <TABLE> <CAPTION> For Withhold Authority to Vote Name Nominee Listed For Nominee Listed ---- -------------- -------------------------- <S> <C> <C> Peter S. Hadley 77,165,932 1,177,353 John B. Hess 77,173,045 1,170,240 William R. Johnson 70,116,670 8,226,615 John Y. Schreyer 77,173,103 1,170,182 William I. Spencer 77,147,970 1,195,315 </TABLE> The inspectors further reported that 78,157,723 votes were cast for the ratification of the selection of Ernst & Young LLP as independent auditors for the fiscal year ending December 31, 1997, 76,966 votes were cast against said ratification and holders of 108,596 votes abstained. There were no broker non-votes with respect to the election of directors or the ratification of the selection of independent auditors. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 4 - Credit Agreement dated as of May 20, 1997 among Registrant, the Subsidiary Borrowers thereunder, The Chase Manhattan Bank as Administrative Agent and the Lenders party thereto. (b) Reports on Form 8-K The Registrant filed no report on Form 8-K during the three months ended June 30, 1997. 11
13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERADA HESS CORPORATION (REGISTRANT) By s/s John B. Hess ---------------------------- JOHN B. HESS CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER By s/s John Y.Schreyer ---------------------------- JOHN Y. SCHREYER EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Date: August 11, 1997 12
14 EXHIBIT INDEX 4 - Credit Agreement dated as of May 20, 1997 among Registrant, the Subsidiary Borrowers thereunder, The Chase Manhattan Bank as Administrative Agent and the Lenders party thereto.