AMERADA HESS CORP - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2004


o		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 preceeding 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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

At June 30, 2004, 91,143,730 shares of Common Stock were outstanding.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME (UNAUDITED)
(in millions, except per share data)


	Three Months					Six months
	ended June 30					ended June 30
	2004		2003			2004		2003
REVENUES AND NON-OPERATING INCOME
Sales (excluding excise taxes) and other operating revenues	$	3,803	$	3,199		$	8,291	$	7,453
Non-operating income (expense)
Gain (loss) on asset sales		3		(9	)		22		39
Equity in income of HOVENSA L.L.C.		97		15			148		65
Other		33		8			37		19

Total revenues and non-operating income		3,936		3,213			8,498		7,576

COSTS AND EXPENSES
Cost of products sold		2,618		2,140			5,906		5,228
Production expenses		197		191			384		382
Marketing expenses		174		167			351		337
Exploration expenses, including dry holes and lease impairment		63		88			141		194
Other operating expenses		47		49			95		100
General and administrative expenses		96		106			172		183
Interest expense		60		77			117		151
Depreciation, depletion and amortization		239		270			465		546

Total costs and expenses		3,494		3,088			7,631		7,121

Income from continuing operations before income taxes		442		125			867		455
Provision for income taxes		161		62			305		203

Income from continuing operations		281		63			562		252
Discontinued operations
Net gain from asset sales		—		175			—		116
Income from operations		7		14			7		53
Cumulative effect of change in accounting principle		—		—			—		7

NET INCOME	$	288	$	252		$	569	$	428

Preferred stock dividends		12		—			24		—

NET INCOME APPLICABLE TO COMMON STOCKHOLDERS	$	276	$	252		$	545	$	428

BASIC EARNINGS PER SHARE
Continuing operations	$	3.03	$	.71		$	6.05	$	2.85
Net income		3.11		2.85			6.13		4.83
DILUTED EARNINGS PER SHARE
Continuing operations	$	2.77	$	.71		$	5.54	$	2.84
Net income		2.84		2.83			5.61		4.81
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (DILUTED)		101.4		89.0			101.5		89.1
COMMON STOCK DIVIDENDS PER SHARE	$	.30	$	.30		$	.60	$	.60

See accompanying notes to consolidated financial statements.

PART I - FINANCIAL INFORMATION (CONT’D.)

AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions of dollars, thousands of shares)


	June 30,
	2004			December 31,
	(Unaudited)			2003
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	601		$	518
Short-term investments		10			—
Accounts receivable		1,948			1,902
Inventories		463			579
Other current assets		274			187

Total current assets		3,296			3,186

INVESTMENTS AND ADVANCES
HOVENSA L.L.C.		1,108			960
Other		135			135

Total investments and advances		1,243			1,095

PROPERTY, PLANT AND EQUIPMENT
Total - at cost		16,705			16,100
Less reserves for depreciation, depletion, amortization and lease impairment		8,561			8,122

Property, plant and equipment - net		8,144			7,978

NOTES RECEIVABLE		243			302

GOODWILL		977			977

DEFERRED INCOME TAXES AND OTHER ASSETS		643			445

TOTAL ASSETS	$	14,546		$	13,983

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable - trade	$	1,951		$	1,542
Accrued liabilities		699			855
Taxes payable		416			199
Current maturities of long-term debt		104			73

Total current liabilities		3,170			2,669

LONG-TERM DEBT		3,785			3,868

DEFERRED LIABILITIES AND CREDITS
Deferred income taxes		1,089			1,144
Asset retirement obligations		468			462
Other		467			500

Total deferred liabilities and credits		2,024			2,106

STOCKHOLDERS’ EQUITY
Preferred stock, par value $1.00, 20,000 shares authorized
7% cumulative mandatory convertible series
Authorized - 13,500 shares Issued - 13,500 shares ($675 million liquidation preference)		14			14
3% cumulative convertible series
Authorized - 330 shares Issued - 327 shares ($16 million liquidation preference)		—			—
Common stock, par value $1.00
Authorized - 200,000 shares Issued - 91,144 shares at June 30, 2004; 89,868 shares at December 31, 2003		91			90
Capital in excess of par value		1,686			1,603
Retained earnings		4,503			4,011
Accumulated other comprehensive income (loss)		(676	)		(350	)
Deferred compensation		(51	)		(28	)

Total stockholders’ equity		5,567			5,340

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	14,546		$	13,983

See accompanying notes to consolidated financial statements.

PART I - FINANCIAL INFORMATION (CONT’D.)

AMERADA HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
Six months ended June 30
(in millions)


	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	569		$	428
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, depletion and amortization		465			546
Exploratory dry hole costs		46			95
Lease impairment		39			30
Pre-tax gain on asset sales		(23	)		(244	)
Provision (benefit) for deferred income taxes		(114	)		74
Undistributed earnings of HOVENSA L.L.C.		(148	)		(65	)
Non-cash effect of discontinued operations		(7	)		46
Changes in operating assets and liabilities		5			149

Net cash provided by operating activities		832			1,059

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(736	)		(709	)
Payment received on notes		59			31
Increase in short-term investments		(10	)		—
Proceeds from asset sales and other		44			508

Net cash used in investing activities		(643	)		(170	)

CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in debt with maturities of 90 days or less		—			(2	)
Debt with maturities of greater than 90 days
Borrowings		7			—
Repayments		(59	)		(326	)
Cash dividends paid		(106	)		(81	)
Stock options exercised		52			—

Net cash used in financing activities		(106	)		(409	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		83			480
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		518			197

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	601		$	677

See accompanying notes to consolidated financial statements.

PART I - FINANCIAL INFORMATION (CONT’D.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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 Corporation’s consolidated financial position at June 30, 2004 and December 31, 2003, the consolidated results of operations for the three- and six-month periods ended June 30, 2004 and 2003 and the consolidated cash flows for the six-month periods ended June 30, 2004 and 2003. 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. These statements, therefore, should be read in conjunction with the consolidated financial statements and related notes included in the 2003 Annual Report to Stockholders, which have been incorporated by reference in the Corporation’s Form 10-K, as amended, for the year ended December 31, 2003.

Note 2 -		In 2003, the Corporation took initiatives to reshape its portfolio of exploration and production assets to reduce costs, lengthen reserve lives, provide capital for investment and reduce debt.

		In the second quarter of 2003, the Corporation sold producing properties in the Gulf of Mexico shelf, the Jabung Field in Indonesia and several small United Kingdom fields for $445 million. In the first half of 2003, the Corporation exchanged crude oil producing properties in Colombia (acquired in 2001 as part of the Triton acquisition), plus $10 million in cash, for an additional 25% interest in natural gas reserves in a non-producing property under development in the joint development area of Malaysia and Thailand. After tax income from discontinued operations was $14 million for the second quarter of 2003 and $53 million for the first six months of 2003. The net gain from asset sales from discontinued operations was $175 million and $116 million for the same periods. The net production from fields sold or exchanged at the time of disposition was approximately 45,000 barrels of oil equivalent per day.

		Income from discontinued operations of $7 million in the second quarter of 2004 reflects the settlement of a previously accrued contingency relating to a foreign exploration and production operation that was disposed of in 2003.

Note 3 -		Inventories consist of the following (in millions):


	At			At
	June 30,			December 31,
	2004			2003
Crude oil and other charge stocks	$	144		$	138
Refined and other finished products		486			567
Less LIFO adjustment		(346	)		(293	)

		284			412
Materials and supplies		179			167

Total inventories	$	463		$	579

PART I - FINANCIAL INFORMATION (CONT’D.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 4 -		The Corporation accounts for its investment in HOVENSA L.L.C. using the equity method. Summarized financial information for HOVENSA follows (in millions):


	At			At
	June 30,			December 31,
	2004			2003
Summarized balance sheet
Cash and short-term investments	$	724		$	341
Other current assets		518			541
Net fixed assets		1,819			1,818
Other assets		38			37
Current liabilities		(490	)		(441	)
Long-term debt		(377	)		(392	)
Deferred liabilities and credits		(86	)		(56	)

Partners’ equity	$	2,146		$	1,848


	Three months				Six months
	ended June 30				ended June 30
	2004		2003		2004		2003
Summarized income statement
Total revenues	$	1,928	$	1,172	$	3,575	$	2,564
Costs and expenses		1,733		1,142		3,276		2,432

Net income	$	195	$	30	$	299	$	132

Amerada Hess Corporation’s share (*)	$	97	$	15	$	148	$	65


		(*) Before Virgin Islands income taxes, which are recorded by the Corporation.

Note 5 -		During the three- and six-month periods ended June 30, 2004, the Corporation capitalized interest of $13 million and $29 million on major development projects ($9 million and $21 million during the corresponding periods of 2003).

Note 6 -		Pre-tax foreign currency gains (losses) from continuing operations amounted to the following (in millions):


	Three months					Six months
	ended June 30					ended June 30
	2004		2003			2004			2003
Foreign currency gains (losses)	$	15	$	(13	)	$	(2	)	$	(17	)

PART I - FINANCIAL INFORMATION (CONT’D.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 7 -		Components of pension expense consisted of the following (in millions):


	Three months						Six months
	ended June 30						ended June 30
	2004			2003			2004			2003
Service cost	$	6		$	6		$	12		$	13
Interest cost		13			13			25			27
Expected return on plan assets		(11	)		(11	)		(22	)		(23	)
Amortization of prior service cost		1			—			1			1
Amortization of net loss		4			5			9			10

Pension expense	$	13		$	13		$	25		$	28


		In 2004, the Corporation expects to contribute $82 million to its funded pension plans and $20 million to the trust established for its unfunded pension plan. During the first half of 2004, the Corporation contributed $54 million to its funded pension plans and $20 million to the trust established for its unfunded pension plan.

Note 8 -		The provision for income taxes from continuing operations consisted of the following (in millions):


	Three months					Six months
	ended June 30					ended June 30
	2004			2003		2004			2003
Current	$	231		$	19	$	419		$	133
Deferred		(70	)		43		(114	)		70

Total	$	161		$	62	$	305		$	203


Note 9 -		The weighted average number of common shares used in the basic and diluted earnings per share computations are as follows (in thousands):


	Three months				Six months
	ended June 30				ended June 30
	2004		2003		2004		2003
Common shares – basic		89,149		88,614		88,936		88,614
Effect of dilutive securities (equivalent shares)
Convertible preferred stock		11,417		205		11,867		205
Nonvested common stock		561		222		526		222
Stock options		284		—		174		14

Common shares – diluted		101,411		89,041		101,503		89,055

PART I - FINANCIAL INFORMATION (CONT’D.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


		Earnings per share are as follows:


	Three months				Six months
	ended June 30				ended June 30
	2004		2003		2004		2003
Basic
Continuing operations	$	3.03	$	.71	$	6.05	$	2.85
Discontinued operations		.08		2.14		.08		1.91
Cumulative effect of change in accounting principle		—		—		—		.07

Net income	$	3.11	$	2.85	$	6.13	$	4.83

Diluted
Continuing operations	$	2.77	$	.71	$	5.54	$	2.84
Discontinued operations		.07		2.12		.07		1.90
Cumulative effect of change in accounting principle		—		—		—		.07

Net income	$	2.84	$	2.83	$	5.61	$	4.81


Note 10 -		The Corporation records compensation expense for nonvested common stock awards (restricted stock) ratably over the vesting period, which is generally three to five years. The Corporation uses the intrinsic value method to account for employee stock options. Because the exercise prices of employee stock options equal or exceed the market price of the stock on the date of grant, the Corporation does not recognize compensation expense.

		The Corporation uses the Black-Scholes model to estimate the fair value of employee stock options for pro forma disclosure. Using the fair value method, stock option expense would be recognized over the one- to three-year vesting periods. The following pro forma financial information presents the effect on net income and earnings per share as if the Corporation used the fair value method (in millions, except per share data):


PART I — FINANCIAL INFORMATION
SIGNATURES
CERTIFICATION
CERTIFICATION
CERTIFICATION
CERTIFICATION

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