Amoco Corp. will replace three major operating companies with almost a score of business units in an effort to save $600 million/year by the end of 1995.
The restructuring, designed to improve financial performance and position the company for stronger long term growth, we trim another 3,800 jobs in the next 12 months, including about 2,000 support staff positions (OGJ, June 20, p. 23). The numbers exclude 350 marketing jobs cut earlier this year.
Another 700 jobs are to be eliminated by yearend 1996, as Amoco strives to improve support staff efficiency. A newly created shared services organization will provide support service to the business units.
The company's strategies will be carried out by 17 business units that are streamlined and customer - focused with authority deemed adequate to win in the businesses in which they compete.
At yearend 1993, Amoco employed about 46,000 persons worldwide.
Because of the realignment, Amoco will take a $256 million after tax charge against second quarter 1994 earnings, including $146 million to be spent in the next year on employee severances and $110 million attributable to site closings and asset dispositions. Amoco through 1996 will incur about $200 million after tax of additional restructuring costs reflecting system redesigns, relocations, work consolidations, and development of new processes.
"The changes will result in a different organization, sharply changed in how it thinks, works, reacts and capitalizes on business opportunities," said H. Laurance Fuller, Amoco chairman and chief executive officer.
"We're removing an entire layer of management between the business groups and our strategic planning committee, the company's senior management team. We're increasing the authority and accountability of our people in the field to make decisions and run their businesses.
"This restructuring is not designed to shrink Amoco but to enable it to grow."
EFFECT ON EARNINGS
Amoco's announcement of restructuring came as it was reporting estimated second quarter 1994 earnings of $410 million, including financial effects of the reorganization. Second quarter earnings 1 year ago were $487 million.
The $256 million after tax second quarter charge taken because of the restructuring was more than offset by a previously announced $270 million gain resulting from settlements with the Internal Revenue Service involving crude oil excise taxes in the 1980s.
Amoco's second quarter exploration and production operating earnings were less than 1 year ago, mostly because of lower wellhead prices during the quarter. The company's U.S. E&P earnings in second quarter 1994 were $298 million, tops among its operating segments, compared with $230 million in second quarter 1993. Amoco E&P activity outside the U.S. booked a $54 million loss, compared with a $53 million profit in second quarter 1993.
Since Fuller became Amoco chairman 3 1/2 years ago, the company has switched strategies for all parts of its business, revamped major parts of the company, implemented principles of continuous improvement, and changed its compensation system.
In 1992, Amoco announced plans to eliminate 8,500 jobs, achieving pretax cost reductions totaling $600 million. Fuller said that cutback and the one announced late last month will result in a total reduction of more than 13,000 jobs, about one fourth of the company's work force. He estimated pretax cost savings will amount to more than $1.2 billion/year.
Employees whose jobs are to be eliminated will leave the company through normal attrition, early retirements, and severances.
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