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 quarterly period ended March 31,June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 1-9210
---------------------
OCCIDENTAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-4035997
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10889 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(Address of principal executive offices) (Zip Code)
(310) 208-8800
(Registrant's telephone number, including area code)
---------------------
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at March 31,June 30, 2000
--------------------------- ---------------------------------------------------------
Common stock $.20 par value 368,624,676368,879,875 shares
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets--
March 31,June 30, 2000 and December 31, 1999 2
Consolidated Condensed Statements of Operations--
Three and six months ended March 31,June 30, 2000 and 1999 4
Consolidated Condensed Statements of Cash Flows--
ThreeSix months ended March 31,June 30, 2000 and 1999 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 1517
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security-Holders 1618
Item 6. Exhibits and Reports on Form 8-K 1718
1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31,JUNE 30, 2000 and DECEMBER 31, 1999
(Amounts in millions)
2000 1999
================================================================================= =========== ============ =============
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12897 $ 214
Receivables, net 7451,196 774
Inventories 486510 503
Prepaid expenses and other 188176 197
----------- ------------ -------------
Total current assets 1,5471,979 1,688
LONG-TERM RECEIVABLES, net 1832,119 168
EQUITY INVESTMENTS 1,7941,434 1,754
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation, depletion and amortization of $7,856$6,814
at March 31,June 30, 2000 and $7,675 at December 31, 1999 9,95313,547 10,029
OTHER ASSETS 866477 486
----------- ------------ -------------
$ 14,34319,556 $ 14,125
================================================================================= =========== ============ =============
The accompanying notes are an integral part of these financial statements.
2
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31,JUNE 30, 2000 and DecemberDECEMBER 31, 1999
(Amounts in millions)
2000 1999
================================================================================= ======================== ============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease liabilities $ 165 $ 5
Current portion of non-recourse debt 35 --
Notes payable 3849 29
Accounts payable 706944 812
Accrued liabilities 8941,070 953
Domestic and foreign income taxes 192174 168
------------------------ ------------
Total current liabilities 1,8462,277 1,967
------------------------ ------------
LONG-TERM DEBT, net of current maturities and unamortized discount 4,5134,421 4,368
------------------------ ------------
NON-RECOURSE DEBT 2,240 --
------------- ------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred and other domestic and foreign income taxes 1,0531,225 995
Obligation under natural gas delivery commitment 380348 411
Other 2,0862,097 2,123
------------------------ ------------
3,5193,670 3,529
------------------------ ------------
MINORITY INTEREST 2642,270 252
------------------------ ------------
OCCIDENTAL OBLIGATED MANDATORILY REDEEMABLE
TRUST PREFERRED SECURITIES OF A SUBSIDIARY
TRUST HOLDING SOLELY SUBORDINATED NOTES OF
OCCIDENTAL 479476 486
------------- ------------ -------------
STOCKHOLDERS' EQUITY
Common stock, at par value 74 73
Additional paid-in capital 3,7103,714 3,787
Retained earnings (deficit) (15)456 (286)
Accumulated other comprehensive income (47)(42) (51)
------------------------ ------------
3,7224,202 3,523
------------------------ ------------
$ 14,34319,556 $ 14,125
================================================================================= ======================== ============
The accompanying notes are an integral part of these financial statements.
3
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31,JUNE 30, 2000 AND 1999
(Amounts in millions, except per-share amounts)
Three Months Ended March 31
----------------------------Six Months Ended
June 30 June 30
------------------------ ------------------------
2000 1999 =================================================================================2000 1999
================================================================= ========== =========== =========== ==========
REVENUES
Net sales
Oil and gas operations $ 1,5272,122 $ 746944 $ 3,649 $ 1,690
Chemical operations 981 5981,006 703 1,987 1,301
---------- ----------- ----------- 2,508 1,344----------
3,128 1,647 5,636 2,991
Interest, dividends and other income 3763 43 100 86
Gains (losses) on disposition of assets, net 4 3491 (21) 495 (18)
Income (loss) from equity investments 33 (8)52 15 85 7
---------- ----------- ----------- 2,582 1,382----------
3,734 1,684 6,316 3,066
---------- ----------- ----------- ----------
COSTS AND OTHER DEDUCTIONS
Cost of sales 1,721 1,0872,175 1,280 3,897 2,367
Selling, general and administrative and other
operating expenses 154291 160 445 320
Minority interest 57 11 86 20
Exploration expense 6 16 Minority interest 30 936 21 52
Interest and debt expense, net 104 126142 129 247 255
---------- ----------- ----------- 2,015 1,398----------
2,681 1,616 4,696 3,014
---------- ----------- ----------- ----------
Income (loss) before taxes 567 (16)1,053 68 1,620 52
Provision for domestic and foreign income and
other taxes 296 41489 56 785 97
---------- ----------- ----------- ----------
Income (loss) before extraordinary item and effect of changes
in accounting principles 271 (57)564 12 835 (45)
Extraordinary loss, net -- (3) -- (3)
Cumulative effect of changes in accounting principles, net -- -- -- (13)
---------- ----------- ----------- ----------
NET INCOME (LOSS) 271 (70)564 9 835 (61)
Preferred dividends -- (4)(3) -- (7)
Effect of repurchase of Trust Preferred Securities -- -- 1 --
---------- ----------- ----------- ----------
EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $ 272564 $ (74)6 $ 836 $ (68)
========== =========== =========== ==========
BASIC EARNINGS PER COMMON SHARE
Income (loss) before extraordinary item and effect of
changes in accounting principles $ .741.53 $ (.17).03 $ 2.27 $ (.15)
Extraordinary loss, net -- (.01) -- (.01)
Cumulative effect of changes in accounting principles, net -- -- -- (.04)
---------- ----------- ----------- ----------
Basic earnings (loss) per common share $ .741.53 $ (.21).02 $ 2.27 $ (.20)
========== =========== =========== ==========
DILUTED EARNINGS PER COMMON SHARE
Income (loss) before extraordinary item and effect of
changes in accounting principles $ .741.53 $ (.17).03 $ 2.27 $ (.15)
Extraordinary loss, net -- (.01) -- (.01)
Cumulative effect of changes in accounting principles, net -- -- -- (.04)
---------- ----------- ----------- ----------
Diluted earnings (loss) per common share $ .741.53 $ (.21).02 $ 2.27 $ (.20)
========== =========== =========== ==========
DIVIDENDS PER COMMON SHARE $ .25 $ .25 $ .50 $ .50
========== =========== =========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 368.1 347.8
=================================================================================368.8 348.4 368.5 348.1
================================================================= ========== =========== =========== ==========
The accompanying notes are an integral part of these financial statements.
4
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREESIX MONTHS ENDED MARCH 31,JUNE 30, 2000 AND 1999
(Amounts in millions)
2000 1999
========================================================================================= ========= =================== ==========
CASH FLOW FROM OPERATING ACTIVITIES
Net incomeIncome (loss) before extraordinary item and effect of changes in accounting
principles $ 271835 $ (57)(45)
Adjustments to reconcile income (loss) to net cash provided by operating
activities:
Depreciation, depletion and amortization of assets 185 197419 400
Deferred income tax provision 67 23244 74
Other noncash charges (credits) to income 19 (6)
Gains168 4
(Gains) losses on disposition of assets, net (4) (3)
(Income) loss(495) 18
Income from equity investments (33) 8(85) (7)
Exploration expense 6 1621 52
Changes in operating assets and liabilities (116) (62)(108) (204)
Other operating, net (47) (41)
--------- ---------(77) (100)
---------- ----------
Net cash provided by operating activities 348 75
--------- ---------922 192
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (122) (132)
Sale(333) (263)
Purchase of businesses, net (3,701) (126)
Proceeds from sale of businesses and disposal of property, plant and equipment, net 23 2other assets 842 17
Collection of note receivable -- 1,395
Purchase of businesses, net (including deposits) (375) (13)
Other investing, net (13) 47 --------- ---------83
---------- ----------
Net cash (used) provided (used) by investing activities (487) 1,299
--------- ---------(3,145) 1,106
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term and non-recourse debt --2,432 792
Net proceeds (payments) from (payments on) commercial paper and revolving credit agreements 156 (2,107)265 (2,123)
Proceeds from issuance of trust preferred securities -- 508
Repurchase of trust preferred securities (6)(9) --
Purchases for gas deliverysales commitment (28)(56) --
Payments on long-term and non-recourse debt and capital lease liabilities (1) (5)(380) (138)
Proceeds from issuance of common stock 16 619 12
Proceeds (payments) offrom notes payable 9 (3)20 3
Cash dividends paid (92) (91)(184) (181)
Other financing, net (1) 1
--------- -----------
---------- ----------
Net cash provided (used) by financing activities 53 (899)
--------- ---------
Increase (decrease)2,106 (1,127)
---------- ----------
(Decrease) increase in cash and cash equivalents (86) 475(117) 171
Cash and cash equivalents--beginning of period 214 96
--------- ------------------- ----------
Cash and cash equivalents--end of period $ 12897 $ 571267
========================================================================================= ========= =================== ==========
The accompanying notes are an integral part of these financial statements.
5
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31,June 30, 2000
1. General
The accompanying unaudited consolidated condensed financial statements have
been prepared by Occidental Petroleum Corporation (Occidental) pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and disclosures normally included in notes to
consolidated financial statements have been condensed or omitted pursuant
to such rules and regulations, but resultant disclosures are in accordance
with generally accepted accounting principles as they apply to interim
reporting. The consolidated condensed financial statements should be read
in conjunction with the consolidated financial statements and the notes
thereto in Occidental's Annual Report on Form 10-K for the year ended
December 31, 1999 (1999 Form 10-K).
In the opinion of Occidental's management, the accompanying consolidated
condensed financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly Occidental's
consolidated financial position as of March 31,June 30, 2000 and the consolidated
results of operations for the three and six months then ended and the
consolidated cash flows for the threesix months then ended. The results of
operations and cash flows for the periodperiods ended March 31,June 30, 2000 are not
necessarily indicative of the results of operations or cash flows to be
expected for the full year.
Certain financial statements and notes for the prior year have been changed
to conform to the 2000 presentation.
Reference is made to Note 1 to the consolidated financial statements in the
1999 Form 10-K for a summary of significant accounting policies.
2. Comprehensive Income
The following table presents Occidental's comprehensive income items (in
millions):
Periods Ended June 30
-----------------------------------------------------
Three Months Ended March 31,Six Months
------------------------- -------------------------
2000 1999 =================================================== ========= =========2000 1999
================================================== =========== ============ =========== ============
Net income (loss) $ 271564 $ (70)9 $ 835 $ (61)
Other comprehensive income items
Foreign currency translation adjustments 4 (8)
--------- ---------6 (20) 10 (28)
Other (1) 1 (1) 1
----------- ------------ ----------- ------------
Other comprehensive income, net of tax 4 (8)
--------- ---------5 (19) 9 (27)
----------- ------------ ----------- ------------
Comprehensive income (loss) $ 275569 $ (78)
========= =========(10) $ 844 $ (88)
=========== ============ =========== ============
6
3. Asset Acquisitions and Dispositions
Reference is made to Note 3 to the consolidated financial statements in the
1999 Form 10-K for a description of asset acquisitions and dispositions.
In December 1999,June 2000, Occidental entered intoannounced that it had signed a letter of intent
with Olin Corporation to combine the companies' chlor-alkali and related
businesses for contribution to a newly-formed partnership. Occidental,
through its subsidiaries, will own approximately 66 percent of the
partnership. The transaction, which is subject to regulatory approvals, is
expected to close by the fourth quarter of 2000.
On May 8, 2000, Occidental completed an agreement to sell its producing
properties in Peru to Pluspetrol. The transaction, which was
subject to governmental approval, closed on May 8, 2000. In connection with this transaction,
Occidental recorded an after-tax charge of approximately $29 million in
December 1999 to write-down the properties to their fair values.
On April 24, 2000, Occidental completed the acquisition of ARCO Long Beach
Inc. (THUMS), an oil producing property, for approximately $67 million.
On April 19, 2000, Occidental completed its acquisition of all of the
common interest in Altura Energy Ltd. (now "Occidental Permian Ltd.")
(Altura), the largest oil producer in Texas. Occidental, through its
subsidiaries, paid approximately $1.2 billion to the sellers, affiliates of
BP Amoco plc and Shell Oil Company, to acquire the common limited
partnership interest and control of the general partner which manages,
operates and controls 100 percent of the Altura assets. The partnership
borrowed approximately $2.4 billion, which has recourse only to the Altura
assets. The partnership also loaned approximately $2.0 billion to
affiliates of the sellers, evidenced by two notes, which provide credit
support to the partnership. The sellers retained a preferred limited
partnership interest of approximately $2.0 billion and are entitled to
certain distributions from the partnership. The acquisition is valued at
approximately $3.6 billion. Occidental's results of operations include the
operations of the Altura assets from the date of acquisition. Pro forma net
income for the three and six months ended June 30, 2000, including
historical Altura results as if the acquisition had occurred on January 1,
2000, would have been $573 million ($1.55 earnings per share) and $915
million ($2.48 earnings per share), respectively. Pro forma net income for
the three and six months ended June 30, 1999, including historical Altura
results as if the acquisition had occurred on January 1, 1999, would have
been income of $7 million ($.02 earnings per share) and a loss of $93
million ($.27 loss per share), respectively. Pro forma revenues would have
been $6.7 billion and $3.4 billion for the six months ended June 30, 2000
and 1999, respectively, and $3.8 billion and $1.9 billion for the three
months ended June 30, 2000 and 1999, respectively. The pro forma
calculations were made with historical operating results from Altura prior
to ownership by Occidental and give effect to certain adjustments including
increased depreciation, depletion and amortization to reflect the value
assigned to the Altura property, plant and equipment, increased interest
expense, and income tax effects. The pro forma results are not necessarily
indicative of the results of operations that would have occurred if the
acquisition had been made at the beginning of the periods presented or that
may be obtained in the future. Also, the pro forma calculations do not
reflect anticipated cost savings, synergies, changes in realized prices or
production rates and certain other adjustments that are expected to result
from the acquisition and operation of Altura.
On April 18, 2000, Occidental completed the sale of its 29.2 percent stake
in Canadian Occidental Petroleum Ltd. (CanOxy) for gross proceeds of
approximately $1.2 billion Canadian, following approval of the sale by
CanOxy stockholders. Of Occidental's 40.2 million shares of CanOxy, 20.2
million were sold to the Ontario Teachers Pension Plan Board and 20 million
to CanOxy. These sales resulted in a net pre-tax gain of approximately $493
million. In addition, Occidental and CanOxy exchanged their respective 15
percent interests in joint businesses of approximately equal value,
resulting in Occidental owning 100 percent of an oil and gas operation in
Ecuador and CanOxy owning 100 percent of sodium chlorate operations in
Canada and Louisiana.
7
4. Supplemental Cash Flow Information
Cash payments during the threesix months ended March 31,June 30, 2000 and 1999 included
federal, foreign and state income taxes of approximately $109$343 million and
$25$51 million, respectively. Interest paid (net of interest capitalized)
totaled approximately $96$241 million and $90$219 million for the threesix months
ended March 31,June 30, 2000 and 1999, respectively.
5. Cash and Cash Equivalents
Cash equivalents consist of highly liquid money-market mutual funds and
bank deposits with maturities of three months or less when purchased. Cash
equivalents totaled $58$43 million and $162 million at March 31,June 30, 2000, and
December 31, 1999, respectively.
6. Inventories
A portion of inventories is valued under the LIFO method. The valuation of
LIFO inventory for interim periods is based on management's estimates of
year-end inventory levels and costs. Inventories consist of the following
(in millions):
Balance at March 31,June 30, 2000 December 31, 1999
======================== ========================================= =====================
Raw materials $ 8061 $ 60
Materials and supplies 134137 167
Work in process 83 7
Finished goods 262314 294
-------- --------
484--------- ---------
515 528
LIFO adjustment 2(5) (25)
-------- ----------------- ---------
Total $ 486510 $ 503
======== ================= =========
7. Property, Plant and Equipment
Reference is made to the consolidated balance sheets and Note 1 thereto in
the 1999 Form 10-K for a description of investments in property, plant and
equipment.
7
8. Trust Preferred Securities
Reference is made to Note 12 to the consolidated financial statements in
the 1999 Form 10-K for a description of the Trust Preferred Securities. The
Trust Preferred Securities balances reflected in the consolidated financial
statements at March 31,June 30, 2000, and December 31, 1999, are net of issue costs
and also reflect amortization of a portion of the issue costs, and the
repurchase during 2000 and 1999 of 298,373433,560 shares and 937,436 shares with
liquidation values of $7.5$10.8 million and $23.4 million, respectively.
9. Retirement Plans and Postretirement Benefits
Reference is made to Note 14 to the consolidated financial statements in
the 1999 Form 10-K for a description of the retirement plans and
postretirement benefits of Occidental and its subsidiaries.
8
10. Lawsuits, Claims, Commitments, Contingencies and Related Matters
Occidental and certain of its subsidiaries have been named as defendants or
as potentially responsible parties in a substantial number of lawsuits,
claims and proceedings, including governmental proceedings under the
Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) and corresponding state acts. These governmental proceedings seek
funding, remediation and, in some cases, compensation for alleged property
damage, punitive damages and civil penalties, aggregating substantial
amounts. Occidental is usually one of many companies in these proceedings,
and has to date been successful in sharing response costs with other
financially sound companies. Occidental has accrued reserves at the most
likely cost to be incurred in those proceedings where it is probable that
Occidental will incur remediation costs which can be reasonably estimated.
In December 1998, David Croucher and others filed a purported class action
suit in the Federal District Court in Houston, Texas on behalf of persons
claiming to have been beneficiaries of the MidCon Employee Stock Ownership
Plan (ESOP). The plaintiffs allege that each of the U.S. Trust Company of
California (the ESOP Trustee) and the MidCon ESOP Administrative Committee
breached its fiduciary duty to the plaintiffs by failing to properly value
the securities held by the ESOP, and allege that Occidental actively
participated in such conduct. The plaintiffs claim that, as a result of
this alleged breach, the ESOP participants are entitled to an additional
aggregate distribution of at least $200 million and that Occidental has
been unjustly enriched and is liable for failing to make that distribution.
During the course of its operations, Occidental is subject to audit by
taxing authorities for varying periods in various tax jurisdictions.
Occidental has certain other commitments under contracts, guarantees and
joint ventures, and certain other contingent liabilities.
It is impossible at this time to determine the ultimate liabilities that
Occidental and its subsidiaries may incur resulting from the foregoing
lawsuits, claims and proceedings, audits, commitments, contingencies and
related matters. Several of these matters may involve substantial amounts,
and if these were to be ultimately resolved unfavorably to the full amount
of their maximum potential exposure, an event not currently anticipated, it
is possible that such event could have a material adverse effect upon
Occidental's consolidated financial position or results of operations.
However, in management's opinion, after taking into account reserves, it is
unlikely that any of the foregoing matters will have a material adverse
effect upon Occidental's consolidated financial position or results of
operations.
Reference is made to Note 9 to the consolidated financial statements in the
1999 Form 10-K for information concerning Occidental's long-term purchase
obligations for certain products and services.
8
11. Income Taxes
The provision for taxes based on income for the 2000 and 1999 interim
periods was computed in accordance with Interpretation No. 18 of APB
Opinion No. 28 on reporting taxes for interim periods and was based on
projections of total year pretaxpre-tax income.
At December 31, 1999, Occidental had, for U.S. federal income tax return
purposes, an alternative minimum tax credit carryforward of $60 million
available to reduce future income taxes. The alternative minimum tax credit
carryforward does not expire.
12. Investments
Investments in entities, other than oil and gas exploration and production
companies, in which Occidental has a voting stock interest of at least 20
percent, but not more than 50 percent, and certain partnerships are
9
accounted for on the equity method. At March 31,June 30, 2000, Occidental's equity
investments consisted primarily of a 29.5 percent interest in Equistar
acquired in May 1998 an investment of 29.2 percentand interests in the common shares of
Canadian Occidental Petroleum Ltd. (CanOxy) and various chemical partnerships and
joint ventures. The following table presents Occidental's proportionate
interest in the summarized financial information of its equity method
investments (in millions):
Periods Ended June 30
-----------------------------------------------------------
Three Months Ended March 31,Six Months
--------------------------- ---------------------------
2000 1999 ==================================2000 1999
=========== =========== =========== ===========
Revenues $ 689674 $ 504548 $ 1,363 $ 1,052
Costs and expenses 656 512622 533 1,278 1,045
----------- ----------- ----------- -----------
Net income (loss) $ 3352 $ (8)15 $ 85 $ 7
=========== =========== =========== ===========
13. Industry Segments
The following table presents Occidental's interim industry segment
disclosures (in millions):
Oil and Gas Chemical Corporate Total
================================================ ============= ============= ============= ===================================================== ============ ============ ============ ============
QuarterSix months ended March 31,June 30, 2000
Net sales $ 1,5273,649 $ 9811,987 $ -- $ 2,508
============= ============= ============= =============
Pretax5,636
============ ============ ============ ============
Pre-tax operating profit (loss) $ 5421,242 $ 149187 (c) $ (124)191 (a)(d) $ 5671,620
Income taxes (148) (6) (142)(291) (10) (484)(b) (296)
------------- ------------- ------------- -------------(e) (785)
------------ ------------ ------------ ------------
Net income (loss) $ 394951 $ 143177 $ (266)(293) $ 271
================================================ ============= ============= ============= =============
Quarter835
======================================== ============ ============ ============ ============
Six months ended March 31,June 30, 1999
Net sales $ 7461,690 $ 5981,301 $ -- $ 1,344
============= ============= ============= =============
Pretax2,991
============ ============ ============ ============
Pre-tax operating profit (loss) $ 113340 $ 1450 $ (143)(338)(a) $ (16)52
Income taxes (48) (2) 9(109) (5) 17 (b) (41)(97)
Extraordinary loss, net -- -- (3) (3)
Cumulative effect of changes in
accounting principles, net -- -- (13) (13)
------------- ------------- ------------- ------------------------- ------------ ------------ ------------
Net income (loss) $ 65231 $ 1245 $ (147)(337) $ (70)
================================================ ============= ============= ============= =============(61)
======================================== ============ ============ ============ ============
(a) Includes unallocated net interest expense, administration expense and
other items.
(b) Includes unallocated income taxes.
9
14. Subsequent Events
On April 18, 2000, Occidental completed(c) Includes pre-tax charge of $120 million related to the decision to
exit several chemical intermediate businesses.
(d) Includes pre-tax gain of approximately $493 million related to the
sale of its 29.2 percent stake
inthe CanOxy for gross proceedsinvestment.
(e) Includes income taxes of approximately $1.2 billion Canadian,
following approval$193 million related to the
sale of the sale by CanOxy stockholders. Of Occidental's 40.2
million shares of CanOxy, 20.2 million were sold to the Ontario Teachers
Pension Plan Board andinvestment.
14. Subsequent Event
On July 20, million to CanOxy. In addition, Occidental and
CanOxy exchanged their respective 15 percent interests in joint businesses
of approximately equal value, resulting in Occidental owning 100 percent of
an oil and gas operation in Ecuador and CanOxy owning 100 percent of a
sodium chlorate operation in Canada and Louisiana.
On April 19, 2000, Occidental completed its acquisition of all of the
common interest in Altura, the largest oil producer in Texas. Occidental,
through its subsidiaries, paid approximately $1.2 billion to the sellers,
affiliates of BP Amoco plc and Shell Oil Company, to acquire the common
limited partnership interest and control of the general partner which
manages, operates and controls 100 percent of the Altura assets. The
partnership borrowed approximately $2.4 billion, which has recourse only to
the Altura assets. The partnership also loaned approximately $2.0 billion
to affiliates of the sellers, evidenced by two notes, which provide credit
support to the partnership. The sellers retained a preferred limited
partnership interest of approximately $2.0 billion and are entitled to
certain distributions from the partnership. The acquisition is valued at
approximately $3.6 billion.
On April 24, 2000, Occidental completed the acquisition of ARCO Long Beach
Inc., owner of the Long Beach Unit's operating contractor, THUMS, for
approximately $57 million.
On April 25, 2000, Occidental announced that it will call for redemption on
June 1, 2000, all of its outstanding 11-1/8% Senior Debentures due June 1,
2019, at a redemption price of 100%had entered into agreements
with respect to two transactions with Apache Corporation ("Apache")
involving Occidental's interests in the Continental Shelf of the principal amount thereof. The
outstanding aggregate principal amount is $75 million;Gulf of
Mexico ("GOM"). In one transaction, Occidental agreed to sell its share of
future gas production from these GOM interests for approximately $280
million. In the Debentures were
issued on May 15, 1989.second transaction, Occidental agreed to sell an interest
in the subsidiary that holds the GOM assets for approximately $61 million,
with an option for Apache to purchase additional interests for $44 million
over the next four years. As a result of these transactions, which are
expected to close in August 2000, and the consequent elimination of a
portion of Occidental's responsibility for abandonment liabilities,
Occidental expects to record a pre-tax gain of approximately $65 million in
the third quarter of 2000.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Occidental Petroleum Corporation (Occidental) reported net income for the first quartersix months of 2000 of $271$835 million,
on net sales of $2.5$5.6 billion, compared with a net loss of $70$61 million, on net
sales of $1.3$3.0 billion, for the same period of 1999. Occidental's net income for
the second quarter of 2000 was $564 million, on net sales of $3.1 billion,
compared with net income of $9 million, on net sales of $1.6 billion, for the
same period of 1999. Basic earnings per common share were income of $.74$2.27 for the first
quartersix months of 2000, compared with a loss of $.21$.20 per share for the same period
of 1999. Basic earnings per common share were $1.53 for the second quarter of
2000, compared with earnings per share of $.02 for the same period of 1999.
The 2000 results included an after-tax gain of approximately $300 million
related to the sale of Occidental's 29.2 percent interest in Canadian Occidental
Petroleum Ltd. (CanOxy), an after-tax charge of approximately $80 million for
the decision to exit several of Occidental's chemical intermediate businesses
and a pre-tax insurance dividend of $11 million. Earnings before special items
were $264$343 million and $607 million for the first quarterthree and six months ended June 30,
2000, respectively, compared with earnings of $4 million and a loss of $64
million for the same periods in 1999, respectively. The increase in earnings
before special items for the three months ended June 30, 2000, compared with a lossthe
same period in 1999, reflected the impact of higher worldwide crude oil, natural
gas and chemical prices, higher production volumes and lower costs. The increase
in earnings before special items for the six months ended June 30, 2000,
compared with the same period in 1999, reflected higher worldwide oil, natural
gas and chemical prices and lower costs. The 1999 second quarter earnings
included an after-tax extraordinary loss of $68$3 million forrelated to the early
extinguishment of debt and a second quarter gain of $12 million related to the
sale of a chemical plant by an equity affiliate. The 1999 results also included
a pre-tax insurance dividend of $18 million in the first quarter of 1999. The first quarter of 1999 includedand an
after-tax charge of $13 million, reflecting the cumulative effect of adopting
accounting principles changes mandated by the American Institute of Certified
Public Accountants and the Emerging Issues Task Force of the Financial
Accounting Standards Board.
The increase in net sales infor the first quarter ofthree and six months ended June 30, 2000,
compared with the same periodperiods in 1999, primarily reflected higher crude oil,
natural gas and chemical prices, higher oil and gas pricestrading revenues and higher
pricesdomestic oil production as a result of acquisitions, partially offset by lower
international production.
Interest, dividends and sales volumeother income for most2000 included interest income of Occidental's$30
million on notes receivable from Altura partners. Gains on disposition of assets
for 2000 included a pre-tax gain of $493 million on the sale of the investment
in CanOxy. Selling, general and administrative and other operating expenses for
2000 included a pre-tax charge of $120 million to exit several chemical
products.intermediate businesses. Minority interest includes distributions on the Trust
Originated Preferred Securities (Trust
Preferred Securities) and the minority interest in the net income of subsidiaries
and partnerships. The income from equity investmentspartnerships and, for 2000, also included a $30 million preferred
distribution to the three
months ended March 31, 2000 compared with losses from equity investments for the
same period in 1999, was the result of higher worldwide crude oil prices and
improved export prices for vinyl chloride monomer (VCM).Altura partners. The provision for income taxes increased
to $296 million for the first quarter ofthree and six months ended June 30, 2000, compared with $41 million for the same periodperiods
in 1999, primarily due to higher earnings in 2000.and asset sales.
11
The following table sets forth the sales and earnings of each industry segmentoperating division
and corporate items (in millions):
First Quarter
--------------------------Periods Ended June 30
---------------------------------------------------
Three Months Six Months
------------------------ -----------------------
2000 1999 2000 1999
============================================================= ========== ========== ========== ==========
DIVISIONAL NET SALES
Oil and gasGas $ 1,5272,122 $ 746944 $ 3,649 $ 1,690
Chemical 981 5981,006 703 1,987 1,301
---------- ---------- ---------- ----------
NET SALES $ 2,5083,128 $ 1,3441,647 $ 5,636 $ 2,991
========== ========== ========== ==========
DIVISIONAL EARNINGS
Oil and gasGas $ 394557 $ 65166 $ 951 $ 231
Chemical 143 1234 33 177 45
---------- ---------- 537 77---------- ----------
591 199 1,128 276
UNALLOCATED CORPORATE ITEMS
Interest expense, net (99) (116)(104) (123) (203) (239)
Permian preferred distributions (30) -- (30) --
Gain on sale of CanOxy investment 493 -- 493 --
Income taxes, administration and other (167) (18)(386) (64) (553) (82)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES 271 (57)564 12 835 (45)
Extraordinary loss, net -- (3) -- (3)
Cumulative effect of changes in accounting
principles, net -- -- -- (13)
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 271564 $ (70)9 $ 835 $ (61)
========== ========== ========== ==========
EARNINGS BEFORE SPECIAL ITEMS (a) $ 343 $ 4 $ 607 $ (64)
============================================================= ========== ========== ========== ==========
(a) Earnings before special items reflect adjustments to net income (loss) to
exclude the after-tax effect of certain infrequent transactions that may
affect comparability between periods. These transactions are discussed in
this Management's Discussion and Analysis of Financial Condition and
Results of Operations and are shown in the table below. Management believes
the presentation of earnings before special items provides a meaningful
comparison of earnings between periods to the readers of the consolidated
financial statements. Earnings before special items is not considered to be
an alternative to operating income in accordance with generally accepted
accounting principles.
The following table sets forth the special items for each operating division and
corporate (if applicable):
Periods Ended June 30
--------------------------------------------------
Three Months Six Months
Benefit (Charge) ----------------------- -----------------------
(in millions) 2000 1999 2000 1999
============================================================= ========== ========== ========== ==========
CHEMICAL
Write-down of chemical intermediate businesses $ (120) $ -- $ (120) $ --
Gain on sale of chemical plant by Equistar -- 12 -- 12
- ------------------------------------------------------------- ---------- ---------- ---------- ----------
CORPORATE
Gain on sale of CanOxy investment 493 -- 493 --
Insurance dividend -- -- 11 18
Changes in accounting principles, net * -- -- -- (13)
Extraordinary loss on debt redemption, net * -- (3) -- (3)
============================================================= ========== ========== ========== ==========
* These amounts are shown after-tax.
12
Oil and gas earnings for the first quartersix months of 2000 were $394$951 million,
compared with $65$231 million for the same period of 1999. Higher worldwide crude oilOil and natural gas prices contributed to an increase in quarterly earnings for oil and
gas. Operating and overhead costs were also lower in 2000. However, lower
production volumes, mainly resulting from the pending agreement to sell
producing assets in Peru, partially offset the overall improvement in earnings
from the prior year.
11
Chemical earnings for
the firstsecond quarter of 2000 were $143$557 million, compared with $12$166 million for the
same period of 1999. The increasedincrease in earnings for the three months ended June
30, 2000, compared with the same period in 1999, reflected the impact of higher
worldwide crude oil and natural gas prices, higher production volumes and lower
costs. The increase in earnings for the six months ended June 30, 2000,
compared with the same period in 1999, reflected the impact of higher worldwide
crude oil and natural gas prices and lower costs. The increase in revenues for
the three and six months ended June 30, 2000, compared with the same periods in
1999, reflected the impact of higher worldwide crude oil and natural gas prices
and higher oil and gas trading activity. Approximately 44 percent and 38 percent
of oil and gas net sales were attributable to oil and gas trading activities in
the first six months of 2000 and 1999, respectively. The results of oil and gas
trading activity were not significant. Oil and gas prices are sensitive to
complex factors, which are outside the control of Occidental, therefore, we are
unable to predict with certainty the direction, magnitude or impact of future
trends in sales prices of oil and gas. Occidental will continue to implement its
strategy of focusing on competitive core assets with economies of scale to
further reduce both operating and overhead costs. The strong mix of long-lived
oil and gas assets that we have acquired through acquisitions and asset swaps
should continue to shape Occidental's performance in the future.
Chemical earnings for the first six months of 2000 were $177 million, compared
with $45 million for the same period of 1999. Chemical earnings before special
items were $297 million for the first six months of 2000, compared with $33
million for the first six months of 1999. Chemical earnings for the second
quarter of 2000 were $34 million, compared with $33 million for the same period
of 1999. Chemical earnings before special items were $154 million for the second
quarter of 2000, compared with $21 million for the second quarter of 1999. The
2000 results include a $120 million pre-tax charge resulting from the decision
to exit several chemical intermediate businesses. The 1999 results included a
second quarter gain of $12 million related to the sale of a chemical plant by an
equity affiliate. The increase in 2000 resulted
primarily fromearnings before special items is due to
higher prices and higher sales volumevolumes for VCM,polyvinyl chloride resins (PVC), ethylene
dichloride, (EDC), polyvinylvinyl chloride (PVC) resinsmonomer and chlorine. Partially offsetting these
increases were higher raw material and feedstock costs. Occidental will continue
to implement its strategy of focusing on competitive core assets and developing
economies of scale and cost reductions through strategic alliances. Occidental's
strong chemical asset mix should continue to result in improved efficiencies and
reductions in overhead costs despite the higher raw material costs that were
absorbed in 2000. Occidental expects a moderate decrease in demand for PVC
during the second half of 2000 which in turn will temper demand for chlorine and
result in a tightening in the caustic soda markets.
Divisional earnings include credits in lieu of U.S. federal income taxes. In the
first quartersix months of 2000 and 1999, divisional earnings benefited by $5$11 million
and $6$41 million, respectively, from credits allocated. This included credits of
$1$3 million and $4$8 million at oil and gas and chemical, respectively, in the
first quartersix months of 2000 and $2credits of $33 million and $4$8 million at oil and
gas and chemical, respectively, for the first quartersix months of 1999. The higher
1999 amounts related to the transactions with Unocal which is discussed below
under Financial Condition, Liquidity and Capital Resources.
Occidental and certain of its subsidiaries have been named as defendants or as
potentially responsible parties in a substantial number of lawsuits, claims and
proceedings, including governmental proceedings under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) and
corresponding state acts. These governmental proceedings seek funding,
remediation and, in some cases, compensation for alleged property damage,
punitive damages and civil penalties, aggregating substantial amounts.
Occidental is usually one of many companies in these proceedings, and has to
date been successful in sharing response costs with other financially sound
companies. Occidental has accrued reserves at the most likely cost to be
incurred in those proceedings where it is probable that Occidental will incur
remediation costs which can be reasonably estimated.
During the course of its operations, Occidental is subject to audit by taxing
authorities for varying periods in various tax jurisdictions. Occidental has
certain other commitments under contracts, guarantees and joint ventures, and
certain other contingent liabilities.
It is impossible at this time to determine the ultimate liabilities that
Occidental and its subsidiaries may incur resulting from the foregoing lawsuits,
claims and proceedings, audits, commitments, contingencies and related matters.
Several of these matters may involve substantial amounts, and if these were to
be ultimately resolved
13
unfavorably to the full amount of their maximum potential exposure, an event not
currently anticipated, it is possible that such event could have a material
adverse effect upon Occidental's consolidated financial position or results of
operations. However, in management's opinion, after taking into account
reserves, it is unlikely that any of the foregoing matters will have a material
adverse effect upon Occidental's consolidated financial position or results of
operations.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Occidental's net cash provided by operating activities from continuing
operations was $348$922 million for the first quartersix months of 2000, compared with $75net
cash provided of $192 million for the same period of 1999. The 2000 amount is
primarily attributed to higher net income before special items.
The improved earnings reflected the impact of higher oil and gas and
chemical prices. Changes in operating assets and liabilities reflected higher
net working capital usage in 2000 compared with 1999.
Occidental's net cash used by investing activities was $487 million$3.1 billion for the
first quartersix months of 2000, compared with net cash provided of $1.299$1.1 billion for
the same period of 1999. The 2000 amount included a $375 million deposit forprimarily reflected the acquisition$3.6 billion
cost of the Altura Energy Ltd. Partnership (Altura) described below,
which was recordedacquisition partially offset by pre-tax asset sale proceeds
mainly from the sale of Occidental's 29.2 percent interest in other assets.CanOxy for
approximately $800 million. The 1999 amount included the proceeds from athe $1.4
billion note receivable received in connection with the sale of MidCon,
Occidental's natural gas pipeline subsidiary. The 1999 amount also reflected net
cash used of $113 million in connection with the formation of a PVC resin
partnership. Capital expenditures for the first six months of 2000 were $333
million, including $287 million in oil and gas and $44 million in chemical.
Capital expenditures for the first six months of 1999 were $263 million,
including $205 million in oil and gas and $55 million in chemical.
Financing activities provided net cash of $53 million$2.1 billion in the first quartersix months
of 2000, compared with cash used of $899 million$1.1 billion for the same period of 1999.
The 2000 amount mainly reflects proceeds of $2.4 billion from non-recourse debt
and cash dividends paid of $184 million. The 1999 amount reflected the use of
the proceeds from the $1.4 billion note receivable to repay approximately $1.3 billion inoutstanding debt and
foralso reflected the payment of dividends of $91$181 million.
On July 20, 2000, Occidental announced that it had entered into agreements with
respect to two transactions with Apache Corporation ("Apache") involving its
interests in the Continental Shelf of the Gulf of Mexico ("GOM"). In one
transaction, Occidental agreed to sell its share of gas production from these
GOM interests for approximately $280 million. In the second transaction,
Occidental agreed to sell an interest in the subsidiary that holds the GOM
assets for approximately $61 million, with an option for Apache to purchase
additional interests for $44 million over the next four years. As a result of
these transactions, which are expected to close in August 2000, and the
consequent elimination of a portion of Occidental's responsibility for
abandonment liabilities, Occidental expects to record a pre-tax gain of
approximately $65 million in the third quarter of 2000.
In June 2000, Occidental announced that it had signed a letter of intent with
Olin Corporation to combine the companies' chlor-alkali and related businesses
for contribution to a newly-formed partnership. Occidental, through its
subsidiaries, will own approximately 66 percent of the partnership. The
1999 amount also reflected net proceedstransaction, which is subject to regulatory approvals, is expected to close by
the fourth quarter of $5082000. The partnership is expected to have annual sales of
approximately $1.2 billion and to achieve annual cost savings of $60 million
from operating efficiencies and consolidation of administrative functions.
On May 8, 2000, Occidental completed an agreement to sell its producing
properties in Peru to Pluspetrol. In connection with this transaction,
Occidental recorded an after-tax charge of approximately $29 million in December
1999 to write-down the issuance of the Trust Preferred Securities.properties to their fair values.
On April 24, 2000, Occidental completed the acquisition of ARCO Long Beach Inc.
(THUMS), owner of the Long Beach Unit's operating contractor, THUMS,an oil producing property, for approximately $57$67 million. The
acquisition adds approximately 95 million barrels of net oil reserves and
approximately 27,00025,000 barrels per day of net oil production to Occidental's
growing California operations.
12
On April 19, 2000, Occidental completed its acquisition of all of the common
interest in Altura Energy Ltd. (now "Occidental Permian Ltd.") (Altura), the
largest oil producer in Texas. Occidental, through its subsidiaries, paid
approximately $1.2 billion to the sellers, affiliates of BP Amoco plc and Shell
Oil Company, to acquire the common limited partnership interest and control of
the general partner which manages, operates and controls 100 percent of
14
the Altura assets. The partnership borrowed approximately $2.4 billion, which
has recourse only to the Altura assets. The partnership also loaned
approximately $2.0 billion to affiliates of the sellers, evidenced by two notes,
which provide credit support to the partnership. The sellers retained a
preferred limited partnership interest of approximately $2.0 billion and are
entitled to certain distributions from the partnership. As a result of the
acquisition, which is valued at approximately $3.6 billion, Occidental's
worldwide oil and gas production is expected to increase by approximately
135,000 barrels per day of oil equivalent and Occidental's worldwide production
is expected to increase by 1312 percent to an average of approximately 480,000475,000
barrels of oil equivalent per day this year versus 425,000 barrels per day in
1999. Proved reserves at Altura were 850 million barrels of oil equivalent at
December 31, 1999. This acquisition will bring Occidental's proved reserves to
approximately 2.2 billion barrels of oil equivalent.
On April 18, 2000, Occidental completed the sale of its 29.2 percent stake in
Canadian Occidental Petroleum Ltd. (CanOxy) for gross proceeds of approximately
$1.2 billion Canadian, following approval of the sale by CanOxy stockholders. Of
Occidental's 40.2 million shares of CanOxy, 20.2 million were sold to the
Ontario Teachers Pension Plan Board and 20 million to CanOxy. In addition,
Occidental and CanOxy exchanged their respective 15 percent interests in joint
businesses of approximately equal value, resulting in Occidental owning 100
percent of an oil and gas operation in Ecuador and CanOxy owning 100 percent of
a sodium chlorate operationoperations in Canada and Louisiana. Approximately $750 million
of combined after-taxAfter-tax proceeds from the
CanOxy disposition andtogether with tax benefits from the disposition of the Peru
producing operations wasproperties totaled approximately $700 million and were applied to the
acquisition of the Altura and THUMS properties.acquisition.
In December 1999, Occidental and EOG Resources, Inc. (EOG) exchanged certain oil
and gas assets. Occidental received producing properties and exploration acreage
in its expanding California asset base, as well as producing properties in the
western Gulf of Mexico near existing operations in exchange for oil and gas
production and reserves in east Texas. Occidental also farmed out Oklahoma
panhandle properties to EOG and retained a carried interest.
In December 1999, Occidental entered into an agreement to sell its producing
properties in Peru to Pluspetrol. The transaction, which was subject to
governmental approval, closed on May 8, 2000. In connection with this
transaction, Occidental recorded an after-tax charge of approximately $29
million in December 1999 to write-down the properties to their fair values.
In the third quarter of 1999, pursuant to a series of transactions, Occidental
indirectly acquired the remaining ownership of INDSPEC Chemical Corporation
(INDSPEC) through the issuance of approximately 3.2 million shares of Occidental
common stock at an estimated value of approximately $68 million and the
assumption of approximately $80 million of bank debt. As a result of the
transactions, Occidental owns 100 percent of the stock of INDSPEC.
In the third quarter of 1999, Occidental acquired Unocal International
Corporation's (UNOCAL) oil and gas interests in Yemen and UNOCAL acquired
Occidental's properties in Bangladesh.
Effective April 30, 1999, Occidental and The Geon Company (Geon) formed two
partnerships. Occidental has a 76 percent interest in the PVC commodity resin
partnership, OxyVinyls, LP (OxyVinyls), which is the larger of the partnerships,
and a 10 percent interest in a PVC powder compounding partnership. OxyVinyls
also has entered into long-term agreements to supply PVC resin to Geon and VCM
to Occidental and Geon. In addition, as part of the transaction, Occidental sold
its pellet compounding plant in Pasadena, Texas and its vinyl film assets in
Burlington, New Jersey to Geon.
On April 25,June 1, 2000, Occidental announced that it will call for redemption on June
1, 2000,redeemed all of its outstanding 11-1/8% Senior Debentures8 percent
senior debentures due June 1, 2019, at a redemption price of 100%100 percent of the
principal amount thereof. The outstanding aggregate principal amount is $75 million;of the
Debenturesdebentures, which were issued on May 15, 1989.
131989, was $75 million.
On June 30, 1999, Occidental established a program under which Occidental may
offer, from time to time, up to $1 billion aggregate initial offering price of
its Medium-Term Senior Notes, Series C and its Medium-Term Subordinated Notes,
Series A.
On June 1, 1999, Occidental called for redemption $68.7 million of its 11-1/8
percent senior debentures due June 1, 2019, at a redemption price of 105.563
percent of the principal amount thereof. Occidental recorded an after-tax
extraordinary loss of $3 million in the second quarter of 1999 related to the
redemption.
15
In February 1999, Occidental issued $450 million of 7.65 percent senior notes
due 2006 and $350 million of 8.45 percent senior notes due 2029 for net proceeds
of approximately $792 million.
In January 1999, a subsidiary of Occidental issued $525 million of 8.16 percent
Trust Preferred Securities due in 2039, for net proceeds of $508 million. The
net proceeds were used to repay commercial paper. The Trust Preferred Securities
balances reflected in the consolidated financial statements at March 31,June 30, 2000 and
December 31, 1999 are net of issue costs and also reflect amortization of a
portion of the issue costs, and the repurchase during 2000 and 1999 of 298,373433,560
shares and 937,436 shares, respectively, with liquidation values of $7.5$10.8
million and $23.4 million, respectively.
Occidental expects to have sufficient cash in 2000 for its operating needs,
capital expenditure requirements, dividend payments and debt repayments.
Occidental currently expects to spend, $950 millionin total, approximately $1.0 billion on
its 2000 capital spending program, in 2000.of which approximately $800 million has been
allocated to the oil and gas division and approximately $200 million has been
allocated to the chemical division. Available but unused lines of committed bank
credit totaled approximately $2.0$1.8 billion at March 31,June 30, 2000, compared with $2.1
billion at December 31, 1999.
SubsequentOccidental has a projected target of reducing total debt by $2.0 billion by the
end of 2000. In April, total debt, which includes the Trust Preferred Securities
and the obligation under natural gas delivery commitment but excludes
non-recourse debt, was $6.6 billion, mainly resulting from $1.2 billion of
short-term borrowings to March 31, Occidental borrowed substantial
amounts to fundfinance the cash cost of the Altura acquisition partially offsetacquisition. Since
April, Occidental has reduced total debt by proceedsapproximately $1.2 billion, with
$700 million generated from asset dispositions.
YEAR 2000 COMPLIANCE
The Y2K program employed a five-step process consisting of: 1) conducting a
company-wide inventory; 2) assessing Y2K compliance; 3) remediating
non-compliant softwaresales and hardware, particularly hardware that employs embedded
chips such as process controls; 4) testing remediated hardware$500 million from internal cash
flow. Additionally, Occidental reduced non-recourse debt related to Altura by
$125 million. Occidental plans to meet this debt reduction target through
internal cash flow and software; and
5) certifying Y2K compliance.
The inventory and assessment activities continued throughoutfurther asset sales in the Y2K program as
changes occurred. Overall remediation efforts were completed on schedule and
there were no significant adverse Y2K events.
Costs for Y2K efforts were not accumulated separately and muchsecond half of the cost was
accounted for as part of normal operations. Overall, the costs were
approximately $29 million. The costs did not have a significant effect on
Occidental's consolidated financial position or results of operations.
Contingency plans that addressed a reasonably likely worst case scenario were
put in place. These plans also addressed and analyzed the resources necessary to
restore operations in the event an interruption occurred. No interruptions
caused by third parties occurred.
Because of these company-wide efforts, Occidental believes it took appropriate
actions to minimize the risk associated with Y2K to its operations and financial
condition. Occidental's operations moved into the year 2000 without interruption
and the Y2K program was considered a success.year.
ENVIRONMENTAL MATTERS
Occidental's operations in the United States are subject to stringent federal,
state and local laws and regulations relating to improving or maintaining the
quality of the environment. Foreign operations also are subject to varied
environmental protection laws. Costs associated with environmental compliance
have increased over time and may continue to rise in the future.
The laws which require or address environmental remediation may apply
retroactively to previous waste disposal practices. And, in many cases, the laws
apply regardless of fault, legality of the original activities or ownership or
control of sites. Occidental is currently participating in environmental
assessments and cleanups under these laws at federal Superfund sites, comparable
state sites and other remediation sites, including Occidental facilities and
previously owned sites.
Occidental does not consider the number of Superfund and comparable state sites
at which it has been notified that it has been identified as being involved to
be a relevant measure of exposure. Although the liability of a potentially
responsible party (PRP), and in many cases its equivalent under state law, may
be joint and several, Occidental is 14
usually one of many companies cited as a PRP
at these sites and has, to date, been successful in sharing cleanup costs with
other financially sound companies.
As of March 31,June 30, 2000, Occidental had been notified by the Environmental
Protection Agency (EPA) or equivalent state agencies or otherwise had become
aware that it had been identified as being involved at 125126 Superfund or
comparable state sites. (This number does not include those sites where
Occidental has been successful in resolving its involvement).involvement.) The 125126 sites
include 34 former Diamond Shamrock Chemical sites as to which Maxus Energy
Corporation has retained all liability. Of the remaining 9192 sites, Occidental
has denied involvement at 10 sites and has yet to determine involvement in 20
sites. With respect to the remaining 6162 of these sites, Occidental is in various
stages of evaluation, and the extent of liability retained by Maxus Energy
Corporation is disputed at 2 of these sites. For 54 of these sites, where
environmental remediation efforts are probable and the costs can be reasonably
estimated, Occidental has accrued reserves at the most likely cost to be
incurred. The 54 sites include 11 sites as to which present information
indicates that it is probable that Occidental's aggregate exposure is
immaterial. In determining the reserves, Occidental uses the most current
information available, including similar past
16
experiences, available technology, regulations in effect, and the timing of
remediation and cost-sharing arrangements. For the remaining 78 of the 6162 sites
being evaluated, Occidental does not have sufficient information to determine a
range of liability, but Occidental does have sufficient information on which to
base the opinion expressed above under the caption "Results of Operations."
SAFE HARBOR STATEMENT REGARDING OUTLOOK AND FORWARD-LOOKING INFORMATION
Portions of this report contain forward-looking statements and involve risks and
uncertainties that could significantly affect expected results of operations,
liquidity and cash flows. Factors that could cause results to differ materially
include, but are not limited to: global commodity pricing fluctuations;
competitive pricing pressures; higher than expected costs including feedstocks;
the supply/demand considerations for Occidental's products; any general economic
recession domestically or internationally; regulatory uncertainties; and not
successfully completing any development of new fields, expansion, capital
expenditure, efficiency improvement, acquisition or disposition. Forward-looking
statements are generally accompanied by words such as "estimate", "project",
"predict", "believes" or "expect", that convey the uncertainty of future events
or outcomes. Occidental undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information or
otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed might not occur.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ThereFor the period ended June 30, 2000 there were no material changes in the
information provided under Item 305 of Regulation S-XS-K included under the caption
"Management's"Hedging Activities" as part of Occidental's Management's Discussion and
Analysis section of Financial Condition and Results of Operations (Incorporating Item 7A) -
Derivative Activities" in Occidental's 1999 Annual Report on Form 10-K for the
period ended March 31, 2000.
1510-K.
17
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GENERAL
There is incorporated by reference herein the information regarding legal
proceedings in Note 10 to the consolidated condensed financial statements in
Part I hereof.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Occidental's 2000 Annual Meeting of Stockholders (the Annual Meeting) was held
on April 28, 2000. The following actions were taken at the Annual Meeting, for
which proxies were solicited pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended:
1. The eleven nominees proposed by the Board of Directors were elected as
directors by the following votes:
Name For Withheld
------------------------------- ----------------------- -----------------------
Dr. Ray R. Irani 319,272,792 6,838,953
Dr. Dale R. Laurance 319,831,619 6,280,126
Ronald W. Burkle 319,590,655 6,521,090
John S. Chalsty 318,463,798 7,647,947
Edward P. Djerejian 321,291,537 4,820,208
John E. Feick 321,388,874 4,722,871
J. Roger Hirl 319,806,221 6,305,524
Irvin W. Maloney 319,430,529 6,681,216
Rodolfo Segovia 321,338,167 4,773,578
Aziz D. Syriani 319,889,761 6,221,984
Rosemary Tomich 318,079,108 8,032,637
2. A proposal to ratify the selection of Arthur Andersen LLP as
Occidental's independent public accountants for 2000 was approved by a
vote of 323,088,056 for versus 1,552,414 against. There were 1,471,273
abstentions and 2 broker non-votes.
3. A proposal to amend Occidental's 1996 Restricted Stock Plan for
Non-Employee Directors (the Plan) to increase, among other things, the
number of shares of Common Stock available for issuance under the Plan
was approved by a vote of 306,833,212 for versus 16,762,430 against.
There were 2,516,097 abstentions and 6 broker non-votes.
4. A stockholder proposal to maximize value by selling Occidental was
defeated by a vote of 19,005,552 for versus 247,840,546 against. There
were 10,226,544 abstentions and 49,039,103 broker non-votes.
5. A stockholder proposal to have prepared and distribute a risk analysis
was defeated by a vote of 15,686,039 for versus 238,272,189 against.
There were 23,115,714 abstentions and 49,037,803 broker non-votes.
16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Credit Agreement, dated as of April 19, 2000, among Occidental
Permian Ltd., Chase Securities Inc., as Arranger, Bank of
America, N.A., as Syndication Agent, Morgan Guaranty Trust
Company of New York and UBS AG, as Documentation Agents, and The
Chase Manhattan Bank, as Administrative Agent.
10.1 Occidental Petroleum Corporation 1996 Restricted Stock Plan for
Non-Employee Directors (as amended April 28, 2000).
11 Statement regarding the computation of earnings per share
for the three and six months ended March 31,June 30, 2000 and 1999.1999
12 Statement regarding the computation of total enterprise
ratios of earnings to fixed charges for the threesix months ended
March 31,June 30, 2000 and 1999 and the five years ended December 31,
1999.1999
27 Financial data schedule for the three monthsix-month period ended March
31,June
30, 2000 (included only in the copy of this report filed
electronically with the Securities and Exchange Commission).
(b) Reports on Form 8-K
During the quarter ended March 31,June 30, 2000, Occidental filed the
following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated January 25, 2000 (date of
earliest event reported), filed on January 26, 2000, for the
purpose of reporting, under Item 5, Occidental's results of
operations for the fourth quarter and fiscal year ended December
31, 1999.
2. Current Report on Form 8-K dated March 1, 2000 (date of earliest
event reported), filed on March 2, 2000, for the purpose of
reporting, under Item 5, the sale of Occidental's interest in
Canadian Occidental Petroleum Ltd.
3. Current Report on Form 8-K dated March 7, 2000 (date of earliest
event reported), filed on March 15, 2000, for the purpose of
reporting, under Items 2 and 7, the acquisition by Occidental of
all the common partnership interest in Altura Energy Ltd.
From March 31, 2000 to the date hereof, Occidental filed the
following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated April 19, 2000 (date of
earliest event reported), filed on April 2,20, 2000, for the
purpose of reporting, under Item 5, Occidental's results of
operations for the first quarter ended March 31, 2000.
2. Current Report on Form 8-K dated March 15,7, 2000 (date of
earliest event reported), filed on May 12, 2000, for the
purpose of reporting, under Item 7, certain financial
statements and pro forma financial information.
173. Current Report on Form 8-K dated June 16, 2000 (date of
earliest event reported), filed on June 19, 2000, for the
purpose of reporting, under Item 5, Occidental's intention
to exit several of its chemical intermediate businesses.
From June 30, 2000 to the date hereof, Occidental filed the
following Current Reports on Form 8-K:
4. Current Report on Form 8-K dated June 28, 2000 (date of
earliest event reported), filed on July 13, 2000, for the
purpose of reporting, under Item 5, the signing of a letter
of intent with Olin Corporation to form a partnership.
5. Current Report on Form 8-K dated July 19, 2000 (date of
earliest event reported), filed on July 20, 2000, for the
purpose of reporting, under Item 5, Occidental's results of
operations for the quarter ended June 30, 2000 and
Occidental's agreement to monetize its Gulf of Mexico
assets.
18
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.
OCCIDENTAL PETROLEUM CORPORATION
DATE: May 15,August 10, 2000 S. P. Dominick, Jr.
----------------------------------------
S. P. Dominick, Jr., Vice President and
Controller (Chief Accounting and Duly
Authorized Officer)
1819
EXHIBIT INDEX
EXHIBITS
- --------
4.1 Credit Agreement, dated as of April 19, 2000, among Occidental Permian
Ltd., Chase Securities Inc., as Arranger, Bank of America, N.A., as
Syndication Agent, Morgan Guaranty Trust Company of New York and UBS
AG, as Documentation Agents, and The Chase Manhattan Bank, as
Administrative Agent.
10.1 Occidental Petroleum Corporation 1996 Restricted Stock Plan for
Non-Employee Directors (as amended April 28, 2000).
11 Statement regarding the computation of earnings per share for the
three and six months ended March 31,June 30, 2000 and 1999.1999
12 Statement regarding the computation of total enterprise ratios of
earnings to fixed charges for the threesix months ended March 31,June 30, 2000 and
1999 and the five years ended December 31, 1999.1999
27 Financial data schedule for the three monthsix-month period ended March 31,June 30, 2000
(included only in the copy of this report filed electronically with
the Securities and Exchange Commission).