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 September 30, 2001
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 1-9210
---------------------
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 September 30, 2001
--------------------------- ---------------------------------
Common stock $.20 par value 373,591,925 shares
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets--
September 30, 2001 and December 31, 2000 2
Consolidated Condensed Statements of Operations--
Three and nine months ended September 30, 2001 and 2000 4
Consolidated Condensed Statements of Cash Flows--
Nine months ended September 30, 2001 and 2000 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
(Amounts in millions)
2001 2000
================================================================================= ============ =============
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 569 $ 97
Receivables, net 1,017 1,326
Inventories 445 485
Prepaid expenses and other 168 159
------------ -------------
Total current assets 2,199 2,067
LONG-TERM RECEIVABLES, net 2,186 2,119
EQUITY INVESTMENTS 1,343 1,327
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation, depletion and amortization of $5,724
at September 30, 2001 and $6,041 at December 31, 2000 12,708 13,471
OTHER ASSETS 327 430
------------ -------------
$ 18,763 $ 19,414
================================================================================= ============ =============
The accompanying notes are an integral part of these financial statements.
2
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
(Amounts in millions)
2001 2000
================================================================================= ============ =============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease liabilities $ 252 $ 258
Notes payable 2 2
Accounts payable 814 1,091
Accrued liabilities 1,256 1,311
Domestic and foreign income taxes 194 78
------------ -------------
Total current liabilities 2,518 2,740
------------ -------------
LONG-TERM DEBT, net of current maturities and unamortized discount 3,255 3,285
------------ -------------
NON-RECOURSE DEBT 700 1,900
------------ -------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred and other domestic and foreign income taxes 1,220 1,280
Obligation under natural gas delivery commitment 180 282
Other 2,332 2,415
------------ -------------
3,732 3,977
------------ -------------
MINORITY INTEREST 2,228 2,265
------------ -------------
OCCIDENTAL OBLIGATED MANDATORILY REDEEMABLE
TRUST PREFERRED SECURITIES OF A SUBSIDIARY
TRUST HOLDING SOLELY SUBORDINATED NOTES OF
OCCIDENTAL 467 473
------------ -------------
STOCKHOLDERS' EQUITY
Common stock, at par value 75 74
Additional paid-in capital 3,843 3,743
Retained earnings 2,035 1,007
Accumulated other comprehensive income (90) (50)
------------ -------------
5,863 4,774
------------ -------------
$ 18,763 $ 19,414
================================================================================= ============ =============
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 NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Amounts in millions, except per-share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
2001 2000 2001 2000
=============================================================== ========== =========== =========== ==========
REVENUES
Net sales 3,285 3,863 11,605 9,632
Interest, dividends and other income 61 68 195 168
Gains (losses) on disposition of assets, net (5) 127 8 622
Income (loss) on equity investments (28) 22 (63) 107
---------- ----------- ----------- ----------
3,313 4,080 11,745 10,529
---------- ----------- ----------- ----------
COSTS AND OTHER DEDUCTIONS
Cost of sales 2,417 2,827 8,456 6,857
Selling, general and administrative and other
operating expenses 159 262 535 707
Exploration expense 91 44 130 65
Environmental remediation -- -- 49 --
Minority interest 41 55 117 141
Interest and debt expense, net 91 140 313 387
---------- ----------- ----------- ----------
2,799 3,328 9,600 8,157
---------- ----------- ----------- ----------
Income before taxes 514 752 2,145 2,372
Provision for domestic and foreign income and
other taxes 70 351 717 1,136
---------- ----------- ----------- ----------
Income before extraordinary items and effect of changes
in accounting principles 444 401 1,428 1,236
Extraordinary gain (loss), net -- 1 (3) 1
Cumulative effect of changes in accounting principles, net -- -- (24) --
---------- ----------- ----------- ----------
NET INCOME 444 402 1,401 1,237
Effect of repurchase of Trust Preferred Securities -- -- -- 1
---------- ----------- ----------- ----------
EARNINGS APPLICABLE TO COMMON STOCK $ 444 $ 402 $ 1,401 $ 1,238
========== =========== =========== ==========
BASIC EARNINGS PER COMMON SHARE
Income before extraordinary items and effect of changes in
accounting principles $ 1.19 $ 1.09 $ 3.84 $ 3.36
Extraordinary loss, net -- -- (.01) --
Cumulative effect of changes in accounting principles, net -- -- (.06) --
---------- ----------- ----------- ----------
Basic earnings per common share $ 1.19 $ 1.09 $ 3.77 $ 3.36
========== =========== =========== ==========
DILUTED EARNINGS PER COMMON SHARE
Income before extraordinary items and effect of changes in
accounting principles $ 1.18 $ 1.09 $ 3.82 $ 3.36
Extraordinary loss, net -- -- (.01) --
Cumulative effect of changes in accounting principles, net -- -- (.06) --
---------- ----------- ----------- ----------
Diluted earnings per common share $ 1.18 $ 1.09 $ 3.75 $ 3.36
========== =========== =========== ==========
DIVIDENDS PER COMMON SHARE $ .25 $ .25 $ .75 $ .75
========== =========== =========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 373.5 369.2 371.9 368.7
=============================================================== ========== =========== =========== ==========
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 NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Amounts in millions)
2001 2000
========================================================================================= =========== ===========
CASH FLOW FROM OPERATING ACTIVITIES
Income before extraordinary items and effect of changes in accounting principles $ 1,428 $ 1,236
Adjustments to reconcile income to net cash provided by
operating activities:
Depreciation, depletion and amortization of assets 726 687
Deferred income tax provision (97) 371
Other noncash charges to income 58 217
Gains on disposition of assets, net (8) (622)
Loss (Income) on equity investments 63 (107)
Exploration expense 130 65
Changes in operating assets and liabilities 78 (36)
Other operating, net (114) (113)
----------- -----------
Net cash provided by operating activities 2,264 1,698
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (965) (608)
Sale of businesses and disposal of property, plant and equipment, net 847 1,238
Purchases of businesses, net (38) (3,702)
Other investing, net (83) 68
----------- -----------
Net cash used by investing activities (239) (3,004)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term debt and non-recourse debt 42 2,447
Repurchase of trust preferred securities (7) (12)
Purchases for natural gas delivery commitment (90) (85)
Payments on long-term debt and non-recourse debt and capital lease liabilities (1,303) (731)
Proceeds from issuance of common stock 12 28
Payments of notes payable -- (10)
Cash dividends paid (278) (276)
Stock options exercised 70 --
Other financing, net 1 (1)
----------- -----------
Net cash (used) provided by financing activities (1,553) 1,360
----------- -----------
Increase in cash and cash equivalents 472 54
Cash and cash equivalents--beginning of period 97 214
----------- -----------
Cash and cash equivalents--end of period $ 569 $ 268
========================================================================================= =========== ===========
The accompanying notes are an integral part of these financial statements.
5
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2001
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
together with the consolidated financial statements and accompanying notes
in Occidental's Annual Report on Form 10-K for the year ended December 31,
2000 (2000 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 September 30, 2001, and the
consolidated results of operations for the three and nine months then ended
and the consolidated cash flows for the nine months then ended. The results
of operations and cash flows for the periods ended September 30, 2001 are
not necessarily indicative of the results of operations or cash flows
expected for the full year.
Certain financial statements and notes for the prior year have been changed
to conform to the 2001 presentation.
Refer to Note 1 to the consolidated financial statements in the 2000 Form
10-K for a summary of significant accounting policies.
2. Extraordinary Items and Accounting Changes
On March 5, 2001, Occidental retired $20.5 million of 7.8 percent pollution
control revenue bonds due on December 1, 2005. As a result of this
transaction, Occidental recognized an after-tax extraordinary loss of $3
million in the first quarter of 2001.
During the third quarter of 2000, Occidental repurchased some of its
outstanding public debt securities in open market transactions, with
principal balances totaling $127 million, at current market prices.
Occidental recorded an after-tax extraordinary gain of $1 million from
these purchases.
In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. The provisions of this statement are effective for
financial statements issued for fiscal years beginning after December 15,
2001. Occidental must implement SFAS No. 144 in the first quarter of 2002.
Certain transitional provisions of the statement can be implemented as late
as the fourth quarter of 2002, provided that the transitional effect, if
any, is recorded retroactive to the first quarter of 2002. Occidental has
not yet determined its impact on the financial statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The provisions
of this statement are effective for financial statements issued for fiscal
years beginning after June 15, 2002. Occidental must implement SFAS No. 143
in the first quarter of 2003 and has not yet determined its impact on the
financial statements.
6
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting and reporting requirements for
acquired goodwill and intangible assets. The provisions of this statement
must be applied starting with fiscal years beginning after December 15,
2001. At September 30, 2001 the balance sheet included approximately $110.0
million of goodwill and intangible assets with quarterly amortization
expense of approximately $1.5 million recorded in the income statement.
Occidental must implement SFAS No. 142 by the first quarter of 2002 and has
not yet determined its impact on the financial statements.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS
No. 141 establishes new standards for accounting and reporting business
combinations including eliminating the pooling method of accounting. The
standard applies to all business combinations initiated after June 30,
2001. Occidental has implemented the provisions of SFAS No. 141, which had
no impact on the financial statements.
In the fourth quarter of 2000, Occidental adopted the provisions of EITF
Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs,"
which establishes accounting and reporting standards for the treatment of
shipping and handling costs. Among its provisions, EITF Issue No. 00-10
requires that transportation costs that had been accounted for as
deductions from revenues should now be recorded as an expense. The
implementation of EITF Issue No. 00-10 had no effect on net income. All
prior year balances have been adjusted to reflect this accounting change.
Transportation costs in the amount of $58 million and $191 million have
been removed as deductions from revenues and included in costs of sales for
the three months and nine months ended September 30, 2000, respectively.
Refer to Note 10 for a description of accounting changes related to
derivatives.
3. Comprehensive Income
The following table presents Occidental's comprehensive income items (in
millions):
Periods Ended September 30
------------------------------------------------------------
Three Months Nine Months
---------------------------- ----------------------------
2001 2000 2001 2000
=================================================== ============ ============ ============ ============
Net income $ 444 $ 402 $ 1,401 $ 1,237
Other comprehensive income items
Foreign currency translation adjustments (9) (3) (21) 7
Cumulative effect of change in
accounting principles -- -- (27) --
Derivative activity (3) -- 6 --
Other -- -- 2 (1)
------------ ------------ ------------ ------------
Other comprehensive (loss) income, net of tax (12) (3) (40) 6
------------ ------------ ------------ ------------
Comprehensive income $ 432 $ 399 $ 1,361 $ 1,243
============ ============ ============ ============
4. Asset Acquisitions and Dispositions
Refer to Note 3 to the consolidated financial statements in the 2000 Form
10-K for a description of asset acquisitions and dispositions.
On August 31, 2001, Occidental sold the entity that owns pipelines in Texas
that are leased to a former subsidiary. The entity was sold to Kinder
Morgan Energy Partners, L.P. Occidental recorded an after-tax loss of
approximately $272 million in connection with this transaction.
7
On July 10, 2001, Occidental completed the sale of its interest in the
Tangguh LNG project in Indonesia to Mitsubishi Corporation of Japan.
Occidental recorded an after-tax gain of approximately $399 million for
this transaction.
5. Supplemental Cash Flow Information
Cash payments during the nine months ended September 30, 2001 and 2000
included federal, foreign and state income taxes of approximately $382
million and $530 million, respectively. Interest paid (net of interest
capitalized) totaled approximately $312 million and $385 million for the
nine months ended September 30, 2001, and 2000, respectively.
6. 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 $524 million and $46 million at September 30, 2001 and
December 31, 2000, respectively.
7. 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 September 30, 2001 December 31, 2000
======================== ================== =====================
Raw materials $ 59 $ 68
Materials and supplies 131 125
Work in process 2 3
Finished goods 288 343
-------- --------
480 539
LIFO adjustment (35) (54)
-------- --------
Total $ 445 $ 485
======== ========
8. Property, Plant and Equipment
Refer to the consolidated balance sheets and Note 1 in the 2000 Form 10-K
for a description of investments in property, plant and equipment.
Refer to Note 4 for a description of the sale of the entity that owns
pipelines in Texas that are leased to a former subsidiary.
9. Trust Preferred Securities
Refer to Note 12 to the consolidated financial statements in the 2000 Form
10-K for a description of the Trust Preferred Securities. The balance
reflected in the accompanying consolidated condensed financial statements
at September 30, 2001, and December 31, 2000, is net of unamortized issue
costs and also reflects the repurchase during 2001 and 2000 of 270,200
shares and 555,760 shares with liquidation values of $6.8 million and $13.9
million, respectively.
10. Derivative Activities
Effective January 1, 2001, Occidental implemented SFAS No. 133, "Accounting
for Derivative Instruments and Hedging," as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB Statement No. 133," and SFAS No. 138,
"Accounting for
8
Certain Derivative Instruments and Certain Hedging Activities." These
statements establish accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts,
and hedging activities and require an entity to recognize all derivatives
in the statement of financial position, measure those instruments at fair
value, and classify them as either assets or liabilities on the condensed
consolidated balance sheet. Changes in the derivative instruments' fair
value must be recognized in earnings unless specific hedge accounting
criteria are met. Occidental's initial adoption of SFAS No. 133 resulted in
(i) a first quarter after-tax reduction in net income of $24 million
recorded as a cumulative effect of a change in accounting principles and
(ii) an after-tax reduction in other comprehensive income (OCI) of
approximately $27 million.
Occidental uses commodity futures contracts, options and swaps to hedge the
impact of oil and natural gas price fluctuations and to engage in trading
activities. Occidental also uses forward rate locks and interest rate swaps
to manage its interest-rate exposure. Gains and losses from derivatives
that qualify for cash flow hedge accounting are deferred until recognized
as an adjustment to earnings when the hedged transaction is finalized. For
cash flow hedges, the portion of the change in the value of the derivative
that is not offset by an equal change in the value of the underlying
transaction is referred to as hedge ineffectiveness and is recorded in
earnings. Gains and losses from derivatives that qualify for fair-value
hedge accounting will be recognized in earnings as partial offsets to the
changes in fair value recorded on the related hedged asset or liability.
Gains or losses on derivatives that do not qualify for hedge accounting are
recognized in earnings.
For the three and nine months ended September 30, 2001, the results of
operations included a net gain of $1 million and $41 million, respectively,
related to derivative mark-to-market adjustments. Net interest expense was
reduced by $0.8 million for the three and nine months ended September 30,
2001 to reflect net gains from fair-value hedges. During the three and nine
months ended September 30, 2001, a $4 million loss and a $4 million gain,
respectively, were reclassified from OCI to income resulting from the
expiration of cash flow hedges. During the three and nine months ended
September 30, 2001, net unrealized gains of $1 million and $2 million,
respectively, were recorded to OCI relating to changes in current cash flow
hedges. During the next twelve months, Occidental expects that $1 million
of net derivative gains included in OCI, based on their valuation at
September 30, 2001, will be reclassified into earnings. Hedge
ineffectiveness did not have a significant impact on earnings for the three
and nine months ended September 30, 2001.
11. Retirement Plans and Postretirement Benefits
Refer to Note 14 to the consolidated financial statements in the 2000 Form
10-K for a description of the retirement plans and postretirement benefits
of Occidental and its subsidiaries.
12. 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 that 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
9
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.
Refer to Note 9 to the consolidated financial statements in the 2000 Form
10-K for information concerning Occidental's long-term purchase obligations
for certain products and services.
13. Income Taxes
The provision for taxes based on income for the 2001 and 2000 interim
periods was computed in accordance with Interpretation No. 18 of Accounting
Principles Board Opinion No. 28 on reporting taxes for interim periods and
was based on projections of total year pretax income.
The provision for income taxes for the three months and nine months ended
September 30, 2001 reflected the tax effects of the loss on the sale of the
entity that owns pipelines in Texas that are leased to a former subsidiary
and the gain recognized on the sale of the Tangguh LNG interest net of the
effects of foreign tax credits. The provision for taxes for the nine months
ended September 30, 2001, included an after-tax benefit of $45 million
(pre-federal tax benefit of $70 million) related to a settlement of a state
tax issue. The provision for income taxes for the nine months ended
September 30, 2000 reflected the tax effect of the gain on the sale of the
investment in Canadian Occidental Petroleum (CanOxy).
14. 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
accounted for on the equity method. At September 30, 2001, Occidental's
equity investments consisted primarily of a 29.5 percent interest in
Equistar acquired in May 1998, and interests in 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 September 30
-----------------------------------------------------------
Three Months Nine Months
--------------------------- ---------------------------
2001 2000 2001 2000
=========== =========== =========== ===========
Revenues $ 512 $ 668 $ 1,790 $ 2,031
Costs and expenses 540 646 1,853 1,924
----------- ----------- ----------- -----------
Net income $ (28) $ 22 $ (63) $ 107
=========== =========== =========== ===========
10
15. Industry Segments
The following table presents Occidental's interim industry segment
disclosures (in millions):
Oil and Gas Chemical Corporate Total
======================================== ============= ============= ============= =============
Nine months ended September 30, 2001
Net sales $ 9,097 $ 2,508 $ -- $ 11,605
============= ============= ============= =============
Pretax operating profit (loss) $ 3,069 $ (5)(d) $ (919)(a)(e) $ 2,145
Income taxes (390) 24 (351)(b)(f) (717)
Extraordinary (loss), net -- -- (3) (3)
Cumulative effect, net -- -- (24) (24)
------------- ------------- ------------- -------------
Net income (loss) $ 2,679 (c) $ 19 $ (1,297)(g) $ 1,401
======================================== ============= ============= ============= =============
Nine months ended September 30, 2000
Net sales $ 6,634 $ 2,998 $ -- $ 9,632
============= ============= ============= =============
Pretax operating profit $ 2,118 $ 236 (i) $ 18 (a)(j) $ 2,372
Income taxes (471) (12) (653)(b)(k) (1,136)
Extraordinary gain, net -- -- 1 1
------------- ------------- ------------- -------------
Net income (loss) $ 1,647 (h) $ 224 $ (634) $ 1,237
======================================== ============= ============= ============= =============
(a) Includes unallocated net interest expense, administration expense and
other items.
(b) Includes unallocated income taxes.
(c) Includes an after-tax gain of $399 million related to the sale of an
interest in the Tangguh LNG project and an after-tax gain of $7
million related to the sale of additional interests in Gulf of Mexico
assets.
(d) Includes a pre-tax charge of $26 million related to severance and
plant shut-down costs.
(e) Includes a pre-tax charge of $49 million related to environmental
remediation costs and a pre-tax insurance dividend of $6 million.
(f) Includes an after-tax benefit of $45 million (pre-federal tax benefit
of $70 million) related to a settlement of a state tax issue.
(g) Includes an after-tax loss of $272 million on the sale of the entity
that owns pipelines in Texas that are leased to a former subsidiary.
(h) Includes an after-tax gain of $39 million related to the partial sale
of Occidental's Gulf of Mexico assets, an after-tax gain on receipt of
a contingency payment of $41 million related to the sale of its
interest in the Netherlands, and a pre-tax charge of approximately $74
million for the write-down of various oil and gas assets, real estate
and investments.
(i) Includes pre-tax charge of $120 million related to the decision to
exit several chemical intermediate businesses.
(j) Includes pre-tax gain of approximately $493 million related to the
sale of the CanOxy investment.
(k) Includes income taxes of approximately $193 million related to the
sale of the CanOxy investment.
11
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
nine months of 2001 of $1.4 billion, on net sales of $11.6 billion, compared
with net income of $1.2 billion, on net sales of $9.6 billion, for the same
period of 2000. Occidental's net income for the third quarter of 2001 was $444
million, on net sales of $3.3 billion, compared with net income of $402 million,
on net sales of $3.9 billion, for the same period of 2000. Basic earnings per
common share were $3.77 for the first nine months of 2001, compared with
earnings per share of $3.36 for the same period of 2000. Basic earnings per
common share were $1.19 for the third quarter of 2001, compared with earnings
per share of $1.09 for the same period of 2000.
Earnings before special items were $317 million and $1.3 billion for the three
and nine months ended September 30, 2001, respectively, compared with earnings
of $370 million and $977 million for the same periods in 2000, respectively. See
the Special Items table below for a description of special items. The decrease
in earnings before special items for the three months ended September 30, 2001,
compared with the same period in 2000, reflected lower worldwide crude oil and
chemical prices, higher exploration expense and a loss from equity affiliates
compared with income in the prior period, partially offset by higher natural gas
prices and lower energy, feedstock and overhead costs. The increase in earnings
before special items for the nine months ended September 30, 2001, compared with
the same period in 2000, reflected higher natural gas prices and lower feedstock
costs, partially offset by lower worldwide crude oil and chemical prices, higher
exploration expense and a loss from equity affiliates compared with income in
the prior period.
The decrease in net sales for the three months ended September 30, 2001,
compared with the same period in 2000, primarily reflected lower worldwide crude
oil and chemical prices and lower oil and gas trading revenue mainly due to
lower oil and gas prices partially offset by higher gas volumes. The increase in
net sales for the nine months ended September 30, 2001, compared with the same
period in 2000, primarily reflected higher natural gas prices and higher oil and
gas trading revenue mainly due to higher oil and gas volumes and higher gas
prices, partially offset by lower worldwide crude oil and chemical prices.
Interest, dividends and other income for the three and nine months ended
September 30, 2001 included interest income on notes receivable from Altura
partners of $24 million and $85 million, respectively, compared to $38 million
and $68 million, respectively, for the same periods in 2000. Gains on
disposition of assets for the three months and nine months ended September 30,
2001, included the pre-tax gain on the sale of the interest in the Tangguh LNG
project and the pre-tax loss on the sale of an interest in the subsidiary that
leased a pipeline to Occidental's former MidCon subsidiary. Gains on disposition
of assets for the three months and nine months ended September 30, 2000 included
pre-tax gains from the partial sale of Occidental's interest in the Continental
Shelf of the Gulf of Mexico and the receipt of a contingency payment on the sale
of its interest in the Netherlands. Gains on disposition of assets for the nine
months ended September 30, 2000 included a pre-tax gain of $493 million on the
sale of its investment in Canadian Occidental Petroleum (CanOxy). The loss from
equity investments for the three and nine months ended September 30, 2001,
compared with income from equity investments for the same periods in 2000,
primarily resulted from the Equistar investment's operating loss in 2001.
The decrease in cost of sales for the three months ended September 30, 2001,
compared to the same period in 2000, primarily reflected lower oil and gas
trading activities during the quarter as discussed above. The increase in cost
of sales for the nine months ended September 30, 2001, compared with the same
period in 2000, primarily reflected higher oil and gas trading activities during
the nine-month period as discussed above. Selling, general and administrative
and other operating expenses for the nine months ended September 30, 2000,
included a pre-tax charge of $120 million to exit several chemical intermediate
businesses. Exploration expense for the three and nine months ended September
30, 2001, included a $66 million write-off of the Gibraltar well in Colombia.
The provision for income taxes decreased for the three and nine months ended
September 30, 2001, compared with the same periods in 2000. The tax provision
included in the three months and nine months ended September 30, 2001 reflected
the tax effects of the loss on the sale of the entity that owns pipelines in
Texas that are leased to a former subsidiary and the gain recognized on the sale
of the Tangguh LNG interest net of foreign tax credits. The provision for income
taxes for the nine months ended September 30, 2001 also included a $45 million
after-tax
12
benefit ($70 million pre-federal tax benefit) for the settlement of a state tax
issue. The provision for income taxes for the nine months ended September 30,
2000 reflected the tax effect of the gain on the sale of the investment in
CanOxy.
The following table sets forth the sales and earnings of each operating segment
and corporate items (in millions):
Periods Ended September 30
-------------------------------------------------------
Three Months Nine Months
------------------------- -------------------------
2001 2000 2001 2000
======================================================= ========== ========== ========== ==========
SEGMENT NET SALES
Oil and Gas $ 2,521 $ 2,972 $ 9,097 $ 6,634
Chemical 764 891 2,508 2,998
---------- ---------- ---------- ----------
NET SALES $ 3,285 $ 3,863 $ 11,605 $ 9,632
========== ========== ========== ==========
SEGMENT EARNINGS
Oil and Gas $ 927 $ 696 $ 2,679 $ 1,647
Chemical 40 47 19 224
---------- ---------- ---------- ----------
967 743 2,698 1,871
UNALLOCATED CORPORATE ITEMS
Interest expense, net (60) (97) (207) (300)
Income taxes (129) (169) (553) (668)
Trust preferred distributions & other (13) (17) (43) (50)
Other (321) (59) (467) 383
---------- ---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEMS AND EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES 444 401 1,428 1,236
Extraordinary gain (loss), net -- 1 (3) 1
Cumulative effect of changes in accounting
principles, net -- -- (24) --
---------- ---------- ---------- ----------
NET INCOME $ 444 $ 402 $ 1,401 $ 1,237
========== ========== ========== ==========
EARNINGS BEFORE SPECIAL ITEMS (a) $ 317 $ 370 $ 1,293 $ 977
======================================================= ========== ========== ========== ==========
(a) Earnings before special items reflect adjustments to net income to exclude
the after-tax effect of certain infrequent transactions that may affect
comparability between periods. These transactions 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.
13
The following table sets forth the Special Items for each operating segment and
corporate:
Periods Ended September 30
-------------------------------------------------------
Three Months Nine Months
Benefit (Charge) ------------------------- -------------------------
(in millions) 2001 2000 2001 2000
============================================================= ========== ========== ========== ==========
OIL AND GAS
Gain on sale of interest in the Indonesian
Tangguh LNG project * $ 399 $ -- $ 399 $ --
Gain on sale of additional interests in Gulf
of Mexico assets * -- -- 7 --
Gain on partial sale of Gulf of Mexico assets * -- 39 -- 39
Gain on receipt of contingency payment * -- 41 -- 41
Write-down of various assets, real estate and
investments -- (74) -- (74)
CHEMICAL
Severance, plant shutdown and plant writedown costs $ -- $ -- $ (26) $ --
Write-down of chemical intermediate businesses -- -- -- (120)
CORPORATE
Loss on sale of pipeline-owning entity * $ (272) $ -- $ (272) $ --
Settlement of state tax issue -- -- 70 --
Environmental remediation -- -- (49) --
Gain on sale of CanOxy investment -- -- -- 493
Insurance dividend -- -- 6 11
Changes in accounting principles, net * -- -- (24) --
Extraordinary gain (loss) on debt redemption, net * -- 1 (3) 1
============================================================= ========== ========== ========== ==========
* These amounts are shown after tax.
OIL AND GAS SEGMENT
Periods Ended September 30
----------------------------------------------------
Three Months Nine Months
------------------------ ------------------------
Summary of Operating Statistics 2001 2000 2001 2000
================================================= ========== ========== ========== ==========
NET PRODUCTION PER DAY:
CRUDE OIL AND NATURAL GAS LIQUIDS (MBL)
United States 215 210 211 159
Latin America 48 42 32 52
Eastern Hemisphere 121 124 120 124
NATURAL GAS (MMCF)
United States 602 687 613 665
Eastern Hemisphere 52 47 50 49
BARRELS OF OIL EQUIVALENT - (MBOE) 493 499 473 454
- ------------------------------------------------- ---------- ---------- ---------- ----------
AVERAGE SALES PRICE:
CRUDE OIL ($/BBL)
United States $ 23.03 $ 28.10 $ 23.48 $ 26.19
Latin America $ 21.14 $ 26.18 $ 21.40 $ 26.13
Eastern Hemisphere $ 22.60 $ 26.39 $ 22.66 $ 24.76
NATURAL GAS ($/MCF)
United States $ 4.59 $ 4.18 $ 7.74 $ 3.21
Eastern Hemisphere $ 2.16 $ 1.98 $ 2.25 $ 1.80
================================================= ========== ========== ========== ==========
14
Oil and gas earnings for the third quarter of 2001 were $927 million, compared
with $696 million for the same period of 2000. Oil and gas earnings before
special items were $528 million for the third quarter of 2001, compared with
$690 million for the same period of 2000. Oil and gas earnings for the first
nine months of 2001 were $2.7 billion, compared with $1.6 billion for the same
period of 2000. Oil and gas earnings before special items were $2.3 billion for
the first nine months of 2001, compared with $1.6 billion for the first nine
months of 2000. See the Special Items table for a description of special items.
The decrease in earnings before special items for the three months ended
September 30, 2001, compared with the same period in 2000, primarily reflected
lower worldwide crude oil prices and higher exploration expense. The increase in
earnings before special items for the nine months ended September 30, 2001,
compared with the same period in 2000, primarily reflected higher natural gas
prices, partially offset by lower worldwide crude oil prices and higher
exploration expense.
Realized crude oil prices for the quarter averaged $22.61 per barrel compared to
$27.26 per barrel during the same period last year. Domestic natural gas prices
for the quarter averaged $4.59 per MCF versus $4.18 during last year's third
quarter. During the third quarter, the premium for California natural gas was
approximately $2.70 per MCF above the NYMEX price. No California gas premium is
expected in the fourth quarter; the loss of this premium is expected to reduce
fourth quarter segment earnings by $70 million compared with the third quarter.
Additionally, a $1.00 per million BTUs swing in NYMEX gas prices will have
approximately a $62 million impact on quarterly segment earnings, and a $1.00
per barrel change in oil prices will impact quarterly earnings by approximately
$28 million. The fourth quarter usually is the weakest period for gas prices
since it comprises production from the low gas storage injection months of
September, October and November that fall between the summer air conditioning
and winter heating seasons. Gas prices during the period are generally set at
the beginning of each of these months.
The decrease in net sales for the three months ended September 30, 2001,
compared with the same period in 2000, primarily reflected lower worldwide crude
oil prices and lower oil and gas trading revenue mainly due to lower oil and
gas prices partially offset by higher gas volumes. The increase in net sales for
the nine months ended September 30, 2001, compared with the same period in 2000,
primarily reflected higher natural gas prices and higher oil and gas trading
revenue mainly due to higher oil and gas volumes and higher gas prices,
partially offset by lower worldwide crude oil prices. Approximately 51 percent
and 53 percent of oil and gas net sales were attributable to oil and gas trading
activities in the third quarter of 2001 and 2000, respectively. Approximately 53
percent and 48 percent of oil and gas net sales were attributable to oil and gas
trading activities in the first nine months of 2001 and 2000, respectively. The
results of oil and gas trading activities were not significant in any period.
CHEMICAL SEGMENT
Periods Ended September 30
----------------------------------------------------
Three Months Nine Months
------------------------ ------------------------
Summary of Operating Statistics 2001 2000 2001 2000
======================================================= ========== ========== ========== ==========
MAJOR PRODUCT VOLUMES
Chlorine (M Tons) 720 690 2,211 2,294
Caustic Soda (M Tons) 760 825 2,179 2,470
Ethylene Dichloride (M Tons) 208 128 584 674
PVC Resins (MM Lbs.) 475 413 1,472 1,350
MAJOR PRODUCT PRICE INDEX (BASE 1987-1990 = 1.0)
Chlorine 0.68 1.72 0.78 1.60
Caustic 1.36 0.59 1.37 0.66
Ethylene Dichloride 0.43 1.22 0.66 1.57
PVC Resins 0.65 0.99 0.71 0.99
======================================================= ========== ========== ========== ==========
Chemical earnings for the third quarter of 2001 were $40 million, compared with
$47 million for the same period of 2000. There were no special items in the
third quarter of 2001 and 2000. Chemical earnings for the first nine months of
2001 were $19 million, compared with $224 million for the same period of 2000.
Chemical earnings
15
before special items were $45 million for the first nine months of 2001,
compared with $344 million for the first nine months of 2000. See the Special
Items table for a description of special items. The decrease in third quarter
and nine months 2001 earnings before special items, compared with the same
periods in 2000, is due to lower prices for polyvinyl chloride resins (PVC),
ethylene dichloride (EDC) and chlorine and a loss from the Equistar equity
investment compared with income in the prior year, partially offset by lower
feedstock costs. Credits in lieu of U.S. federal income taxes, asset writedowns
and self-insurance reserve adjustments essentially offset each other in total.
The decrease in net sales for the three months and nine months ended September
30, 2001, compared with the same periods in 2000, primarily reflected lower
sales prices for PVC, EDC and chlorine and the disposition in 2000 of the Durez
businesses, partially offset by higher prices for caustic soda.
The fundamental weakness in chemical demand is continuing with no signs of an
early recovery. The petrochemical industry in particular appears to be operating
on approximately a cash break-even basis. Meaningful improvement in the results
of the chemical business will depend largely on an improvement in general
economic conditions.
CORPORATE AND OTHER
Segment earnings include credits/(charges) in lieu of U.S. federal income taxes.
In the first nine months of 2001 and 2000, segment earnings benefited or were
(reduced) by $1 million and $(27) million, respectively, from credits and
(charges) allocated. This included (charges) and credits of $(37) million and
$38 million at oil and gas and chemical, respectively, in the first nine months
of 2001 and $(39) million and $12 million at oil and gas and chemical,
respectively, for the first nine months of 2000. The 2001 amount includes a
charge for the tax effects of the sale of the interest in the Tangguh LNG
project in Indonesia and credits for chemical asset dispositions. The 2000
amount includes charges for the sale of an interest in the subsidiary that owned
the Gulf of Mexico shelf assets and for the receipt of contingency payments
related to a prior year sale of a Dutch North Sea subsidiary.
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
that 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 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 was $2.3 billion for the
first nine months of 2001, compared with net cash provided of $1.7 billion for
the same period of 2000. The increase in the 2001 amount is primarily
attributable to higher net income before special items and deferred taxes.
16
Occidental's net cash used by investing activities was $239 million for the
first nine months of 2001, compared with net cash used of $3.0 billion for the
same period of 2000. The 2000 amount primarily reflected the $3.6 billion cost
of the Altura acquisition, partially offset by pre-tax asset sale proceeds
mainly from the sale of Occidental's 29.2 percent interest in CanOxy for
approximately $800 million. Capital expenditures for the first nine months of
2001 were $965 million, including $69 million in chemical. Capital expenditures
for the first nine months of 2000 were $608 million, including $84 million in
chemical.
Occidental's financing activities used net cash of $1.6 billion in the first
nine months of 2001, compared with cash provided of $1.4 billion for the same
period of 2000. The 2001 amount primarily reflects debt payments of $1.3 billion
from free cash flow and from proceeds of asset sales and cash dividends paid of
$278 million. The 2000 amount mainly reflects proceeds of $2.4 billion from
non-recourse debt, debt payments of $731 million and cash dividends paid of $276
million.
On August 31, 2001, Occidental sold the entity that owns pipelines in Texas that
are leased to a former subsidiary. The entity was sold to Kinder Morgan Energy
Partners, L.P. Occidental recorded an after-tax loss of approximately $272
million in connection with this transaction.
On July 10, 2001, Occidental completed the sale of its interest in the Tangguh
LNG project in Indonesia to Mitsubishi Corporation of Japan. Occidental recorded
an after-tax gain of approximately $399 million for this transaction.
Occidental currently expects to spend approximately $1.4 billion on its 2001
capital spending program, including about $100 million for the chemical segment.
Occidental expects to generate sufficient cash from operations in 2001 to fund
its operating needs, capital-expenditure requirements, dividend payments and
required debt repayments. Occidental also expects to have sufficient cash for
these requirements in 2002 and currently expects to spend about $1.1 billion for
capital expenditures in 2002. Available but unused lines of committed bank
credit totaled approximately $1.91 billion at September 30, 2001 and $2.1
billion at December 31, 2000. During the first nine months of 2001, Occidental
reduced total debt by over $1.3 billion. Occidental expects to continue to use
free cash flow to pay down debt for the remainder of 2001 as well as in fiscal
year 2002.
DERIVATIVE ACTIVITIES
Effective January 1, 2001, Occidental implemented SFAS No. 133, "Accounting for
Derivative Instruments and Hedging," as amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133," and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." These statements establish
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and hedging activities and
require an entity to recognize all derivatives in the statement of financial
position, measure those instruments at fair value, and classify them as either
assets or liabilities on the condensed consolidated balance sheet. Changes in
the derivative instruments' fair value must be recognized in earnings unless
specific hedge accounting criteria are met. Occidental's initial adoption of
SFAS No. 133 resulted in (i) a first quarter after-tax reduction in net income
of $24 million recorded as a cumulative effect of a change in accounting
principles and (ii) an after-tax reduction in other comprehensive income (OCI)
of approximately $27 million.
Occidental uses commodity futures contracts, options and swaps to hedge the
impact of oil and natural gas price fluctuations and to engage in trading
activities. Occidental also uses forward rate locks and interest rate swaps to
manage its interest-rate exposure. Gains and losses from derivatives that
qualify for cash flow hedge accounting are deferred until recognized as an
adjustment to earnings when the hedged transaction is finalized. For cash flow
hedges, the portion of the change in the value of the derivative that is not
offset by an equal change in the value of the underlying transaction is referred
to as hedge ineffectiveness and is recorded in earnings. Gains and losses from
derivatives that qualify for fair-value hedge accounting will be recognized in
earnings as partial offsets to the changes in fair value recorded on the related
hedged asset or liability. Gains or losses on derivatives that do not qualify
for hedge accounting are recognized in earnings.
17
For the three and nine months ended September 30, 2001, the results of
operations included a net gain of $1 million and $41 million, respectively,
related to derivative mark-to-market adjustments. Net interest expense was
reduced by $0.8 million for the three and nine months ended September 30, 2001
to reflect net gains from fair-value hedges. During the three and nine months
ended September 30, 2001, a $4 million loss and a $4 million gain, respectively,
were reclassified from OCI to income resulting from the expiration of cash flow
hedges. During the three and nine months ended September 30, 2001, net
unrealized gains of $1 million and $2 million, respectively, were recorded to
OCI relating to changes in current cash flow hedges. During the next twelve
months, Occidental expects that $1 million of net derivative gains included in
OCI, based on their valuation at September 30, 2001, will be reclassified into
earnings. Hedge ineffectiveness did not have a significant impact on earnings
for the three and nine months ended September 30, 2001.
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 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 September 30, 2001, 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 126 Superfund or
comparable state sites. (This number does not include those sites where
Occidental has been successful in resolving its involvement.) The 126 sites
include 34 former Diamond Shamrock Chemical sites as to which Maxus Energy
Corporation has retained all liability. Of the remaining 92 sites, Occidental
has denied involvement at 9 sites and has yet to determine involvement in 20
sites. With respect to the remaining 63 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 43 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 43 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 experiences, available technology,
regulations in effect, the timing of remediation and cost-sharing arrangements.
For the remaining 9 of the 63 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, cash flows and business prospects. 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; crude oil and natural gas prices; chemical prices;
potential liability for remedial actions under existing or future environmental
regulations and litigation; potential liability resulting from pending or future
litigation; general domestic and international political conditions;
18
potential disruption or interruption of Occidental's production or manufacturing
facilities due to accidents, political events or insurgent activity; potential
failure to achieve expected production from existing and future oil and gas
development projects; the supply/demand considerations for Occidental's
products; any general economic recession domestically or internationally;
regulatory uncertainties; and not successfully completing, or any material delay
of, 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," "expect," "will," "should," or "could," which 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
For the period ended September 30, 2001 there were no material changes in the
information provided under Item 305 of Regulation S-K included under the caption
"Derivative Activities" as part of Occidental's Management's Discussion and
Analysis section of Occidental's 2000 Annual Report on Form 10-K.
19
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GENERAL
This item incorporates by reference the information regarding legal proceedings
in Note 12 to the consolidated condensed financial statements in Part I of this
Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Form of Incentive Stock Option Agreement under Occidental
Petroleum Corporation 2001 Incentive Compensation Plan
10.2 Form of Nonqualified Stock Option Agreement under Occidental
Petroleum Corporation 2001 Incentive Compensation Plan
10.3 Form of Nonqualified Stock Option Agreement (for
foreign-based employees) under Occidental Petroleum
Corporation 2001 Incentive Compensation Plan
11 Statement regarding the computation of earnings per share
for the three and nine months ended September 30, 2001 and
2001
12 Statement regarding the computation of total enterprise
ratios of earnings to fixed charges for the nine months
ended September 30, 2001 and 2000 and the five years ended
December 31, 2000
(b) Reports on Form 8-K
During the quarter ended September 30, 2001, Occidental filed the
following Current Reports on Form 8-K:
1 Current Report on Form 8-K dated July 11, 2001 (date of
earliest event reported), filed on July 11, 2001, for the
purpose of reporting, under Item 5, the sale of Occidental's
interest in Tangguh LNG project.
2 Current Report on Form 8-K dated July 19, 2001 (date of
earliest event reported), filed on July 19, 2001, for the
purpose of reporting, under Item 5, Occidental's results of
operations for the second quarter ended June 30, 2001, and
under Item 9, text and supplemental financial schedules from
Occidental's second quarter 2001 conference call.
From September 30, 2001 to the date hereof, Occidental filed the
following Current Reports on Form 8-K:
1 Current Report on Form 8-K dated October 16, 2001 (date of
earliest event reported), filed on October 16, 2001 (date of
earliest event reported), for the purpose of reporting under
Item 9, text and schedules from speeches by Dr. Ray R.
Irani, Chairman and Chief
20
Executive Officer and Stephen I. Chazen, Chief Financial
Officer and Executive Vice President-Corporate Development.
2 Current Report on Form 8-K dated October 17, 2001 (date of
earliest event reported), filed on October 17, 2001, for the
purpose of reporting, under Item 5, Occidental's results of
operations for the third quarter ended September 30, 2001,
and under Item 9, text and supplemental financial schedules
from Occidental's third quarter 2001 conference call.
21
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: November 13, 2001 /s/ S. P. DOMINICK, JR.
----------------------------------------
S. P. Dominick, Jr., Vice President and
Controller (Chief Accounting and Duly
Authorized Officer)
22
EXHIBIT INDEX
EXHIBITS
- --------
10.1 Form of Incentive Stock Option Agreement under Occidental Petroleum
Corporation 2001 Incentive Compensation Plan
10.2 Form of Nonqualified Stock Option Agreement under Occidental Petroleum
Corporation 2001 Incentive Compensation Plan
10.3 Form of Nonqualified Stock Option Agreement (for foreign-based
employees) under Occidental Petroleum Corporation 2001 Incentive
Compensation Plan
11 Statement regarding the computation of earnings per share for the
three and nine months ended September 30, 2001 and 2000
12 Statement regarding the computation of total enterprise ratios of
earnings to fixed charges for the nine months ended September 30, 2001
and 2000 and the five years ended December 31, 2000