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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, 1998
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
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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)
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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, 1998
--------------------------- ---------------------------------
Common stock $.20 par value 345,921,059 shares
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OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets --
September 30, 1998 and December 31, 1997 2
Consolidated Condensed Statements of Operations --
Three and nine months ended September 30, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows --
Nine months ended September 30, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 20
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1998 and DECEMBER 31, 1997
(Amounts in millions)
1998 1997
================================================================================ ======= =======
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 118 $ 113
Receivables, net 629 813
Inventories 481 604
Prepaid expenses, note receivable and other 1,598 386
------- -------
Total current assets 2,826 1,916
LONG-TERM RECEIVABLES, net 115 153
EQUITY INVESTMENTS 1,990 921
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation, depletion and amortization of $6,672 at
September 30, 1998 and $7,967 at December 31, 1997 9,899 8,590
OTHER ASSETS 514 470
NET ASSETS OF DISCONTINUED OPERATIONS -- 3,232
------- -------
$15,344 $15,282
================================================================================ ======= =======
The accompanying notes are an integral part of these financial statements.
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OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1998 and DECEMBER 31, 1997
(Amounts in millions)
1998 1997
================================================================================ ======= =======
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease liabilities $ 1,400 $ 6
Notes payable 30 35
Accounts payable 512 717
Accrued liabilities 864 1,063
Domestic and foreign income taxes 63 49
------- -------
Total current liabilities 2,869 1,870
------- -------
LONG-TERM DEBT, net of current maturities and unamortized discount 5,830 4,925
------- -------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred and other domestic and foreign income taxes 925 1,028
Other 2,234 3,173
------- -------
3,159 4,201
------- -------
STOCKHOLDERS' EQUITY
Nonredeemable preferred stock, stated at liquidation value 269 1,125
ESOP preferred stock, at par value -- 1,400
Unearned ESOP shares -- (1,348)
Common stock, at par value 69 68
Additional paid-in capital 3,873 4,149
Retained earnings(deficit) (696) (1,097)
Accumulated other comprehensive income (29) (11)
------- -------
3,486 4,286
------- -------
$15,344 $15,282
================================================================================ ======= =======
The accompanying notes are an integral part of these financial statements.
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OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Amounts in millions, except per-share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
1998 1997 1998 1997
=============================================================== ======= ======= ======= =======
REVENUES
Net sales
Oil and gas operations $ 1,030 $ 883 $ 2,509 $ 2,780
Chemical operations 631 1,124 2,395 3,302
------- ------- ------- -------
1,661 2,007 4,904 6,082
Interest, dividends and other income 39 30 189 64
Gains on disposition of assets, net (Note 3) 133 -- 544 (1)
Income from equity investments (Note 11) 2 (5) 10 25
------- ------- ------- -------
1,835 2,032 5,647 6,170
------- ------- ------- -------
COSTS AND OTHER DEDUCTIONS
Cost of sales 1,373 1,448 3,838 4,379
Selling, general and administrative and other
operating expenses 181 248 572 625
Environmental remediation -- 6 -- 24
Exploration expense 27 18 79 60
Interest and debt expense, net 136 107 412 323
------- ------- ------- -------
1,717 1,827 4,901 5,411
------- ------- ------- -------
Income from continuing operations before taxes 118 205 746 759
Provision for domestic and foreign income and
other taxes (Note 10) 80 75 383 364
------- ------- ------- -------
Income from continuing operations 38 130 363 395
Discontinued operations, net (Note 3) -- 27 38 99
------- ------- ------- -------
NET INCOME 38 157 401 494
Preferred dividends (4) (21) (13) (67)
------- ------- ------- -------
EARNINGS APPLICABLE TO COMMON STOCK $ 34 $ 136 $ 388 $ 427
======= ======= ======= =======
BASIC EARNINGS PER COMMON SHARE
Income from continuing operations $ .10 $ .32 $ 1.00 $ .99
Discontinued operations, net -- .08 .11 .30
------- ------- ------- -------
Basic earnings per common share $ .10 $ .40 $ 1.11 $ 1.29
======= ======= ======= =======
DILUTED EARNINGS PER COMMON SHARE
Income from continuing operations $ .10 $ .31 $ .99 $ .96
Discontinued operations, net -- .07 .10 .27
------- ------- ------- -------
Diluted earnings per common share $ .10 $ .38 $ 1.09 $ 1.23
======= ======= ======= =======
DIVIDENDS PER COMMON SHARE $ .25 $ .25 $ .75 $ .75
======= ======= ======= =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 350.0 335.6 351.2 331.8
=============================================================== ======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
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OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Amounts in millions)
1998 1997
========================================================================================= ======= =======
CASH FLOW FROM OPERATING ACTIVITIES
Net income from continuing operations $ 363 $ 395
Adjustments to reconcile income to net cash provided(used) by operating activities:
Depreciation, depletion and amortization of assets 653 598
Deferred income tax provision 319 96
Other noncash charges to income 41 63
Gains on disposition of assets, net (544) 1
Income from equity investments (10) (25)
Exploration expense 79 60
Changes in operating assets and liabilities (596) (318)
Other operating, net (227) (225)
------- -------
78 645
Operating cash flow from discontinued operations (244) 218
------- -------
Net cash provided(used) by operating activities (166) 863
------- -------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (840) (1,008)
Buyout of operating leases -- (20)
Sale of businesses and disposals of property, plant and equipment, net 3,326 101
Purchase of businesses, net (3,528) (4)
Other investing, net 48 35
------- -------
(994) (896)
Investing cash flow from discontinued operations (5) (46)
------- -------
Net cash used by investing activities (999) (942)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term debt 919 77
Net proceeds from commercial paper and revolving credit agreements 1,775 508
Payments on long-term debt and capital lease liabilities (313) (320)
Proceeds from issuance of common stock 22 16
Repurchase of common stock (937) --
Proceeds(payments) of notes payable (5) 3
Cash dividends paid (296) (316)
Other financing, net 5 2
------- -------
1,170 (30)
Financing cash flow from discontinued operations -- 15
------- -------
Net cash provided(used) by financing activities 1,170 (15)
------- -------
Increase(decrease) in cash and cash equivalents 5 (94)
Cash and cash equivalents--beginning of period 113 258
------- -------
Cash and cash equivalents--end of period $ 118 $ 164
========================================================================================= ======= =======
The accompanying notes are an integral part of these financial statements.
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OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1998
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 incorporated by reference in Occidental's Annual Report on
Form 10-K for the year ended December 31, 1997 (1997 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, 1998 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,
1998 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 1998 presentation.
Reference is made to Note 1 to the consolidated financial statements
incorporated by reference in the 1997 Form 10-K for a summary of
significant accounting policies.
2. Changes in Accounting Principles
Effective January 1, 1998, Occidental adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 130--"Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The prior year financial statements have been
restated to conform to the new presentation. Occidental's comprehensive
income was $383 million and $482 million for the nine months ended
September 30, 1998 and 1997, respectively, and $27 million and $154
million for the third quarter of 1998 and 1997, respectively.
Effective January 1, 1998, Occidental adopted the provisions of SFAS No.
131--"Disclosures about Segments of an Enterprise and Related
Information." This statement establishes standards for reporting and
display of information about operating segments. It supersedes or amends
several Financial Accounting Standards Board (FASB) statements, most
notably, SFAS No. 14--"Financial Reporting for Segments of a Business
Enterprise." The implementation of SFAS No. 131 did not have an impact on
Occidental's consolidated financial position or results of operations.
Occidental now reports equity earnings or losses from unconsolidated
subsidiaries in the respective business segment rather than, as previously
reported, as a Corporate item. Accordingly, 1997 segment results have been
restated.
In June 1998, the FASB issued SFAS No. 133--"Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives in the statement of
financial position and measure those instruments at fair value. Occidental
must implement SFAS No. 133 by the first quarter of 2000 and has not yet
made a final determination of its impact on the financial statements.
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3. Asset Acquisitions and Dispositions
On January 31, 1998, Occidental completed the sale of all of the issued
and outstanding shares of common stock of MidCon Corp. (MidCon), its
natural gas transmission and marketing business to K N Energy, Inc. (K N
Energy). Occidental sold the shares to K N Energy in return for a cash
payment of $2.1 billion less payments for taxes and certain other
expenses. The net cash proceeds from the transaction were approximately
$1.7 billion. Additionally, in connection with the sale K N Energy issued
a fixed-rate interest bearing note secured by letters of credit, payable
January 4, 1999, to Occidental in the initial principal amount of $1.4
billion, in exchange for a note previously issued to Occidental by the
MidCon Corp. ESOP Trust. In the fourth quarter of 1997 Occidental
classified MidCon and its subsidiaries as a discontinued operation. As of
December 31, 1997, the operating assets and liabilities of MidCon were
reclassified as net assets of discontinued operations on the balance
sheet.
On February 5, 1998, Occidental acquired the U.S. government's approximate
78 percent interest in the Elk Hills Naval Petroleum Reserve oil and gas
fields (Elk Hills Field) for approximately $3.5 billion. Occidental's
results of operations include the operations of the Elk Hills Field from
the date of acquisition. Pro forma net income for the nine months ended
September 30, 1998, including historical Elk Hills results as if the
acquisition had occurred at January 1, 1998, would not have been
materially different. Pro forma net income for the three and nine months
ended September 30, 1997, including historical Elk Hills results as if the
acquisition had occurred at January 1, 1997, would have been $139 million
($.35 earnings per share) and $464 million ($1.19 earnings per share),
respectively. Pro forma revenues would have been $5.7 billion and $6.5
billion for the nine months ended September 30, 1998 and 1997,
respectively, and $1.9 billion and $2.1 billion for the three months ended
September 30, 1998 and 1997, respectively. The pro forma calculations were
made with historical operating results for the Elk Hills Field prior to
ownership by Occidental and give effect to certain adjustments including
increased depreciation, depletion and amortization to reflect the value
assigned to Elk Hills property, plant and equipment, increased interest
expense assuming the acquisition was completely financed, and income and
property tax effects but did not reflect anticipated future production
enhancements in the Elk Hills Field and operational cost improvements
expected to be realized.
In February 1998, Occidental sold its entire interest in an oilfield
development project in Venezuela for approximately $205 million in cash
plus contingent payments over six years based on oil prices. In March
1998, Occidental sold certain Oklahoma oil and gas properties and
interests in the Austin Chalk area of Louisiana and in the Rocky Mountain
region and other oil and gas properties for aggregate proceeds of
approximately $231 million. These sales resulted in first quarter 1998 net
pretax gains of approximately $105 million.
In April 1998, Occidental sold certain oil and gas properties in Texas for
approximately $63 million. Also in April 1998, Occidental sold the stock
of its MC Panhandle subsidiary, which owns certain natural gas interests
in the West Panhandle field in Texas, for approximately $99 million and
sold certain oil and gas properties in Louisiana and Mississippi for
approximately $190 million. In May 1998, Occidental sold certain oil
properties in Kansas and Colorado for approximately $70 million and sold
certain gas properties in Kansas and Oklahoma for approximately $125
million. Occidental recorded net pretax gains of approximately $290
million in the second quarter of 1998 from the sale of these and other
nonstrategic oil and gas properties.
In May 1998, Occidental contributed its ethylene, propylene, ethylene
oxide and ethylene glycol derivatives businesses (collectively, the
petrochemicals business) to a joint venture partnership called Equistar
Chemicals, LP (Equistar), in return for a 29.5 percent interest in such
partnership, receipt of approximately $420 million in cash and the
assumption by Equistar of approximately $205 million of Occidental capital
lease obligations and other liabilities. Lyondell Petrochemical Company
(Lyondell) and Millennium Chemicals, Inc. (Millennium), through their
respective subsidiaries, were the original partners of Equistar. Lyondell
owns 41 percent of Equistar and Occidental and Millennium each own 29.5
percent. Following the closing of the transaction, the assets and
liabilities transferred to the partnership (primarily property, plant and
equipment and inventories) were removed from the balance sheet and an
equity investment was recorded. Occidental's results of operations and
cash flows include amounts related to the assets transferred up to the
transaction
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closing date. Subsequent to the closing date, Occidental has accounted for
the joint venture as an equity investment. Occidental did not record a
gain or loss on the transaction.
In June 1998, Occidental signed a nonbinding letter of intent with The
Geon Company (Geon) providing, among other things, for the combination of
certain polyvinyl chloride resin and vinyl chloride monomer plants and
certain chlor-alkali facilities of the two companies in a joint venture.
Under the agreement, Occidental will own 76 percent and Geon will own 24
percent of such joint venture company. The transaction is expected to be
completed by the first quarter of 1999, after signing of definitive
agreements and receipt of approvals by Geon shareholders and certain
governmental regulatory agencies.
In July 1998, Occidental sold the stock of Occidental Netherlands, Inc.
for approximately $275 million, in cash and the assumption of debt, plus
future contingent payments. Occidental Netherlands owns interests in eight
gas-producing licenses in the Dutch North Sea and a 38.6 percent interest
in Noordgastransport B.V., which owns the gas pipeline system that
services the area. Occidental recorded a pretax gain on the disposition of
approximately $137 million.
In September 1998, Occidental and the Royal Dutch/Shell Group (Shell)
consummated the exchange of Occidental's oil and gas interests in the
Philippines and Malaysia for Shell's oil and gas interests in Yemen and
its interests in the Cravo Norte, Samore, Soapaga and Rondon association
contracts in Colombia. Shell also received a cash payment at closing of
approximately $89 million. No gain or loss was recorded on the
transaction.
4. Supplemental Cash Flow Information
Cash payments during the nine months ended September 30, 1998 and 1997
included federal, foreign and state income taxes of approximately $198
million and $129 million, respectively. Interest paid, net of interest
capitalized, totaled approximately $358 million and $310 million for the
nine months ended September 30, 1998 and 1997, 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 $81 million and $50 million at September 30, 1998 and
December 31, 1997, 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 September 30, 1998 December 31, 1997
======================== ================== ==================
Raw materials $ 45 $ 102
Materials and supplies 191 189
Work in process 10 22
Finished goods 273 342
-------- --------
519 655
LIFO reserve (38) (51)
-------- --------
Total $ 481 $ 604
======== ========
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7. Property, Plant and Equipment
Reference is made to the consolidated balance sheets and Note 1 thereto
incorporated by reference in the 1997 Form 10-K for a description of
investments in property, plant and equipment.
8. Retirement Plans and Postretirement Benefits
Reference is made to Note 14 to the consolidated financial statements
incorporated by reference in the 1997 Form 10-K for a description of the
retirement plans and postretirement benefits of Occidental and its
subsidiaries.
9. 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.
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 10 to the consolidated financial statements
incorporated by reference in the 1997 Form 10-K for information concerning
Occidental's long-term purchase obligations for certain products and
services.
10. Income Taxes
The provision for taxes based on income for the 1998 and 1997 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 pretax income.
At December 31, 1997, Occidental had, for U.S. federal income tax return
purposes, an alternative minimum tax credit carryforward of $165 million
available to reduce future income taxes. The alternative minimum tax
credit carryforward does not expire.
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11. Investments
Investments in companies, 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,
1998, Occidental's equity investments consisted primarily of a 29.5
percent interest in Equistar acquired in May 1998, an investment of
approximately 29 percent in the common shares of Canadian Occidental
Petroleum Ltd. 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 September 30
----------------------------------------------------------
Three Months Nine Months
-------------------------- --------------------------
1998 1997 1998 1997
========== ========== ========== ==========
Revenues $ 522 $ 245 $ 1,128 $ 707
Costs and expenses 520 250 1,118 682
---------- ---------- ---------- ----------
Net income $ 2 $ (5) $ 10 $ 25
========== ========== ========== ==========
12. Summarized Financial Information of Wholly-Owned Subsidiary
Occidental has guaranteed the payments of principal of, and interest on,
certain publicly traded debt securities of its subsidiary, OXY USA Inc.
(OXY USA). The following tables present summarized financial information
for OXY USA (in millions):
Periods Ended September 30
----------------------------------------------------------
Three Months Nine Months
--------------------------- --------------------------
1998 1997 1998 1997
========== =========== ========== ==========
Revenues $ 161 $ 216 $ 1,005 $ 740
Costs and expenses 161 188 802 626
---------- ---------- ---------- ----------
Net income $ -- $ 28 $ 203(a) $ 114
========== =========== ========== ==========
(a) Includes net gains on the sale of certain nonstrategic
assets of $106 million in the second quarter.
Balance at September 30, 1998 December 31, 1997
================================= =================== ===================
Current assets $ 74 $ 150
Intercompany receivable $ 347 $ 29
Noncurrent assets $ 1,735 $ 2,024
Current liabilities $ 208 $ 259
Interest bearing note to parent $ 73 $ 89
Noncurrent liabilities $ 908 $ 1,106
Stockholders' equity $ 967(a) $ 749
(a) Includes a capital contribution of $17 million in the third
quarter.
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13. Industry Segments
Occidental adopted the provisions of SFAS No. 131--"Disclosures about
Segments of an Enterprise and Related Information" effective January 1,
1998. The following table presents the required interim segment
disclosures (in millions):
Oil and Gas Chemical Corporate Total
========================================== =========== =========== =========== ===========
Nine months ended September 30, 1998
Net sales $ 2,509 $ 2,395 $ -- $ 4,904
=========== =========== =========== ===========
Pretax operating profit(loss) $ 890 $ 278 $ (422)(a) $ 746
Income taxes 122 (2) 263(b) 383
Discontinued operations, net -- -- 38 38
----------- ----------- ----------- -----------
Net income(loss) $ 768(c) $ 280(d) $ (647) $ 401
========================================== =========== =========== =========== ===========
Nine months ended September 30, 1997
Net sales $ 2,780 $ 3,302 $ -- $ 6,082
=========== =========== =========== ===========
Pretax operating profit(loss) $ 741 $ 509 $ (491)(a) 759
Income taxes 211 19 134(b) 364
Discontinued operations, net -- -- 99 99
----------- ----------- ----------- -----------
Net income(loss) $ 530 $ 490 $ (526)(e) $ 494
========================================== =========== =========== =========== ===========
(a) Includes unallocated net interest expense, administration expense and
other items.
(b) Includes unallocated income taxes.
(c) Includes net gains on the sale of certain nonstrategic assets of $532
million and other charges of $42 million.
(d) Includes a $30 million pretax charge for reorganization and other
costs.
(e) Includes a $75 million pretax charge to amend certain employment
agreements with two senior executives.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Occidental is experiencing a period of historically low energy and commodity
chemical prices that have adversely affected earnings. The duration of this
period of low prices cannot be predicted. However, consistent with the more
streamlined Occidental that has resulted from a series of sales, acquisitions
and exchanges of assets, Occidental has substantially reduced administrative
staff which will result in reduced costs at its divisions and corporate
headquarters locations.
Occidental's net income for the first nine months of 1998 was $401 million, on
net sales of $4.9 billion, compared with $494 million, on net sales of $6.1
billion, for the same period of 1997. Occidental's net income for the third
quarter of 1998 was $38 million, on net sales of $1.7 billion, compared with
$157 million, on net sales of $2.0 billion, for the same period of 1997. Basic
earnings per common share were $1.11 for the first nine months of 1998, compared
with $1.29 for the same period of 1997. Basic earnings per common share were
$.10 for the third quarter of 1998, compared with $.40 for the same period of
1997.
The 1998 earnings for the first nine months included net pretax gains of
approximately $532 million from the sale of certain nonstrategic oil and gas
properties, as part of an asset redeployment program, of which $137 million was
recorded in the third quarter. The 1998 earnings also included a $30 million
charge for the write-off of certain exploration projects and a $12 million
reorganization charge in the third quarter for the oil and gas division, a $30
million second quarter charge for reorganization and other costs and a favorable
adjustment of estimates for fringe benefit and railcar expense in the third
quarter in the chemical division and $38 million of income from discontinued
operations to reflect the closing of the sale of MidCon Corp. (MidCon), the
natural gas transmission and marketing subsidiary, and the finalization of the
discontinued operations reserve in the first quarter. The 1997 earnings for the
three and nine months ended September 30 included income from discontinued
operations of $27 million and $99 million, respectively. Earnings before special
items were $3 million and $139 million for the three and nine months ended
September 30, 1998, respectively, compared with $184 million and $449 million
for the same periods in 1997, respectively. The 1997 earnings also included a
third quarter charge, net of taxes, of $54 million to amend certain employment
agreements with two senior executives. The decrease in earnings before special
items in both periods primarily reflected lower worldwide crude oil prices and
lower chemical margins, partially offset by increased crude oil production in
the United States and Eastern Hemisphere. The lower chemical margins reflected
the impact of lower prices for most major chemical products, partially offset by
higher caustic soda prices and lower energy and raw material prices.
The decrease in net sales for the three and nine months ended September 30,
1998, compared with the same periods in 1997, primarily reflected lower
worldwide crude oil prices in the oil and gas division and lower prices and
volumes for certain chemical products and also reflected the absence of revenues
related to the petrochemical assets contributed to Equistar Chemicals, LP
(Equistar) in May 1998.
Interest, dividends and other income for the three and nine months ended
September 30, 1998 included, among other things, interest earned on a $1.4
billion note received (the $1.4 billion note receivable) in exchange for a note
previously issued to Occidental by the MidCon Corp. ESOP Trust. The increase in
interest and debt expense reflected the impact of higher debt levels in 1998.
The decrease in income from equity investments for the nine months ended
September 30, 1998, compared with the same period in 1997, reflected lower
equity earnings from Canadian Occidental Petroleum Ltd. and the OxyMar chemical
joint venture, offset in part by equity earnings from Equistar in 1998 and the
improvement in equity earnings from certain chemical joint ventures in Thailand.
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The following table sets forth the sales and earnings of each operating division
and corporate items (in millions):
Periods Ended September 30
--------------------------------------------------
Three Months Nine Months
----------------------- ----------------------
1998 1997 1998 1997
============================================================ ========= ========= ========= =========
DIVISIONAL NET SALES
Oil and gas $ 1,030 $ 883 $ 2,509 $ 2,780
Chemical 631 1,124 2,395 3,302
--------- --------- --------- ---------
NET SALES $ 1,661 $ 2,007 $ 4,904 $ 6,082
========= ========= ========= =========
DIVISIONAL EARNINGS
Oil and gas $ 156 $ 144 $ 768 $ 530
Chemical 62 209 280 490
--------- --------- --------- ---------
218 353 1,048 1,020
UNALLOCATED CORPORATE ITEMS
Interest expense, net (106) (100) (336) (302)
Income taxes, administration and other (74) (123) (349) (323)
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 38 130 363 395
Discontinued operations, net -- 27 38 99
--------- --------- --------- ---------
NET INCOME $ 38 $ 157 $ 401 $ 494
============================================================ ========= ========= ========= =========
Oil and gas earnings for the first nine months of 1998 were $768 million,
compared with $530 million for the same period of 1997. Oil and gas divisional
earnings before special items were $278 million for the first nine months of
1998, compared with $530 million for the first nine months of 1997. Oil and gas
earnings for the third quarter of 1998 were $156 million, compared with $144
million for the same period of 1997. Oil and gas earnings before special items
were $61 million for the third quarter of 1998, compared with $144 million for
the third quarter of 1997. The first nine months of 1998 earnings included
pretax gains of approximately $532 million related to the sale of nonstrategic
assets located in Venezuela, the Netherlands, and the United States, of which
$137 million was recorded in the third quarter for the sale of Occidental's
interests in the Netherlands. The 1998 third quarter earnings also included a
$30 million charge for the write-off of certain exploration projects and a $12
million reorganization charge. The decrease in earnings before special items in
both periods primarily reflected the negative impact of lower worldwide crude
oil prices, partially offset by increased crude oil production in the United
States and Eastern Hemisphere. The decrease in revenues for the nine months
ended September 30, 1998, compared with the same period in 1997, reflected the
impact of lower worldwide crude oil prices and lower domestic natural gas prices
partially offset by increased crude oil production in the United States and
Eastern Hemisphere. The increase in revenues for the three months ended
September 30, 1998, compared with the same period in 1997, reflected higher oil
trading activity and increased crude oil production in the United States and
Eastern Hemisphere partially offset by lower worldwide crude oil prices.
Approximately 39 percent and 33 percent of oil and gas net sales were attributed
to oil and gas trading activity in the first nine months of 1998 and 1997,
respectively. The results of oil and gas trading were not significant. Oil and
gas prices are sensitive to complex factors, which are outside the control of
Occidental. Accordingly, Occidental is unable to predict with certainty the
direction, magnitude or impact of future trends in sales prices for oil and gas.
Chemical earnings for the first nine months of 1998 were $280 million, compared
with $490 million for the same period of 1997. Chemical earnings before special
items were $310 million for the first nine months of 1998, compared with $490
million for the first nine months of 1997. Chemical earnings for the third
quarter of 1998 were $62 million, compared with $209 million for the same period
of 1997. The 1998 earnings reflected a $30 million pretax charge for
reorganization and other costs in the second quarter and a favorable adjustment
of estimates for fringe benefit and railcar expense in the third quarter. The
decrease in earnings before special items in both periods
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primarily reflected the impact of lower prices for most major chemical products,
partially offset by higher caustic soda margins and lower energy and raw
material prices. The decrease in net sales for the three and nine months ended
September 30, 1998, compared with the same periods in 1997, primarily reflected
the absence of revenues related to the petrochemical assets contributed to
Equistar in May 1998 as well as lower prices and volumes for most chemical
products. Most of Occidental's chemical products are commodity in nature, the
prices of which are sensitive to a number of complex factors. Accordingly,
Occidental is unable to accurately forecast the trend of sales prices for its
commodity chemical products.
Divisional earnings include credits in lieu of U.S. federal income taxes. In the
first nine months of 1998 and 1997, divisional earnings benefited by $28 million
and $30 million, respectively, from credits allocated. This included credits of
$8 million and $20 million at oil and gas and chemical, respectively, in the
first nine months of 1998 and $10 million and $20 million at oil and gas and
chemical, respectively, for the first nine months of 1997.
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 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 $78 million for the first nine months of 1998, compared with net
cash provided of $645 million for the same period of 1997. The decrease
primarily reflected the impact of lower worldwide crude oil prices and lower
chemical prices. Included in total cash flow from operating activities is cash
used by discontinued operations of $244 million in 1998 and cash provided by
discontinued operations of $218 million in 1997. The 1998 cash used by
discontinued operations included the negative effect of $250 million of
receivables repurchased in connection with the sale of MidCon. The 1998 and 1997
noncash charges included employee benefit plans expense and various other
charges. The 1998 noncash charges also included a charge for the write-off of an
investment in certain exploration properties and previously announced
reorganization accruals.
Occidental's net cash used by investing activities was $999 million for the
first nine months of 1998, compared with $942 million for the same period of
1997. The 1998 amount reflected cash used of $3.5 billion for the purchase of
the Elk Hills Field and capital expenditures of $840 million. The 1998 amount
also reflected proceeds of $3.3 billion, primarily from the sale of MidCon and
certain nonstrategic oil and gas properties, as well as disposals of property,
plant and equipment. Capital expenditures in 1998 included $595 million in oil
and gas and $244 million in chemical. Capital expenditures were $1.0 billion in
1997, including $799 million in oil and gas and $207 million in chemical. In
February 1998, Occidental acquired the U.S. government's approximate 78 percent
interest in the
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Elk Hills Naval Petroleum Reserve oil and gas fields (Elk Hills Field). As part
of the asset redeployment program, Occidental completed the sale in 1998 of
various nonstrategic oil and gas properties. These properties included the sale,
in the first quarter of 1998, of Occidental's entire interest in an oilfield
development project in Venezuela for approximately $205 million in cash plus
contingent payments over six years based on oil prices and the sale of certain
Oklahoma oil and gas properties and interests in the Austin Chalk area of
Louisiana and in the Rocky Mountain region and other oil and gas properties for
aggregate proceeds of approximately $231 million. In the second quarter of 1998,
Occidental sold, as part of the program, certain oil and gas properties in Texas
for approximately $63 million; the stock of its MC Panhandle subsidiary, which
owns certain natural gas interests in the West Panhandle field in Texas, for
approximately $99 million; certain oil and gas properties in Louisiana and
Mississippi for approximately $190 million; certain oil properties in Kansas and
Colorado for approximately $70 million; and certain gas properties in Kansas and
Oklahoma for approximately $125 million. In the third quarter of 1998,
Occidental also sold, as part of the program, the stock of Occidental
Netherlands, Inc., for approximately $275 million, in cash and the assumption of
debt, plus future contingent payments. Additionally, in September 1998,
Occidental made a cash payment of approximately $89 million to the Royal
Dutch/Shell Group (Shell) in connection with the exchange of certain oil and gas
interests as described below. Net proceeds from the sale of businesses and
disposal of property, plant and equipment for the first nine months of 1997
totaled $101 million which included the proceeds from the sale of a chemical
plant in the second quarter.
Financing activities provided net cash of $1.2 billion in the first nine months
of 1998, compared with net cash used of $15 million for the same period of 1997.
The 1998 amount reflected net cash provided of $2.4 billion primarily from
proceeds from borrowings to fund a portion of the acquisition of the Elk Hills
Field in February 1998. The 1998 amount also included cash used of $937 million
for the repurchase of 35.1 million shares of Occidental common stock and $296
million for the payment of dividends. Total shares repurchased from the
inception of the program through October 30, 1998 were 39.3 million for
approximately $1.06 billion. In April 1998, Occidental issued $900 million par
value of long-term debt. The scheduled maturities range from 5 to 30 years. The
proceeds were used to repay outstanding commercial paper. The 1997 amount
reflected net cash provided of $268 million, primarily from proceeds from
borrowings, and cash used for the payment of dividends of $316 million.
In October 1998, Occidental issued $270 million of extendible notes with a ten
year final maturity and an initial coupon expiring in April 2000. At the end of
such period, the notes will either be automatically tendered, subject to the
right of any holder not to tender, to a remarketing agent for resale to the
public, or repurchased by Occidental if a mutual agreement is not reached with
the remarketing agent on the remaining spread. The proceeds were used to repay
outstanding commercial paper.
Net cash used by investing activities and operating activities in the first nine
months of 1998, was funded by additional borrowings. Operating cash flow
decreased primarily due to the impact of lower worldwide crude oil prices, lower
chemical prices and the repurchase of previously sold accounts receivable of
Occidental's former subsidiary MidCon and of the petrochemical business
contributed to Equistar. In addition, cash proceeds from Occidental's program to
sell nonstrategic assets did not totally offset cash expenditures for the
February 1998 acquisition of its interest in Elk Hills Field and the common
stock repurchase program.
For 1998 Occidental anticipates a net cash shortfall, which it expects can be
funded without substantial additional borrowings over the levels at September
30, 1998. Occidental believes that cash generated from operations, sale of
assets and available borrowing capacity will be adequate to meet its anticipated
cash requirements including operating requirements, capital spending and
dividend payments for the next twelve months, assuming oil and gas prices remain
in their current range. However, Occidental continually evaluates possible
acquisitions or other extraordinary transactions, which may, individually or in
the aggregate, affect Occidental's cash requirements. Available but unused lines
of committed bank credit totaled approximately $400 million at September 30,
1998, $1.0 billion at October 31, 1998 and $1.5 billion at December 31, 1997.
In May 1998, Occidental contributed its ethylene, propylene, ethylene oxide and
ethylene glycol derivatives businesses (collectively, the petrochemicals
business) to the Equistar joint venture partnership, in return for a 29.5
percent interest in such partnership, receipt of approximately $420 million in
cash and the assumption by Equistar of approximately $205 million of Occidental
capital lease obligations and other liabilities. Lyondell Petrochemical Company
(Lyondell) and Millennium Chemicals, Inc. (Millennium), through their respective
subsidiaries, were the
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original partners of Equistar. Lyondell owns 41 percent of Equistar and
Occidental and Millennium each own 29.5 percent. Occidental did not record a
gain or loss on the transaction.
In June 1998, Occidental signed a nonbinding letter of intent with The Geon
Company (Geon) providing, among other things, for the combination of certain
polyvinyl chloride resin and vinyl chloride monomer plants and certain
chlor-alkali facilities of the two companies in a joint venture. Under the
agreement, Occidental will own 76 percent and Geon will own 24 percent of such
joint venture company. The transaction is expected to be completed by the first
quarter of 1999, after signing of definitive agreements and receipt of approvals
by Geon shareholders and certain governmental regulatory agencies.
In September 1998, Occidental and Shell consummated the exchange of Occidental's
oil and gas interests in the Philippines and Malaysia for Shell's oil and gas
interests in Yemen and its interests in the Cravo Norte, Samore, Soapaga and
Rondon association contracts in Colombia. Shell also received a cash payment at
closing of approximately $89 million. As a result of the exchange, Occidental's
oil production is expected to increase by 46,000 barrels per day. No gain or
loss was recorded on the transaction.
In June 1997, Occidental sold its chlor-alkali chemical plant located in Tacoma,
Washington for approximately $102 million which included $97 million in cash and
the balance in preferred stock. The sale did not have a material effect on the
results of operations. Also in June 1997, Occidental purchased 28,000 shares of
preferred stock of Leslie's Poolmart, Inc. (Leslie's) for total consideration of
$28 million, which consisted of cash and the exchange of $10 million of Leslie's
subordinated debentures held by Occidental.
The balance in prepaid expenses, note receivable and other at September 30, 1998
includes the $1.4 billion note receivable. The balance in equity investments at
September 30, 1998 includes Occidental's interest in Equistar. The increase in
the balance of net property, plant and equipment reflected the acquisition of
the Elk Hills Field offset, in part, by property, plant and equipment
contributed to Equistar and the sale of various nonstrategic oil and gas
properties. The balance in net assets of discontinued operations at December 31,
1997 included the operating assets and liabilities of MidCon.
Current maturities of long-term debt and capital lease liabilities increased
reflecting the current portion of long-term debt that is expected to be paid in
the first quarter of 1999 using the proceeds of the $1.4 billion note
receivable. The increase in long-term debt reflected increased commercial paper
borrowings to fund a portion of the acquisition of the Elk Hills Field. Other
deferred credits and other liabilities decreased, reflecting the payment of
amounts associated with the sale of MidCon and the assumption by Equistar of
approximately $205 million of capital lease liabilities. The decrease in
nonredeemable preferred stock primarily reflected the conversion, in March 1998,
of all of the 15.1 million shares of Occidental's $3.875 preferred stock into
33.2 million shares of common stock. The decrease in ESOP preferred stock and
unearned ESOP shares resulted from the completion of the sale of MidCon. The
decrease in additional paid-in capital reflected dividends on common and
preferred stock and common stock repurchased offset, in part, by common stock
issued in connection with the preferred stock conversion.
Occidental believes it may have exhausted its accumulated earnings and profits
for tax purposes, therefore, some common and preferred stock dividends received
by shareholders in 1998 may be a return of capital.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133--"Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives in the statement of financial position and
measure those instruments at fair value. Occidental must implement SFAS No. 133
by the first quarter of 2000 and has not yet made a final determination of its
impact on the financial statements.
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YEAR 2000 ISSUE
Occidental's efforts to address Year 2000 (Y2K) issues began in 1997. In
addressing the issues Occidental has employed a five-step process consisting of:
1) conducting a company-wide inventory, 2) assessing Y2K compliance, 3)
remediating non-compliant software and hardware and particularly that which
employs embedded chips such as process controls, 4) testing remediated hardware
and software and 5) certifying Y2K compliance.
Personnel from operations and from functional disciplines, as well as
information technology professionals, are involved in the process. Outside
consultants have also been retained to participate in the inventory and
assessment process. A Y2K corporate-level manager was appointed to oversee and
provide consistency to the overall process, provide support resources on a
company-wide basis and minimize duplication of efforts. In addition, a committee
of senior corporate executives provides oversight through an extensive monthly
status review of project elements. Additionally, a report is made to
Occidental's Board of Directors on Y2K status at each board meeting.
Inventory and assessment activities are estimated at approximately 85 percent
complete. This data is continuously updated as new information becomes available
and we expect this to continue throughout the Y2K effort. Overall remediation
efforts are estimated at approximately 35 percent complete. The coincidental
replacement of several major existing systems is well under way; these efforts
began before the Y2K efforts were initiated therefore the timing for completion
of these projects has not been accelerated as a result of Y2K issues. These new
systems will allow Occidental to discontinue use of these existing systems prior
to January 1, 2000.
Costs for Y2K efforts are not being accumulated separately. Much of the cost is
being accounted for as part of normal operating budgets. Overall, the costs are
estimated to be approximately $50 million. Most of the cost is associated with
the remediation of various process control and field systems (systems that
utilize embedded computer chip technology). Due to the nature of these devices
and to minimize the impact on normal operations the remediation process will
continue until mid 1999. Overall, the costs are not expected to have a
significant effect on Occidental's consolidated financial position or results of
operations.
The risks associated with the Y2K issue can be substantial from the standpoint
of reliance on third parties. Communication with customers, suppliers and equity
partners to determine the extent of their Y2K efforts, including selected site
visits, is an integral part of the program. Occidental, like most companies, is
reliant on third parties for a wide variety of goods and services -- from raw
materials to electricity. Occidental's efforts include addressing the "supply
chain" issues to minimize the potential impact of a major supplier (or customer)
experiencing a Y2K problem that would adversely affect Occidental.
Because of these company wide efforts, Occidental believes that appropriate
actions have been taken to minimize the risk to its operations and financial
condition.
Contingency plans that address a reasonably likely worst case scenario are
currently being developed. These plans will address the key systems and third
parties that present potential significant risk. The plans will analyze the
strategies and resources necessary to restore operations in the unlikely event
that an interruption does occur. The plans will also outline a recovery program
detailing the necessary participants, processes and equipment needed to restore
operations. Contingency plans are expected to be finalized during the third
quarter of 1999.
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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, 1998, 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 174 Superfund or
comparable state sites. (This number does not include those sites where
Occidental has been successful in resolving its involvement). The 174 sites
include 66 former Diamond Shamrock Chemical sites as to which Maxus Energy
Corporation has retained all liability, and 2 sites at which the extent of such
retained liability is disputed. Of the remaining 106 sites, Occidental has
denied involvement at 15 sites and has yet to determine involvement in 15 sites.
With respect to the remaining 76 of these sites, Occidental is in various stages
of evaluation. For 68 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 68 sites include 15 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 8 of the 76 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 are forward-looking and involve risks and uncertainties
that could significantly affect expected results. 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.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GENERAL
There is incorporated by reference herein the information regarding legal
proceedings in Item 3 of Part I of Occidental's 1997 Annual Report on Form 10-K,
Item 1 of Part II of Occidental's Quarterly Report on Form 10-Q for the
quarterly periods ended March 31, 1998 and June 30, 1998 and Note 9 to the
consolidated condensed financial statements in Part I hereof.
In January 1998, two shareholder derivative actions were filed by the Teacher's
Retirement System of Louisiana and others in the Los Angeles Superior Court
against the Board of Directors of Occidental and Occidental, as a nominal
defendant, with respect to the payments made in 1997 to Occidental's Chairman
and President in connection with the restructuring of their respective
employment agreements. In August 1998, the Superior Court sustained defendants'
demurrers to the consolidated complaint with leave to amend. Thereafter,
plaintiffs filed a second amended consolidated complaint making allegations
similar to those that formed the basis of their earlier complaints. Plaintiffs
seek substantially the same relief, but deleted their request for a declaration
that the employment agreements are null and void. The parties have reached an
agreement in principle fully resolving the litigation without any admission of
liability by the defendants, subject to approval of the Superior Court following
notice to Occidental's shareholders of record. If approved by the court, the
agreement would not have a material adverse effect on Occidental's consolidated
financial condition or results of operations.
ENVIRONMENTAL PROCEEDINGS
In April 1998, a civil action was filed on behalf of the U.S. Environmental
Protection Agency (EPA) against Occidental Chemical Corporation (OxyChem)
relating to the Centre County Kepone Superfund Site at State College,
Pennsylvania. The lawsuit seeks approximately $12 million in penalties and
governmental response costs, a declaratory judgment that OxyChem is a liable
party under CERCLA, and an order requiring OxyChem to carry out the remedy that
is being performed by the site owner. In October 1998, the U.S. District Court
for the Middle District of Pennsylvania granted OxyChem's motion to dismiss the
United States' case.
In October 1998, OxyChem received an administrative complaint filed by Region
III of the EPA with respect to OxyChem's former manufacturing plant at Belle,
West Virginia. The complaint alleges that OxyChem violated various hazardous
waste management rules in 1994 and 1995 and demands civil penalties of
approximately $245 thousand. OxyChem intends to vigorously contest the alleged
violations and the proposed penalties.
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ITEM 5. OTHER INFORMATION
In September 1998, the Board of Directors of Occidental amended the provision of
the By-laws pertaining to the manner in which a stockholder may properly present
business (for example, introduce a proposal that was not included in the proxy
materials) at the Annual Meeting of Stockholders.
Under the By-laws, as amended, to be properly brought before the Annual Meeting,
business must be brought by a stockholder of Occidental (i) who is a stockholder
of record on the date notice is given as provided below and on the record date
for the determination of stockholders entitled to vote at the Annual Meeting and
(ii) who complies with the notice procedures described below. The stockholder
must give timely notice of the business to be brought to the Secretary of
Occidental. The notice must be received at the principal executive offices of
Occidental, not less than 70 days nor more than 90 days prior to the anniversary
date of the immediately preceding Annual Meeting (for example, the 1998 Annual
Meeting was held on May 1st, therefore, stockholder proposals must be received
at Occidental's executive offices from January 31, 1999 through February 20,
1999). The notice must contain (i) a brief description of the business desired
to be brought before the meeting, the reasons for conducting such business at
the Annual Meeting and any material interest in such business of the stockholder
and the beneficial holder, if any, on whose behalf the proposal is made, (ii)
the name and record address of the proponent, (iii) the class, series and number
of shares of Occidental beneficially owned by the proponent, (iv) a description
of all arrangements or understandings between the proponent or any other
person(s) (including their names) in connection with such business, (v) whether
the proponent intends to distribute proxy materials and (vi) a representation
that the proponent intends to appear in person or by another person authorized
to act as proxy for the proponent to present such business.
The change to the By-laws described above does not affect proposals submitted to
Occidental in accordance with Rule 14a-8 of the SEC's proxy rules. As disclosed
in Occidental's Proxy Statement for the 1998 Annual Meeting of Stockholders, in
order to be included in the proxy statement and form of proxy relating to the
1999 Annual Meeting, stockholder proposals must be received at Occidental's
executive offices by November 17, 1998. In order for a shareholder proposal made
outside of Rule 14a-8 to be considered timely within the meaning of Rule
14a-4(c), such proposal must be received by Occidental's principal executive
offices not later than 70 days nor more than 90 days prior to the anniversary
date of the immediately preceding Annual Meeting.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3 By-laws of Occidental, as amended through September
17, 1998
4.1 First Amendment dated as of August 31, 1998, amending
that certain Credit Agreement dated as of March 20,
1997, among Occidental and the Banks named therein
11 Statement regarding the computation of earnings per
share for the three and nine months ended September
30, 1998 and 1997
12 Statement regarding the computation of total
enterprise ratios of earnings to fixed charges for
the nine months ended September 30, 1998 and 1997 and
the five years ended December 31, 1997
27 Financial data schedule for the nine-month period
ended September 30, 1998 (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 September 30, 1998, Occidental filed
the following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated May 15, 1998 (date
of earliest event reported), filed on July 17, 1998,
for the purpose of reporting, under Item 2, the
completion of the Equistar transaction, under Item 5,
certain recent developments, and under Item 7,
certain financial statements and pro forma financial
information
2. Current Report on Form 8-K dated July 20, 1998 (date
of earliest event reported), filed on July 21, 1998,
for the purpose of reporting, under Item 5,
Occidental's results of operations for the quarter
ended June 30, 1998
From September 30, 1998 to the date hereof, Occidental filed
the following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated September 25, 1998
(date of earliest event reported), filed on October
2, 1998, for the purpose of reporting, under Item 5,
the sale of notes and liquidity status and under Item
7, certain exhibits related to the issuance of notes
2. Current Report on Form 8-K dated October 21, 1998
(date of earliest event reported), filed on October
22, 1998, for the purpose of reporting, under Item 5,
Occidental's results of operations for the quarter
ended September 30, 1998
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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 12, 1998 S. P. Dominick, Jr.
-----------------------------------------
S. P. Dominick, Jr., Vice President and
Controller (Chief Accounting and Duly
Authorized Officer)
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EXHIBIT INDEX
EXHIBITS
- --------
3 By-laws of Occidental, as amended through September 17, 1998
4.1 First Amendment dated as of August 31, 1998, amending that certain
Credit Agreement dated as of March 20, 1997, among Occidental and
the Banks named therein
11 Statement regarding the computation of earnings per share for the
three and nine months ended September 30, 1998 and 1997
12 Statement regarding the computation of total enterprise ratios of
earnings to fixed charges for the nine months ended September 30,
1998 and 1997 and the five years ended December 31, 1997
27 Financial data schedule for the nine-month period ended September
30, 1998 (included only in the copy of this report filed
electronically with the Securities and Exchange Commission)