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, 1996
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, 1996
--------------------------- ---------------------------------
Common stock $.20 par value 328,906,609 shares
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets --
September 30, 1996 and December 31, 1995 2
Consolidated Condensed Statements of Operations --
Three and nine months ended September 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows --
Nine months ended September 30, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(Amounts in millions)
1996 1995
================================================================= ========= =========
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 5) $ 135 $ 520
Receivables, net 938 891
Inventories (Note 6) 610 647
Prepaid expenses and other 328 461
--------- ---------
Total current assets 2,011 2,519
LONG-TERM RECEIVABLES, net 140 158
EQUITY INVESTMENTS (Note 12) 1,029 927
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation, depletion and amortization of $9,268
at September 30, 1996 and $8,837 at December 31, 1995 (Note 7) 13,794 13,867
OTHER ASSETS 360 344
--------- ---------
$ 17,334 $ 17,815
================================================================= ========= =========
The accompanying notes are an integral part of these financial statements.
2
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(Amounts in millions)
1996 1995
========================================================================= ========= =========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of senior funded debt and capital lease liabilities $ 28 $ 522
Notes payable 67 16
Accounts payable 888 859
Accrued liabilities 1,052 1,168
Domestic and foreign income taxes 126 92
--------- ---------
Total current liabilities 2,161 2,657
--------- ---------
SENIOR FUNDED DEBT, net of current maturities and unamortized discount 4,570 4,819
--------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred and other domestic and foreign income taxes 2,530 2,620
Other 3,004 3,089
--------- ---------
5,534 5,709
--------- ---------
NONREDEEMABLE PREFERRED STOCK, COMMON STOCK AND
OTHER STOCKHOLDERS' EQUITY
Nonredeemable preferred stock, stated at liquidation value 1,325 1,325
Common stock, at par value 66 64
Other stockholders' equity
Additional paid-in capital 4,564 4,631
Retained earnings(deficit) (893) (1,402)
Cumulative foreign currency translation adjustments 7 12
--------- ---------
5,069 4,630
--------- ---------
$ 17,334 $ 17,815
========================================================================= ========= =========
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, 1996 AND 1995
(Amounts in millions, except per-share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ----------------------
1996 1995 1996 1995
====================================================== ========= ========= ========= =========
REVENUES
Net sales and operating revenues
Oil and gas operations $ 1,148 $ 779 $ 2,780 $ 2,240
Natural gas transmission operations 554 454 1,777 1,460
Chemical operations 1,084 1,325 3,210 4,253
Other -- (1) (2) (3)
--------- --------- --------- ---------
2,786 2,557 7,765 7,950
Interest, dividends and other income 63 31 233 78
Gains on asset dispositions, net 1 (2) 5 44
Income from equity investments (Note 12) 21 29 64 87
--------- --------- --------- ---------
2,871 2,615 8,067 8,159
--------- --------- --------- ---------
COSTS AND OTHER DEDUCTIONS
Cost of sales 2,162 1,958 5,870 5,931
Selling, general and administrative and other
operating expenses 322 241 779 837
Environmental remediation 6 5 94 16
Exploration expense 31 13 78 63
Interest and debt expense, net 115 147 375 436
--------- --------- --------- ---------
2,636 2,364 7,196 7,283
--------- --------- --------- ---------
Income(loss) before taxes 235 251 871 876
Provision for domestic and foreign income and
other taxes (Note 11) 41 112 332 372
--------- --------- --------- ---------
Income before extraordinary gain(loss), net 194 139 539 504
Extraordinary gain(loss), net (Note 3) -- -- (30) --
--------- --------- --------- ---------
NET INCOME(LOSS) 194 139 509 504
Preferred dividends (23) (24) (69) (70)
--------- --------- --------- ---------
EARNINGS(LOSS) APPLICABLE TO
COMMON STOCK $ 171 $ 115 $ 440 $ 434
========= ========= ========= =========
PRIMARY EARNINGS PER COMMON SHARE
Income before extraordinary gain(loss), net $ .53 $ .36 $ 1.46 $ 1.37
Extraordinary gain(loss), net -- -- (.09) --
--------- --------- --------- ---------
Primary earnings(loss) per common share $ .53 $ .36 $ 1.37 $ 1.37
========= ========= ========= =========
FULLY DILUTED EARNINGS PER COMMON SHARE
Income before extraordinary gain(loss), net $ .50 $ .36 $ 1.41 $ 1.33
Extraordinary gain(loss), net -- -- (.08) --
--------- --------- --------- ---------
Fully diluted earnings(loss) per common share $ .50 $ .36 $ 1.33 $ 1.33
========= ========= ========= =========
DIVIDENDS PER SHARE OF COMMON STOCK $ .25 $ .25 $ .75 $ .75
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 325.3 318.6 322.4 318.0
====================================================== ========= ========= ========= =========
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, 1996 AND 1995
(Amounts in millions)
1996 1995
============================================================================== ========= =========
CASH FLOW FROM OPERATING ACTIVITIES
Net income(loss) $ 509 $ 504
Adjustments to reconcile income to net cash provided by operating activities
Extraordinary (gain)loss, net 30 --
Depreciation, depletion and amortization of assets 687 708
Deferred income tax provision 7 54
Other noncash charges to income 271 167
Gains on asset dispositions, net (5) (44)
Income from equity investments (64) (87)
Exploration expense 78 63
Changes in operating assets and liabilities (110) (357)
Other operating, net (153) (104)
--------- ---------
Net cash provided by operating activities 1,250 904
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (780) (606)
Proceeds from disposal of property, plant and equipment, net 213 171
Buyout of operating leases -- (141)
Purchase of businesses (18) --
Sale of businesses, net 24 469
Other investing, net (46) 86
--------- ---------
Net cash used by investing activities (607) (21)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from senior funded debt 11 218
Net proceeds from commercial paper and revolving credit agreements 531 (528)
Payments on senior funded debt and capital lease liabilities (1,340) (316)
Proceeds from issuance of common stock 18 23
Proceeds(payments) of notes payable 51 (4)
Cash dividends paid (309) (303)
Other financing, net 10 16
--------- ---------
Net cash used by financing activities (1,028) (894)
--------- ---------
Increase(decrease) in cash and cash equivalents (385) (11)
Cash and cash equivalents--beginning of period 520 129
--------- ---------
Cash and cash equivalents--end of period $ 135 $ 118
============================================================================== ========= =========
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, 1996
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, 1995 (1995 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, 1996 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, 1996 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 1996 presentation.
Reference is made to Note 1 to the consolidated financial statements
incorporated by reference in the 1995 Form 10-K for a summary of significant
accounting policies.
2. Asset Acquisitions and Dispositions
In April 1996, Occidental completed the acquisition of a 64 percent equity
interest in INDSPEC Holding Corporation (INDSPEC) for approximately $87
million in common stock. Under the terms of the transaction, INDSPEC's
management and employees retained voting control of INDSPEC. Also in April,
Occidental completed the sale of its subsidiary which engages in on-shore
drilling and servicing of oil and gas wells for approximately $32 million.
In addition, certain assets of its international phosphate fertilizer
trading operations were sold for notes receivable of approximately $20
million. In July, Occidental sold its royalty oil interests in the Congo for
$215 million to the Republic of the Congo. None of these transactions
resulted in a material gain or loss.
In August 1996, Occidental acquired three specialty chemical operations--
Laurel Industries, Inc., Natural Gas Odorizing, Inc. and a plant from Power
Silicates Manufacturing, Inc.--in three separate transactions for
approximately $146 million, of which approximately $127 million was in
Occidental common stock.
3. Extraordinary Gain(Loss)
The 1996 nine month results included a net extraordinary loss of $30
million, which resulted from the early retirement of high-coupon debt.
6
4. Supplemental Cash Flow Information
Cash payments during the nine months ended September 30, 1996 and 1995
included federal, foreign and state income taxes of approximately $186
million and $221 million, respectively. Interest paid (net of interest
capitalized) totaled approximately $383 million and $450 million for the
nine month periods ended September 30, 1996 and 1995, 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 $190 million and $620 million at September 30, 1996 and
December 31, 1995, respectively. The reduction in cash equivalents reflected
the use of cash for the redemption of the 11.75% Senior Debentures in March
1996.
A cash-management system is utilized to minimize the cash balances required
for operations and to invest the surplus cash in liquid short-term money-
market instruments and/or to pay down short-term borrowings. This can result
in the balance of short-term money-market instruments temporarily exceeding
cash and cash equivalents.
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, 1996 December 31, 1995
======================= ================== =================
Raw materials $ 113 $ 116
Materials and supplies 185 180
Work in progress 18 17
Finished goods 342 363
--------- ---------
658 676
LIFO reserve (48) (29)
--------- ---------
Total $ 610 $ 647
========= =========
7. Property, Plant and Equipment
Reference is made to the consolidated financial statements and Note 1
thereto incorporated by reference in the 1995 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 1995 Form 10-K for a description of the
retirement plans and postretirement benefits of Occidental and its
subsidiaries.
7
9. Lawsuits, Claims and Related Matters
Occidental and certain of its subsidiaries have been named in a substantial
number of governmental proceedings as defendants or potentially responsible
parties under the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA) and corresponding state acts. These 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.
As to those proceedings, for which Occidental does not have sufficient
information to determine a range of liability, Occidental does have
sufficient information on which to base the opinion below.
It is impossible at this time to determine the ultimate legal liabilities
that may arise from various lawsuits, claims and proceedings, including
environmental proceedings described above, pending against Occidental and
its subsidiaries, some of which involve substantial amounts. However, in
management's opinion, after taking into account reserves, none of such
pending lawsuits, claims and proceedings should have a material adverse
effect upon Occidental's consolidated financial position or results of
operations in any given year.
10. Other Commitments and Contingencies
Occidental has certain other commitments under contracts, guarantees and
joint ventures, as well as certain other contingent liabilities.
Additionally, Occidental has agreed to participate in the development of
certain natural gas reserves and construction of a liquefied natural gas
plant in Malaysia; however, Occidental has not yet entered into any material
development or construction contracts.
Reference is made to Note 11 to the consolidated financial statements
incorporated by reference in the 1995 Form 10-K for information concerning
Occidental's long-term purchase obligations for certain products and
services.
In management's opinion, none of such commitments and contingencies
discussed above should have a material adverse effect upon Occidental's
consolidated financial position or results of operations in any given year.
11. Income Taxes
The provision for taxes based on income for the 1996 and 1995 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.
The provision for federal income tax in 1996 is benefited by approximately
$100 million from a reduction in the deferred tax asset valuation allowance
due to the increase in likelihood regarding the realization of specific
deferred tax assets.
At December 31, 1995, Occidental had, for U.S. federal income tax return
purposes, a capital loss carryforward of approximately $21 million, a
business tax credit carryforward of $20 million and an alternative minimum
tax credit carryforward of $270 million available to reduce future income
taxes. To the extent not used, the capital loss carryforward expires in 2000
and the business tax credit expires in
8
varying amounts during the years 2000 and 2001. The alternative minimum tax
credit carryforward does not expire.
Occidental is subject to audit by taxing authorities for varying periods in
various tax jurisdictions. Management believes that any required adjustments
to Occidental's tax liabilities will not have a material adverse impact on
Occidental's financial position or results of operations in any given year.
12. Investments
Investments in 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, 1996, Occidental's
equity investments consisted primarily of joint-interest pipelines,
including a pipeline in the Dutch sector of the North Sea, a 30 percent
investment in the common shares of Canadian Occidental Petroleum Ltd. and
various chemical partnerships. 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
---------------------- ----------------------
1996 1995 1996 1995
========= ========= ========= =========
Revenues $ 214 $ 202 $ 634 $ 606
Costs and expenses 193 173 570 519
--------- --------- --------- ---------
Net income $ 21 $ 29 $ 64 $ 87
========= ========= ========= =========
13. 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
---------------------- ----------------------
1996 1995 1996 1995
========= ========= ========= =========
Revenues $ 254 $ 175 $ 732 $ 537
Costs and expenses 230 194 658 552
--------- --------- --------- ---------
Net income $ 24 $ (19) $ 74 $ (15)
========= ========= ========= =========
Balance at September 30, 1996 December 31, 1995
=============================== ================== =================
Current assets $ 123 $ 206
Intercompany receivable $ 428 $ 323
Noncurrent assets $ 2,018 $ 2,057
Current liabilities $ 221 $ 244
Interest bearing note to parent $ 105 $ 121
Noncurrent liabilities $ 1,232 $ 1,283
Stockholders' equity $ 1,011 $ 938
------------------------------- ------------------ -----------------
9
14. Subsequent Events
On November 4, 1996, Occidental redeemed all of the outstanding $150 million
principal amount of its Floating Rate Senior Notes which were due November
4, 1999 at a redemption price of 100% of the principal amount, and the notes
were replaced with lower-cost debt.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Occidental's net income for the first nine months of 1996 totaled $509 million,
on net sales and operating revenues of $7.8 billion, compared with net income of
$504 million, on net sales and operating revenues of $8.0 billion, for the same
period of 1995. Occidental's net income for the third quarter of 1996 was $194
million, on net sales and operating revenues of $2.8 billion, compared with $139
million, on net sales and operating revenues of $2.6 billion, for the same
period of 1995. Primary earnings per common share were $1.37 for the first nine
months of 1996, compared with $1.37 for the same period of 1995. Primary
earnings per common share were $.53 for the third quarter of 1996, compared with
$.36 for the same period of 1995.
The decrease in net sales and operating revenues for the nine months of 1996,
compared with the same period of 1995, reflected the impact of reduced chemical
prices, primarily for petrochemicals and PVC resins, partially offset by higher
worldwide crude oil prices, higher domestic natural gas prices and higher crude
oil trading revenues.
Interest, dividends and other income for the nine months of 1996 includes $170
million received for a litigation settlement related to Love Canal.
Income from equity investments decreased for the third quarter of 1996, compared
with the similar period of 1995. The decrease in 1996 primarily reflected lower
equity earnings from chemical investments.
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
---------------------- ----------------------
1996 1995 1996 1995
========= ========= ========= =========
DIVISIONAL NET SALES
Oil and gas $ 1,148 $ 779 $ 2,780 $ 2,240
Natural gas transmission 554 454 1,777 1,460
Chemical 1,084 1,325 3,210 4,253
Other -- (1) (2) (3)
--------- --------- --------- ---------
NET SALES $ 2,786 $ 2,557 $ 7,765 $ 7,950
========= ========= ========= =========
DIVISIONAL EARNINGS
Oil and gas $ 20 $ 46 $ 325 $ 76
Natural gas transmission 49 54 221 191
Chemical 228 252 558 913
--------- --------- --------- ---------
297 352 1,104 1,180
UNALLOCATED CORPORATE ITEMS
Interest expense, net (107) (133) (349) (410)
Income taxes, administration and other 4 (80) (216) (266)
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY GAIN(LOSS), NET 194 139 539 504
Extraordinary gain(loss), net -- -- (30) --
--------- --------- --------- ---------
NET INCOME $ 194 $ 139 $ 509 $ 504
========= ========= ========= =========
11
Selling, general and administrative and other operating expenses were $779
million for the first nine months of 1996, compared with $837 million for the
same period of 1995. Environmental remediation was $94 million for the first
nine months of 1996 which included a second quarter charge of $75 million for
additional environmental reserves, compared with $16 million for the same period
of 1995. The 1996 amount included a third quarter charge of $105 million for
the write-down in an oil and gas project in the Republic of Komi. The 1995
amount included a second quarter charge of $109 million for settlement of
litigation.
The provision for income taxes was $332 million for the first nine months of
1996, compared with $372 million for the same period of 1995 and $41 million for
the third quarter of 1996, compared with $112 million for the third quarter of
1995. Both periods of 1996 benefited by approximately $100 million for a
reduction in the deferred tax asset valuation allowance. This was partially
offset by a slightly higher effective tax rate for 1996.
Oil and gas earnings before special items for the first nine months of 1996 were
$430 million, compared with $185 million for the same period of 1995. Oil and
gas earnings before special items for the third quarter of 1996 were $125
million, compared with $46 million for the third quarter of 1995. The third
quarter 1996 results, after inclusion of the $105 million write-down as
previously discussed, were $20 million. The 1995 first nine months results
included a charge of $109 million for settlement of litigation. The increase in
third quarter earnings in 1996, compared with 1995, reflected higher worldwide
crude oil prices and higher domestic natural gas prices partially offset by
higher exploration expense. 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.
Natural gas transmission earnings for the first nine months of 1996 were $221
million, compared with $191 million for the same period of 1995. Natural gas
transmission earnings for the third quarter of 1996 were $49 million, compared
with $54 million for the same period of 1995. The decline in earnings for the
third quarter of 1996, compared with the same period of 1995, resulted primarily
from lower transport margins, partially offset by higher liquid processing
margins and lower costs related to the reorganization in late 1995.
Chemical earnings before special items for the first nine months of 1996 were
$468 million, compared with $873 million for the same period of 1995. The 1996
results, after inclusion of $170 million related to favorable litigation
settlements and a charge of $75 million for additional environmental reserves
relating to various existing sites, and the related state tax effects, were $558
million. The 1995 results, after inclusion of a $40 million pretax gain related
to the sale of assets, were $913 million. Chemical earnings before special
items for the third quarter of 1996 were $190 million, compared with $252
million for the third quarter of 1995. The 1996 third quarter results were $228
million after inclusion of $40 million related to a favorable litigation
settlement and the related state tax effects. The decline in third quarter 1996
earnings resulted primarily from decreased profit margins in petrochemicals, PVC
resins and caustic soda, partially reduced by improvements in profits from
specialty chemicals. Most of Occidental's chemical products are commodity in
nature, the prices of which are sensitive to a number of complex factors.
Occidental is unable to accurately forecast the trend of sales prices for its
commodity chemical products. However, PVC and certain petrochemical prices
recently have increased slightly.
Divisional earnings include credits in lieu of U.S. federal income taxes. In
the first nine months of 1996, divisional earnings benefited by $67 million from
credits allocated. This included credits of $11 million, $36 million and $20
million at oil and gas, natural gas transmission and chemical, respectively. Of
the total amount for the first nine months of 1996, $22 million was recorded in
the third quarter of 1996 as a benefit to divisional earnings, of which $3
million, $12 million and $7 million was recorded at oil and gas, natural gas
transmission and chemical, respectively. In the first nine months of 1995,
divisional earnings benefited by $68 million. The comparable amounts allocated
to the divisions were credits of $12 million, $36 million and $20 million at oil
and gas, natural gas transmission and chemical, respectively. Of the total
amount for the nine months of 1995, $22 million was recorded in the third
quarter of 1995 as a benefit to divisional earnings, of
12
which $4 million, $12 million and $6 million was recorded at oil and gas,
natural gas transmission and chemical, respectively.
Interest expense for the first nine months of 1996 was $349 million, compared
with $410 million for the same period of 1995. Interest expense for the third
quarter of 1996 was $107 million, compared with $133 million for the third
quarter of 1995. The decline in interest expense is primarily attributable to
lower average interest rates and lower average debt levels resulting primarily
from redemptions of high-coupon debt.
Occidental and certain of its subsidiaries are parties to various lawsuits,
environmental and other proceedings and claims, some of which involve
substantial amounts. See Note 9 to the consolidated condensed financial
statements. Occidental also has commitments under contracts, guarantees and
joint ventures and certain other contingent liabilities. See Note 10 to the
consolidated condensed financial statements. In management's opinion, after
taking into account reserves, none of these matters should have a material
adverse effect upon Occidental's consolidated financial position or results of
operations in any given year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Occidental's net cash provided by operating activities was $1,250 million for
the first nine months of 1996, compared with $904 million for the same period of
1995. The 1996 noncash charges included $105 million for the write-down in an
oil and gas project in the Republic of Komi and $75 million for additional
environmental reserves, partially offset by a $39 million favorable litigation
settlement. The 1996 and 1995 noncash charges also included employee benefit
plans expense and various other charges.
Occidental's net cash used by investing activities was $607 million for the
first nine months of 1996, compared with $21 million for the same period of
1995. Capital expenditures were $780 million in 1996, including $510 million in
oil and gas, $102 million in natural gas transmission and $154 million in
chemical. Capital expenditures were $606 million in 1995, including $374
million in oil and gas, $93 million in natural gas transmission and $132 million
in chemical. The increase in 1996 from 1995 reflected higher spending in oil
and gas, primarily in Peru and Qatar. Net proceeds from the sale of businesses
and disposals of property, plant and equipment for the first nine months of 1996
totaled $237 million, which primarily reflected the proceeds from the sale of
Occidental's royalty interest in the Congo and an on-shore drilling and well
servicing subsidiary. Net proceeds from the sale of businesses and disposals of
property, plant and equipment for the first nine months of 1995 totaled $640
million, which primarily reflected the proceeds from the sale of Occidental's
high density polyethylene business (HDPE), its PVC facility at Addis, Louisiana
and the sale of a portion of Occidental's oil and gas operation in Pakistan.
Financing activities used net cash of $1,028 million in the first nine months of
1996, compared with $894 million for the same period of 1995. The 1996 amount
reflected net cash used of $747 million to reduce short-term and long-term debt,
net of proceeds from borrowings, primarily for the redemptions of the 11.75%
Senior Debentures and the 9.625% Senior Notes, and the payment of dividends of
$309 million. In 1995, repayments of debt, net of proceeds from borrowings,
resulted in net cash used of $630 million to reduce long-term debt.
Additionally, dividend payments were $303 million.
For 1996, Occidental expects that cash generated from operations and asset sales
will be more than adequate to meet its operating requirements, capital spending
and dividend payments. Excess cash generated is expected to be applied to debt
and liability reduction. Occidental also has substantial borrowing capacity to
meet unanticipated cash requirements.
At September 30, 1996, Occidental's working capital was a negative $150 million,
compared with a negative $138 million at December 31, 1995. Available but
unused lines of committed bank credit totaled approximately $2.0 billion at
September 30, 1996, compared with $2.6 billion at December 31, 1995.
13
Receivables at September 30, 1996 include the accrual for litigation settlements
previously mentioned.
Equity investments at September 30, 1996 include the interest in INDSPEC Holding
Corporation (INDSPEC) as discussed below.
Current maturities of senior funded debt and capital lease liabilities decreased
primarily as a result of the redemption of the 11.75% Senior Debentures in March
1996.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." As permitted by SFAS No. 123, Occidental will not recognize
compensation expense for stock-based compensation arrangements, but rather will
disclose in the notes to the financial statements the impact on annual net
income and earnings per share as if the fair value based compensation cost had
been recognized commencing in 1996.
In April 1996, Occidental completed the sale of its subsidiary which engages in
on-shore drilling and servicing of oil and gas wells for approximately $32
million. In addition, certain assets of its international phosphate fertilizer
trading operation were sold for notes receivable of approximately $20 million.
Also in April, Occidental completed the acquisition of a 64 percent equity
interest in INDSPEC for approximately $87 million in common stock. Under the
terms of the transaction, INDSPEC's management and employees retained voting
control of INDSPEC. None of these transactions resulted in a material gain or
loss.
In August 1996, Occidental acquired three specialty chemical operations--Laurel
Industries, Inc., Natural Gas Odorizing, Inc. and a plant from Power Silicates
Manufacturing, Inc.--in three separate transactions for approximately $146
million, of which approximately $127 million was in Occidental common stock.
On November 4, 1996, Occidental redeemed all of the outstanding $150 million
principal amount of its Floating Rate Senior Notes which were due November 4,
1999 at a redemption price of 100% of the principal amount, and the notes were
replaced with lower-cost debt.
ENVIRONMENTAL MATTERS
Occidental's operations in the United States are subject to increasingly
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 are expected to continue to rise in the
future.
The laws which require or address remediation 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 as a
relevant measure of exposure. Although the liability of a potentially
responsible party (PRP), and in many cases its equivalent under state law, is
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, 1996, 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 291 Superfund or
comparable state sites. (This number does not include 65 sites where Occidental
has been successful in resolving its involvement.) The 291 sites include 80
former Diamond Shamrock Chemical sites
14
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 209
sites, Occidental has had no communication or activity with government agencies
or other PRPs in three years at 38 sites, has denied involvement at 33 sites and
has yet to determine involvement in 24 sites. With respect to the remaining 114
of these sites, Occidental is in various stages of evaluation. For 104 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 104 sites include 37 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 10 of the 114 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."
15
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 1995 Annual Report on Form 10-K,
Item 1 of Part II of Occidental's Quarterly Report on Form 10-Q for the
quarterly period ended March 31 and June 30, 1996 and Note 10 to the
consolidated condensed financial statements in Part I hereof.
ENVIRONMENTAL PROCEEDINGS
On September 30, 1996, the Environmental Protection Agency filed an
administrative Complaint against Natural Gas Odorizing, Inc., which was recently
acquired by Occidental, alleging failure to file during 1994 an Inventory Update
Report under the Toxic Substance Control Act regarding its facility in Baytown,
Texas and proposing a "civil" penalty of $136,000. A settlement conference has
been tentatively scheduled.
On October 1, 1996, the West Virginia Division of Environmental Protection filed
a civil action in the Circuit Court, Kanawha County, West Virginia against
Occidental Chemical Corporation (OCC) alleging numerous violations of hazardous
waste management regulations at its Belle Plant from October 1994 to September
1995. The Complaint seeks civil penalties of $25,000 per day and injunctive
relief requiring correction of the alleged violations. OCC will contest the
allegations and proposed civil penalties.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Agreement, dated September 9, 1996, between Occidental and
David R. Martin
10.2 Occidental Petroleum Corporation 1988 Deferred Compensation
Plan (as amended and restated effective as of January 1,
1996)
11 Statement regarding the computation of earnings per share
for the three and nine months ended September 30, 1996 and
1995
12 Statement regarding the computation of total enterprise
ratios of earnings to fixed charges for the nine months
ended September 30, 1996 and 1995 and the five years ended
December 31, 1995
27 Financial data schedule for the nine month period ended
September 30, 1996 (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, 1996, Occidental filed the
following Current Reports on Form 8-K:
16
1. Current Report on Form 8-K dated July 22, 1996 (date of
earliest event reported), filed on July 23, 1996, for the
purpose of reporting, under Item 5, Occidental's results of
operations for the quarter ended June 30, 1996
From September 30, 1996 to the date hereof, Occidental filed the
following Current Report on Form 8-K:
1. Current Report on Form 8-K dated October 17, 1996 (date of
earliest event reported), filed on October 18, 1996, for
the purpose of reporting, under Item 5, Occidental's
results of operations for the quarter ended September 30,
1996
17
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, 1996 S. P. Dominick, Jr.
--------------------------------------------------
S. P. Dominick, Jr., Vice President and Controller
(Chief Accounting and Duly Authorized Officer)
18
EXHIBIT INDEX
EXHIBITS
- --------
10.1 Agreement, dated September 9, 1996, between Occidental and David R.
Martin
10.2 Occidental Petroleum Corporation 1988 Deferred Compensation Plan (as
amended and restated effective as of January 1, 1996)
11 Statement regarding the computation of earnings per share for the
three and nine months ended September 30, 1996 and 1995
12 Statement regarding the computation of total enterprise ratios of
earnings to fixed charges for the nine months ended September 30, 1996
and 1995 and the five years ended December 31, 1995
27 Financial data schedule for the nine month period ended September 30,
1996 (included only in the copy of this report filed electronically
with the Securities and Exchange Commission)