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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 June 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)
---------------------
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 June 30, 1998
--------------------------- ----------------------------
Common stock $.20 par value 353,034,321 shares
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OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets --
June 30, 1998 and December 31, 1997 2
Consolidated Condensed Statements of Operations --
Three and six months ended June 30, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows --
Six months ended June 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 18
Item 6. Exhibits and Reports on Form 8-K 18
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(Amounts in millions)
1998 1997
================================================================================ ======= =======
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 5) $ 134 $ 113
Receivables, net 602 813
Inventories (Note 6) 481 604
Prepaid expenses, note receivable and other 1,602 386
------- -------
Total current assets 2,819 1,916
LONG-TERM RECEIVABLES, net 112 153
EQUITY INVESTMENTS (Notes 3 and 11) 2,120 921
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation, depletion and amortization of $6,534
at June 30, 1998 and $7,967 at December 31, 1997 (Notes 3 and 7) 10,011 8,590
OTHER ASSETS 476 470
NET ASSETS OF DISCONTINUED OPERATIONS (Note 3) -- 3,232
------- -------
$15,538 $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
JUNE 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 $ 1,401 $ 6
Notes payable 31 35
Accounts payable 495 717
Accrued liabilities 904 1,063
Domestic and foreign income taxes 118 49
-------- --------
Total current liabilities 2,949 1,870
-------- --------
LONG-TERM DEBT, net of current maturities and unamortized discount 5,608 4,925
-------- --------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred and other domestic and foreign income taxes 941 1,028
Other 2,306 3,173
-------- --------
3,247 4,201
-------- --------
STOCKHOLDERS' EQUITY
Nonredeemable preferred stock, stated at liquidation value 294 1,125
ESOP preferred stock, at par value -- 1,400
Unearned ESOP shares -- (1,348)
Common stock, at par value 71 68
Additional paid-in capital 4,122 4,149
Retained earnings(deficit) (735) (1,097)
Accumulated other comprehensive income (18) (11)
-------- --------
3,734 4,286
-------- --------
$ 15,538 $ 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 SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Amounts in millions, except per-share amounts)
Three Months Ended Six Months Ended
June 30 June 30
------------------- -------------------
1998 1997 1998 1997
=============================================================== ======= ======= ======= =======
REVENUES
Net sales
Oil and gas operations $ 739 $ 1,055 $ 1,479 $ 1,897
Chemical operations 804 1,103 1,764 2,178
------- ------- ------- -------
1,543 2,158 3,243 4,075
Interest, dividends and other income 72 19 150 34
Gains on disposition of assets, net (Note 3) 304 (1) 411 (1)
Income from equity investments (Note 11) 1 12 8 30
------- ------- ------- -------
1,920 2,188 3,812 4,138
------- ------- ------- -------
COSTS AND OTHER DEDUCTIONS
Cost of sales 1,200 1,604 2,465 2,931
Selling, general and administrative and other
operating expenses 213 181 391 377
Environmental remediation -- 12 -- 18
Exploration expense 29 17 52 42
Interest and debt expense, net 145 108 276 216
------- ------- ------- -------
1,587 1,922 3,184 3,584
------- ------- ------- -------
Income(loss) from continuing operations before taxes 333 266 628 554
Provision for domestic and foreign income and
other taxes (Note 10) 147 128 303 289
------- ------- ------- -------
Income(loss) from continuing operations 186 138 325 265
Discontinued operations, net (Note 3) -- 20 38 72
------- ------- ------- -------
NET INCOME(LOSS) 186 158 363 337
Preferred dividends (5) (23) (9) (46)
------- ------- ------- -------
EARNINGS(LOSS) APPLICABLE TO COMMON STOCK $ 181 $ 135 $ 354 $ 291
======= ======= ======= =======
BASIC EARNINGS PER COMMON SHARE
Income(loss) from continuing operations $ .51 $ .35 $ .90 $ .66
Discontinued operations, net -- .06 .11 .22
------- ------- ------- -------
Basic earnings(loss) per common share $ .51 $ .41 $ 1.01 $ .88
======= ======= ======= =======
DILUTED EARNINGS PER COMMON SHARE
Income(loss) from continuing operations $ .49 $ .34 $ .88 $ .64
Discontinued operations, net -- .05 .10 .20
------- ------- ------- -------
Diluted earnings(loss) per common share $ .49 $ .39 $ .98 $ .84
======= ======= ======= =======
DIVIDENDS PER COMMON SHARE $ .25 $ .25 $ .50 $ .50
======= ======= ======= =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 359.1 330.2 351.8 329.9
=============================================================== ======= ======= ======= =======
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 SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Amounts in millions)
1998 1997
========================================================================================= ======= =======
CASH FLOW FROM OPERATING ACTIVITIES
Net income from continuing operations $ 325 $ 265
Adjustments to reconcile income to net cash provided(used) by operating activities:
Depreciation, depletion and amortization of assets 451 411
Deferred income tax provision 237 73
Other noncash charges to income 26 43
Gains on disposition of assets, net (411) 1
Income from equity investments (8) (30)
Exploration expense 52 42
Changes in operating assets and liabilities (531) (293)
Other operating, net (157) (138)
------- -------
(16) 374
Operating cash flow from discontinued operations (244) 194
------- -------
Net cash provided(used) by operating activities (260) 568
------- -------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (586) (655)
Buyout of operating leases -- (20)
Proceeds from disposal of property, plant and equipment, net 667 --
Purchase of businesses, net (3,516) (4)
Sale of businesses, net 2,562 95
Other investing, net 18 8
------- -------
(855) (576)
Investing cash flow from discontinued operations (5) (21)
------- -------
Net cash used by investing activities (860) (597)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term debt 907 57
Net proceeds from commercial paper and revolving credit agreements 1,448 355
Payments on long-term debt and capital lease liabilities (280) (194)
Proceeds from issuance of common stock 12 13
Repurchase of common stock (744) --
Proceeds(payments) of notes payable (4) 58
Cash dividends paid (202) (211)
Other financing, net 4 2
------- -------
1,141 80
Financing cash flow from discontinued operations -- 6
------- -------
Net cash provided by financing activities 1,141 86
------- -------
Increase in cash and cash equivalents 21 57
Cash and cash equivalents--beginning of period 113 258
------- -------
Cash and cash equivalents--end of period $ 134 $ 315
========================================================================================= ======= =======
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
June 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 June 30, 1998 and the consolidated
results of operations for the three and six months then ended and the
consolidated cash flows for the six months then ended. The results of
operations and cash flows for the periods ended June 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 $356 million and $328 million for the six months ended June 30,
1998 and 1997, respectively, and $181 million and $157 million for the
second 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
and consisted of current assets of $428 million; net property, plant and
equipment of $5.536 billion; other assets of $64 million; current
liabilities of $442 million and long-term liabilities of $2.354 billion.
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 six
months ended June 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 six months
ended June 30, 1997, including historical Elk Hills results as if the
acquisition had occurred at January 1, 1997, would have been $142 million
($.36 earnings per share) and $325 million ($.85 earnings per share),
respectively. Pro forma revenues would have been $3.8 billion and $4.4
billion for the six months ended June 30, 1998 and 1997, respectively, and
$1.9 billion and $2.3 billion for the three months ended June 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
and 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 of up to $90 million 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. As a consequence of the transaction, at June 30, 1998, the assets
and liabilities transferred to the partnership (primarily property, plant
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and equipment and inventories) have been removed from the balance sheet
and an equity investment has been recorded. The income and cash flow
statements include amounts related to the assets transferred up to the
transaction 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.
4. Supplemental Cash Flow Information
Cash payments during the six months ended June 30, 1998 and 1997 included
federal, foreign and state income taxes of approximately $180 million and
$134 million, respectively. Interest paid (net of interest capitalized)
totaled approximately $235 million and $204 million for the six months
ended June 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 $101 million and $50 million at June 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 June 30, 1998 December 31, 1997
======================== ================= =================
Raw materials $ 44 $ 102
Materials and supplies 179 189
Work in process 11 22
Finished goods 293 342
-------- --------
527 655
LIFO reserve (46) (51)
-------- --------
Total $ 481 $ 604
======== ========
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.
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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. Additionally,
Occidental agreed to participate in the development of certain natural gas
reserves and construction of a liquefied natural gas plant in Malaysia and
the development of certain natural gas reserves and the construction of a
pipeline and related facilities in the Philippines. The obligations to
participate in such development in Malaysia and the Philippines would be
assumed by the Royal Dutch/Shell Group (Shell) if the proposed
transactions described in the subsequent events footnote are consummated.
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 June 30, 1998,
Occidental's equity investments consisted primarily of a 29.5 percent
interest in Equistar, a pipeline in the Dutch sector of the North Sea, 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 June 30
----------------------------------------------------------
Three Months Six Months
-------------------------- --------------------------
1998 1997 1998 1997
========== ========== ========== ==========
Revenues $ 396 $ 236 $ 606 $ 462
Costs and expenses 395 224 598 432
---------- ---------- ---------- ----------
Net income $ 1 $ 12 $ 8 $ 30
========== ========== ========== ==========
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 June 30
----------------------------------------------------------
Three Months Six Months
-------------------------- --------------------------
1998 1997 1998 1997
========== ========== ========== ==========
Revenues $ 448 $ 214 $ 844 $ 524
Costs and expenses 333 196 641 438
---------- ---------- ---------- ----------
Net income $ 115(a) $ 18 $ 203 $ 86
========== ========== ========== ==========
(a) Includes net gains on the sale of certain nonstrategic assets of $106 million.
Balance at June 30, 1998 December 31, 1997
================================= =================== ===================
Current assets $ 120 $ 150
Intercompany receivable $ 440 $ 29
Noncurrent assets $ 1,724 $ 2,024
Current liabilities $ 237 $ 259
Interest bearing note to parent $ 81 $ 89
Noncurrent liabilities $ 1,016 $ 1,106
Stockholders' equity $ 950 $ 749
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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
========================================== =========== =========== =========== ===========
Six months ended June 30, 1998
Net sales $ 1,479 $ 1,764 $ -- $ 3,243
=========== =========== =========== ===========
Pretax operating profit(loss) $ 694 $ 216 $ (282)(a) $ 628
Income taxes (82) 2 (223)(b) (303)
Discontinued operations, net -- -- 38 38
----------- ---------- ---------- -----------
Net income(loss) $ 612 $ 218 $ (467) $ 363
========================================== =========== =========== =========== ===========
Six months ended June 30, 1997
Net sales $ 1,897 $ 2,178 $ -- $ 4,075
=========== =========== =========== ===========
Pretax operating profit(loss) $ 535 $ 294 $ (275)(a) $ 554
Income taxes (149) (13) (127)(b) (289)
Discontinued operations, net -- -- 72 72
----------- ----------- ----------- -----------
Net income(loss) $ 386 $ 281 $ (330) $ 337
========================================== =========== =========== =========== ===========
(a) Includes unallocated net interest expense, administration expense and
other items.
(b) Includes unallocated income taxes.
14. Subsequent Events
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 owned interests in
eight gas-producing licenses in the Dutch North Sea and a 38.6 percent
interest in Noordgastransport B.V., which owned the gas pipeline system
that services the area. Occidental expects to record a pretax gain on the
disposition of approximately $145 million in the third quarter of 1998.
Also, in July 1998, Occidental and Shell entered into a series of
agreements pursuant to which Occidental will exchange its 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 will receive a
cash payment at closing presently estimated at approximately $90 million.
The transactions are expected to close in the third quarter of 1998,
pending receipt of necessary approvals.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Occidental's net income for the first six months of 1998 was $363 million, on
net sales of $3.2 billion, compared with $337 million, on net sales of $4.1
billion, for the same period of 1997. Occidental's net income for the second
quarter of 1998 was $186 million, on net sales of $1.5 billion, compared with
$158 million, on net sales of $2.2 billion, for the same period of 1997. Basic
earnings per common share were $1.01 for the first six months of 1998, compared
with $.88 for the same period of 1997. Basic earnings per common share were $.51
for the second quarter of 1998, compared with $.41 for the same period of 1997.
The 1998 earnings for the first six months included net pretax gains of
approximately $395 million from the sale of certain nonstrategic oil and gas
properties, as part of an asset redeployment program, of which $290 million was
recorded in the second quarter. The 1998 earnings also included $30 million for
reorganization and other charges in the chemical division in the second quarter
and $38 million 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 six months ended June 30 included income from discontinued operations
of $20 million and $72 million, respectively. Occidental completed the sale of
MidCon in January 1998. Earnings before special items were $47 million and $136
million for the three and six months ended June 30, 1998, respectively, compared
with $138 million and $265 million for the same periods in 1997, respectively.
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
chlorine, ethylene dichloride and petrochemical products, partially offset by
higher caustic soda prices.
The decrease in net sales for the three and six months ended June 30, 1998,
compared with the same periods in 1997, primarily reflected lower worldwide
crude oil prices and lower oil trading revenues 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 six months ended June 30,
1998 included, among other things, interest earned on a $1.4 billion note
received 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 in both 1998 periods, compared
with the same 1997 periods, reflected lower equity earnings from Canadian
Occidental Petroleum and the OxyMar chemical joint venture, offset in part by
equity earnings from Equistar in 1998.
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The following table sets forth the sales and earnings of each operating division
and corporate items (in millions):
Periods Ended June 30
---------------------------------------------------
Three Months Six Months
----------------------- -----------------------
1998 1997 1998 1997
============================================================ ========= ========= ========= =========
DIVISIONAL NET SALES
Oil and gas $ 739 $ 1,055 $ 1,479 $ 1,897
Chemical 804 1,103 1,764 2,178
--------- --------- --------- ---------
NET SALES $ 1,543 $ 2,158 $ 3,243 $ 4,075
========= ========= ========= =========
DIVISIONAL EARNINGS
Oil and gas $ 380 $ 139 $ 612 $ 386
Chemical 60 189 218 281
--------- --------- --------- ---------
440 328 830 667
UNALLOCATED CORPORATE ITEMS
Interest expense, net (118) (101) (230) (202)
Income taxes, administration and other (136) (89) (275) (200)
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 186 138 325 265
Discontinued operations, net -- 20 38 72
--------- --------- --------- ---------
NET INCOME $ 186 $ 158 $ 363 $ 337
============================================================ ========= ========= ========= =========
Oil and gas earnings for the first six months of 1998 were $612 million,
compared with $386 million for the same period of 1997. Oil and gas divisional
earnings before special items were $217 million for the first six months of
1998, compared with $386 million for the first six months of 1997. Oil and gas
earnings for the second quarter of 1998 were $380 million, compared with $139
million for the same period of 1997. Oil and gas earnings before special items
were $90 million for the second quarter of 1998, compared with $139 million for
the second quarter of 1997. The first six months of 1998 earnings included
pretax gains of approximately $395 million related to the sale of nonstrategic
assets located in Venezuela and the United States of which $290 million was
recorded in the second quarter. 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 three and six
months ended June 30, 1998, compared with the same periods in 1997, reflected
the impact of lower worldwide crude oil prices and lower oil trading activity
partially offset by increased crude oil production in the United States and
Eastern Hemisphere and higher gas trading activity. Approximately 30 percent and
34 percent of oil and gas net sales were attributed to oil and gas trading
activity in the first six 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 six months of 1998 were $218 million, compared
with $281 million for the same period of 1997. Chemical earnings before special
items were $248 million for the first six months of 1998, compared with $281
million for the first six months of 1997. Chemical earnings for the second
quarter of 1998 were $60 million, compared with $189 million for the same period
of 1997. Chemical earnings before special items were $90 million for the second
quarter of 1998, compared with $189 million for the second quarter of 1997. The
1998 earnings reflected a $30 million pretax charge for reorganization and other
costs. The decrease in earnings before special items in both periods primarily
reflected the impact of lower prices for chlorine, ethylene dichloride and
petrochemical products, partially offset by higher caustic soda margins. 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.
13
15
Divisional earnings include credits in lieu of U.S. federal income taxes. In the
first six months of 1998 and 1997, divisional earnings benefited by $19 million
and $20 million, respectively, from credits allocated. This included credits of
$6 million and $13 million at oil and gas and chemical, respectively, in the
first six months of 1998 and $7 million and $13 million at oil and gas and
chemical, respectively, for the first six 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. Additionally, Occidental agreed to
participate in the development of certain natural gas reserves and construction
of a liquefied natural gas plant in Malaysia and the development of certain
natural gas reserves and the construction of a pipeline and related facilities
in the Philippines. The obligations to participate in such development in
Malaysia and the Philippines would be assumed by the Royal Dutch/Shell Group
(Shell) if the proposed transactions described below are consummated.
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 used by operating activities from continuing operations
was $16 million for the first six months of 1998, compared with net cash
provided of $374 million for the same period of 1997. The decrease primarily
reflected the impact of lower worldwide crude oil prices and lower chemical
prices and the repurchase of $100 million of chemical receivables in connection
with the assets transferred to the Equistar joint venture. 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 $194
million in 1997. The 1998 amount included the 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.
Occidental's net cash used by investing activities was $860 million for the
first six months of 1998, compared with $597 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 $586 million. The 1998 amount
also reflected proceeds of $3.2 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 $419 million in oil
and gas and $166 million in chemical. Capital expenditures were $655 million in
1997, including $527 million in oil and gas and $127 million in chemical. In
February 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). 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 of up to $90 million over six years based on
oil prices and the sale of certain Oklahoma oil and gas properties and interests
in the Austin Chalk
14
16
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.
Financing activities provided net cash of $1.1 billion in the first six months
of 1998, compared with $86 million for the same period of 1997. The 1998 amount
reflected net cash provided of $2.1 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 $744 million for the
repurchase of 26.3 million shares of Occidental common stock and $202 million
for the payment of dividends. Total shares repurchased from the inception of the
program through August 11, 1998 were 33.3 million for approximately $929
million. Occidental expects to repurchase up to 40 million shares of common
stock under the program which should be completed before year-end 1998. 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 $276 million,
primarily from proceeds from borrowings, and cash used for the payment of
dividends of $211 million.
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 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.
Cash used by investing activities exceeded cash provided by operating activities
in the first six months of 1998. However, for 1998, Occidental expects that cash
generated from operations and asset sales will be adequate to meet its operating
requirements, capital spending and dividend payments. Occidental also has
substantial borrowing capacity to meet unanticipated cash requirements.
Available but unused lines of committed bank credit totaled approximately $1.1
billion at June 30, 1998, compared with $1.5 billion at December 31, 1997.
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 owned interests in eight
gas-producing licenses in the Dutch North Sea and a 38.6 percent interest in
Noordgastransport B.V., which owned the gas pipeline system that services the
area. Occidental expects to record a pretax gain on the disposition of
approximately $145 million in the third quarter of 1998.
Also, in July 1998, Occidental and Shell entered into a series of agreements
pursuant to which Occidental will exchange its 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 will receive a cash payment at closing presently
estimated at approximately $90 million. The transactions are expected to close
in the third quarter of 1998, pending receipt of necessary approvals.
15
17
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 June 30, 1998
includes the $1.4 billion note receivable. The balance in equity investments at
June 30, 1998 includes Occidental's interest in Equistar. The balance in
property, plant and equipment at June 30, 1998 includes the property from the
acquisition of the Elk Hills Field and reflects property, plant and equipment
contributed to Equistar. 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
discussed above. 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.
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.
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 hardware and software, 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.
Inventory and assessment activities are estimated at approximately 80 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 30 percent complete. The coincidental
replacement of several major existing systems is well under way; these efforts
began before the Y2K efforts were initiated. These replacements will allow
Occidental to discontinue use of these existing systems prior to the millennium
change. Communication with customers and suppliers to determine the extent of
their Y2K efforts is an integral part of the program.
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
not expected to have a significant effect on Occidental's consolidated financial
position or results of operations.
16
18
Because of its company-wide efforts, Occidental believes it will not have
significant exposure to Y2K issues and that the risk to its operations and
financial condition is remote.
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 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 June 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 175 Superfund or
comparable state sites. (This number does not include those sites where
Occidental has been successful in resolving its involvement.) The 175 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 107 sites, Occidental has had
no recent or significant communication or activity with government agencies or
other PRPs at 1 site, has denied involvement at 14 sites and has yet to
determine involvement in 16 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."
17
19
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 3 of Part II of Occidental's 1998 First Quarter Report on Form 10-Q and
Note 9 to the consolidated condensed financial statements in Part I hereof.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment to Occidental Petroleum Corporation Senior
Executive Supplemental Retirement Plan
11 Statement regarding the computation of earnings per
share for the three and six months ended June 30,
1998 and 1997
12 Statement regarding the computation of total
enterprise ratios of earnings to fixed charges for
the six months ended June 30, 1998 and 1997 and the
five years ended December 31, 1997
27 Financial data schedule for the six-month period
ended June 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 June 30, 1998, Occidental filed the
following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated April 1, 1998 (date
of earliest event reported), filed on April 3, 1998,
for the purpose of reporting, under Item 5,
information relating to $900 million of senior debt
securities of Occidental and under Item 7, exhibits
related to the issuance of the securities
2. Current Report on Form 8-K dated February 10, 1998
(date of earliest event reported), filed on April 20,
1998, for the purpose of reporting, among other
things, under Item 2, the completion of the Elk Hills
Field acquisition, under Item 5, certain recent
developments, and under Item 7, certain financial
statements and pro forma financial information
3. Current Report on Form 8-K dated April 20, 1998 (date
of earliest event reported), filed on April 21, 1998,
for the purpose of reporting, under Item 5,
Occidental's results of operations for the first
quarter ended March 31, 1998
18
20
4. Current Report on Form 8-K dated May 15, 1998 (date
of earliest event reported), filed May 29, 1998, for
the purposes of reporting under Item 2, the
consummation of a transaction in which certain
Occidental petrochemical assets were transferred to a
partnership, and under Item 7, certain financial
statements and exhibits
From June 30, 1998 to the date hereof, 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
19
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OCCIDENTAL PETROLEUM CORPORATION
DATE: August 14, 1998 S. P. Dominick, Jr.
-----------------------------------------
S. P. Dominick, Jr., Vice President and
Controller (Chief Accounting and Duly
Authorized Officer)
20
22
EXHIBIT INDEX
EXHIBITS
- --------
10.1 Amendment to Occidental Petroleum Corporation Senior Executive
Supplemental Retirement Plan
11 Statement regarding the computation of earnings per share for the
three and six months ended June 30, 1998 and 1997
12 Statement regarding the computation of total enterprise ratios of
earnings to fixed charges for the six months ended June 30, 1998 and
1997 and the five years ended December 31, 1997
27 Financial data schedule for the six-month period ended June 30, 1998
(included only in the copy of this report filed electronically with
the Securities and Exchange Commission)
1
EXHIBIT 10.1
AMENDMENT
OCCIDENTAL PETROLEUM CORPORATION
SENIOR EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
The Occidental Petroleum Corporation Senior Executive Supplemental Retirement
Plan is hereby amended effective as of January 1, 1998 as follows:
1. Section 1.1 is amended by deleting the words "as amended and restated
effective as of January 1, 1996" and inserting in their place the words
"as amended and restated effective as of January 1, 1998".
2. Section 4.1 is amended by deleting the word "month" each place where it
appears therein and inserting in its place the words "semimonthly
processing period".
3. Section 4.2 is amended by deleting the word "monthly" and inserting in
its place the word "semimonthly".
4. Section 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, and 4.10 are redesignated as
sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, and 4.11, respectively.
5. A new section 4.4 is inserted immediately after section 4.3 as follows:
4.4 Allocations Relating to 1988 Deferred Compensation Plan. Effective
with the plan year beginning in January 1, 1998, a credit shall be made
to the account of each Participant who, in that plan year, is a
participant in the 1988 Deferred Compensation Plan. Such credit shall
be made irrespective of whether such Participant elects to defer under
the 1988 Deferred Compensation Plan all or any part of any bonus to
which he might be entitled. Notwithstanding the preceding sentence, no
credit shall be made to the account of a Participant who is not an
employee of an Employer on the date that any such bonus is awarded. The
amount to be allocated in a plan year under this Plan with respect to a
Participant shall equal that Participant's applicable percentage
multiplied by the amount of the bonus he is entitled to elect to defer
for that plan year of the 1988 Deferred Compensation Plan. For the
purpose of this section 4.4, the term "applicable percentage" shall
mean twelve percent (12%) in the case of a Participant who shall have
attained age 35 prior to the end of the plan year of this Plan in which
such credit is made and eight percent (8%) in the case of a Participant
who shall not have attained age 35 prior to the end of the plan year of
this Plan in which such credit is made. The credit described in this
section shall be made to the account of each Participant effective as
of the date on which he is awarded the bonus he is entitled to defer
under the 1988 Deferred Compensation Plan. Notwithstanding the
preceding provisions of this section 4.4, no credit shall be made to
the account of any Participant with respect to any bonus that the
Participant is entitled to elect to defer under the 1988 Deferred
Compensation Plan with respect to services performed in 1997.
2
6. Subsection 4.6(a), as redesignated, is amended by deleting the second
sentence thereof in its entirety and inserting in its place the
following sentence:
As of the end of each semimonthly processing period, the Administrative
Committee shall adjust the balance, if any, of the Participant's
account as of the last day of the preceding semimonthly processing
period, by multiplying such amount by a number equal to one plus .083%
plus the semimonthly yield on 5-year Treasury Constant Maturities for
the semimonthly processing period.
7. Subsection 4.6(b), as redesignated, is amended by deleting the word
"month" each place where it appears therein and inserting in its place
the words "semimonthly processing period".
8. Subsection 4.6(b), as redesignated, is further amended by deleting the
reference "section 4.3" and inserting in its place the reference
"sections 4.3 and 4.4".
9. Subsection 4.8, as redesignated, is amended by deleting the reference,
"section 4.5(a)" and inserting in its place the reference "section
4.6(a)".
1
EXHIBIT 11
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Amounts in thousands, except per-share amounts)
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
BASIC EARNINGS PER SHARE 1998 1997 1998 1997
- -------------------------------------------------- --------- --------- --------- ---------
Income from continuing operations $ 185,924 $ 138,160 $ 324,202 $ 265,293
Preferred stock dividends (4,414) (22,913) (8,834) (46,087)
--------- --------- --------- ---------
Earnings from continuing operations applicable
to common stock 181,510 115,247 315,368 219,206
Discontinued operations, net -- 19,853 38,400 72,194
--------- --------- --------- ---------
Earnings applicable to common shares $ 181,510 $ 135,100 $ 353,768 $ 291,400
========= ========= ========= =========
Weighted average common shares outstanding 359,070 330,235 351,787 329,944
========= ========= ========= =========
Basic earnings per share
Income from continuing operations $ .51 $ .35 $ .90 $ .66
Discontinued operations, net -- .06 .11 .22
--------- --------- --------- ---------
Basic earnings per common share $ .51 $ .41 $ 1.01 $ .88
========= ========= ========= =========
DILUTED EARNINGS PER SHARE
- --------------------------------------------------
Earnings from continuing operations applicable
to common stock $ 181,510 $ 115,247 $ 315,368 $ 219,206
Dividends applicable to dilutive preferred stock 4,414 8,279 8,834 16,819
--------- --------- --------- ---------
185,924 123,526 324,202 236,025
Discontinued operations, net -- 19,853 38,400 72,194
--------- --------- --------- ---------
Earnings applicable to common stock $ 185,924 $ 143,379 $ 362,602 $ 308,219
========= ========= ========= =========
Weighted average common shares outstanding 359,070 330,235 351,787 329,944
Dilutive effect of exercise of options outstanding 783 358 719 404
Dilutive effect of conversions of preferred stock 16,502 34,582 16,502 34,582
--------- --------- --------- ---------
376,355 365,175 369,008 364,930
========= ========= ========= =========
Diluted earnings per share
Income from continuing operations $ .49 $ .34 $ .88 $ .64
Discontinued operations, net -- .05 .10 .20
--------- --------- --------- ---------
Diluted earnings per common share $ .49 $ .39 $ .98 $ .84
========= ========= ========= =========
1
EXHIBIT 12
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF TOTAL ENTERPRISE RATIOS OF EARNINGS TO FIXED CHARGES
(Amounts in millions, except ratios)
Six Months Ended
June 30 Year Ended December 31
---------------- -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
- ---------------------------------------- ------ ------ ------ ------ ------ ------ ------
Income(loss) from continuing
operations(a) $ 338 $ 260 $ 245 $ 486 $ 325 $ (236) $ (190)
------ ------ ------ ------ ------ ------ ------
Add:
Provision(credit) for taxes on
income (other than foreign
and gas taxes) 167 133 47 99 155 (59) (23)
Interest and debt expense(b) 284 220 446 492 591 586 598
Portion of lease rentals
representative of the interest
factor 17 20 39 38 43 50 49
------ ------ ------ ------ ------ ------ ------
468 373 532 629 789 577 624
------ ------ ------ ------ ------ ------ ------
Earnings(loss) before fixed charges $ 806 $ 633 $ 777 $1,115 $1,114 $ 341 $ 434
====== ====== ====== ====== ====== ====== ======
Fixed charges
Interest and debt expense
including capitalized
interest(b) $ 292 $ 227 $ 462 $ 499 $ 595 $ 589 $ 609
Portion of lease rentals
representative of the interest
factor 17 20 39 38 43 50 49
------ ------ ------ ------ ------ ------ ------
Total fixed charges $ 309 $ 247 $ 501 $ 537 $ 638 $ 639 $ 658
====== ====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges 2.61 2.56 1.55 2.08 1.75 n/a(c) n/a(c)
- ---------------------------------------- ====== ====== ====== ====== ====== ====== ======
(a) Includes (1) minority interest in net income of majority-owned subsidiaries
having fixed charges and (2) income from less-than-50-percent-owned equity
investments adjusted to reflect only dividends received.
(b) Includes proportionate share of interest and debt expense of
50-percent-owned equity investments.
(c) Not computed due to less than one-to-one coverage. Earnings were inadequate
to cover fixed charges by $298 million in 1994 and $224 million in 1993.
5
1,000,000
6-MOS
DEC-31-1998
JUN-30-1998
134
0
416
23
481
2,819
16,545
6,534
15,538
2,949
5,637
0
294
71
3,369
15,538
3,243
3,812
2,465
2,465
52
0
276
628
303
325
38
0
0
363
1.01
.98
