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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, 1995
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 June 30, 1995
--------------------------- ----------------------------
Common stock $.20 par value 318,184,647 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, 1995 and December 31, 1994 2
Consolidated Condensed Statements of Operations --
Three and six months ended June 30, 1995 and 1994 4
Consolidated Condensed Statements of Cash Flows --
Six months ended June 30, 1995 and 1994 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 17
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, 1995 AND DECEMBER 31, 1994
(Amounts in millions)
1995 1994
======================================================================== ========= =========
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 6) $ 315 $ 129
Receivables, net 987 965
Inventories (Note 7) 721 748
Prepaid expenses and other 387 416
--------- ---------
Total current assets 2,410 2,258
LONG-TERM RECEIVABLES, net 167 131
EQUITY INVESTMENTS (Note 14) 772 692
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation, depletion and amortization of $9,021
at June 30, 1995 and $8,884 at December 31, 1994 (Note 8) 13,875 14,502
OTHER ASSETS 411 406
--------- ---------
$ 17,635 $ 17,989
======================================================================== ========= =========
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, 1995 AND DECEMBER 31, 1994
(Amounts in millions)
1995 1994
========================================================================== ========= =========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of senior funded debt and capital lease liabilities $ 124 $ 69
Notes payable 22 20
Accounts payable 844 847
Accrued liabilities (Note 9) 1,127 1,212
Domestic and foreign income taxes 114 53
--------- ---------
Total current liabilities 2,231 2,201
--------- ---------
SENIOR FUNDED DEBT, net of current maturities and unamortized
discount 5,191 5,823
--------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred and other domestic and foreign income taxes 2,571 2,565
Other (Note 9) 2,987 2,943
--------- ---------
5,558 5,508
--------- ---------
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 64 63
Other stockholders' equity
Additional paid-in capital 4,823 5,004
Retained earnings (deficit) (1,564) (1,929)
Cumulative foreign currency translation adjustments 7 (6)
--------- ---------
4,655 4,457
--------- ---------
$ 17,635 $ 17,989
========================================================================== ========= =========
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, 1995 AND 1994
(Amounts in millions, except per-share amounts)
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
1995 1994 1995 1994
====================================================== ========= ========= ========= =========
REVENUES
Net sales and operating revenues
Oil and gas operations $ 756 $ 561 $ 1,461 $ 1,045
Natural gas transmission operations 468 479 1,006 1,113
Chemical operations 1,456 1,122 2,928 2,111
Interdivisional sales elimination and other (1) -- (2) (1)
--------- --------- --------- ---------
2,679 2,162 5,393 4,268
Interest, dividends and other income 21 15 47 48
Gains on asset dispositions, net 40 -- 46 2
Income from equity investments (Note 14) 33 18 58 22
--------- --------- --------- ---------
2,773 2,195 5,544 4,340
--------- --------- --------- ---------
COSTS AND OTHER DEDUCTIONS
Cost of sales 1,955 1,811 3,982 3,624
Other operating expenses 353 219 598 424
Exploration expense 32 25 50 51
Interest and debt expense, net 140 148 289 293
--------- --------- --------- ---------
2,480 2,203 4,919 4,392
--------- --------- --------- ---------
INCOME(LOSS) BEFORE TAXES 293 (8) 625 (52)
Provision for domestic and foreign
income and other taxes (Note 13) 106 11 260 7
--------- --------- --------- ---------
NET INCOME(LOSS) 187 (19) 365 (59)
Preferred dividends (23) (19) (46) (36)
--------- --------- --------- ---------
EARNINGS(LOSS) APPLICABLE TO COMMON STOCK $ 164 $ (38) $ 319 $ (95)
========= ========= ========= =========
PRIMARY EARNINGS(LOSS) PER COMMON SHARE $ .51 $ (.12) $ 1.00 $ (.31)
========= ========= ========= =========
FULLY DILUTED EARNINGS(LOSS) PER SHARE $ .49 $ (.12) $ .96 $ (.31)
========= ========= ========= =========
DIVIDENDS PER SHARE OF COMMON STOCK $ .25 $ .25 $ .50 $ .50
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 318.2 311.9 317.8 309.0
====================================================== ========= ========= ========= =========
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, 1995 AND 1994
(Amounts in millions)
1995 1994
====================================================================== ========= =========
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ 365 $ (59)
Adjustments to reconcile income to net cash from operating activities
Depreciation, depletion and amortization of assets 473 431
Deferred income tax provision (credit) 20 (36)
Other noncash charges to income 277 53
Gains on asset dispositions, net (46) (2)
Income from equity investments (58) (22)
Changes in operating assets and liabilities (272) (181)
Other operating, net (59) (76)
--------- ---------
700 108
Operating cash flow from discontinued operations (5) (14)
--------- ---------
Net cash provided by operating activities 695 94
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (380) (424)
Purchase of businesses (5) (5)
Sale of businesses, net 463 (53)
Proceeds from disposals of property, plant and equipment, net 140 4
Other investing, net 54 6
--------- ---------
Net cash provided (used) by investing activities 272 (472)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from senior funded debt 138 --
Net (payments) proceeds from commercial paper and
revolving credit agreements (528) 30
Principal payments on senior funded debt and capital lease liabilities (216) (172)
Proceeds from issuance of preferred stock and common stock 16 578
Payments of notes payable, current maturities of senior
funded debt and capital lease liabilities 1 17
Cash dividends paid (200) (181)
Other financing, net 8 --
--------- ---------
Net cash provided (used) by financing activities (781) 272
--------- ---------
Increase (decrease) in cash and cash equivalents 186 (106)
Cash and cash equivalents -- beginning of period 129 157
--------- ---------
Cash and cash equivalents -- end of period $ 315 $ 51
====================================================================== ========= =========
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, 1995
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, 1994 (1994 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, 1995 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, 1995 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 prior years have been changed
to conform to the 1995 presentation.
Reference is made to Note 1 to the consolidated financial statements
incorporated by reference in the 1994 Form 10-K for a summary of
significant accounting policies.
2. Earnings per Share
The computation of primary earnings per share was based on the weighted
average number of common shares outstanding and the dilutive effect of
exercise of stock options. The computation of fully diluted earnings per
share further assumes the dilutive effect of conversion of the $3.00
cumulative CXY-indexed convertible preferred stock and the $3.875
cumulative convertible preferred stock.
3. Asset Acquisitions and Dispositions
Reference is made to Note 3 to the consolidated financial statements
incorporated by reference in the 1994 Form 10-K for a description of asset
acquisitions in 1994.
In May 1995, Occidental sold its high density polyethylene (HDPE) business
to Lyondell Petrochemical Company and its polyvinyl chloride (PVC)
facility at Addis, Louisiana to Borden Chemicals and Plastics. In
addition, Occidental sold certain Canadian oil and gas assets, which were
acquired as part of the purchase of Placid Oil Company in December 1994.
The combined cash proceeds from these asset dispositions were in excess of
$500 million.
During the second quarter of 1995, Occidental and Canadian Occidental
Petroleum Ltd. (CanadianOxy) formed partnerships into which they
contributed certain chemical assets. Occidental retained a
less-than-twenty-percent interest in these partnerships to be accounted
for on the equity method. This transaction did not result in any gain or
loss.
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The pretax gain on asset dispositions for the second quarter and the six
months ended June 30, 1995 included a gain of $40 million from the sale of
Occidental's PVC facility at Addis, Louisiana.
4. Accounting Changes
Reference is made to Note 4 to the consolidated financial statements
incorporated by reference in the 1994 Form 10-K for a description of
accounting changes.
5. Supplemental Cash Flow Information
Cash payments during the six month periods ended June 30, 1995 and 1994
included federal, foreign and state income taxes of approximately $129
million and $107 million, respectively. Interest paid (net of interest
capitalized) totaled approximately $274 million and $247 million for the
six month periods ended June 30, 1995 and 1994, respectively.
6. Cash and Cash Equivalents
Cash equivalents consist of highly liquid short-term money market
instruments with maturities of three months or less when purchased. Cash
equivalents totaled $330 million and $180 million at June 30, 1995 and
December 31, 1994, respectively.
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.
7. Inventories
A portion of inventories is valued under the LIFO method. The valuation
of LIFO inventory for interim periods is based on management's estimates
of year-end inventory levels and costs. Inventories consist of the
following (in millions):
Balance at June 30, 1995 December 31, 1994
======================= ============= =================
Raw materials $ 122 $ 135
Materials and supplies 192 201
Work in progress 38 21
Finished goods 418 428
-------- --------
770 785
LIFO reserve (49) (37)
-------- --------
Total $ 721 $ 748
======== ========
Through the second quarter of 1994, inventory quantities were reduced at
natural gas transmission. These reductions resulted in a liquidation of
LIFO inventory quantities carried at lower costs that prevailed in prior
years. The effect of this liquidation was to reduce cost of sales by $9
million.
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8. Property, Plant and Equipment
Reference is made to the consolidated balance sheets and Note 1 thereto
incorporated by reference in the 1994 Form 10-K for a description of
investments in property, plant and equipment.
9. Contract Impairment Reserve and Other Liabilities
Accrued liabilities -- current and other liabilities -- noncurrent include
reserves for contract impairment at MidCon Corp. that recognize the
disadvantageous aspects of certain gas purchase and sales contracts
resulting from economic and regulatory conditions. Reference is made to
Note 1 to the consolidated financial statements incorporated by reference
in the 1994 Form 10-K regarding the contract impairment reserve. The
current portion of the reserve totaled $8 million at June 30, 1995 and $4
million at December 31, 1994. The noncurrent portion of the reserve
totaled $98 million at June 30, 1995 and $137 million at December 31,
1994. The noncurrent portion of the reserve was reduced by $39 million in
the second quarter of 1995 primarily to reflect the settlement of an
impaired contract, partial payment thereon and the payment of other above
market costs.
Other liabilities -- noncurrent include capital lease liabilities, net of
the current portion, of $276 million and $291 million at June 30, 1995 and
December 31, 1994, respectively.
10. Retirement Plans and Postretirement and Postemployment Benefits
Reference is made to Note 12 to the consolidated financial statements
incorporated by reference in the 1994 Form 10-K for a description of the
retirement plans and postretirement benefits of Occidental and its
subsidiaries (see Note 4).
11. 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. For the remaining proceedings as
to which Occidental does not have sufficient information to determine a
range of liability, Occidental does have sufficient information on which
to base the opinion expressed in the last paragraph of this Note.
There is a currently pending action seeking relief for remedial and
response measures under federal environmental laws brought by the federal
government in 1979 in the U.S. District Court for the Western District of
New York against Occidental Chemical Corporation (OCC), Occidental and
others, regarding a former chemical waste landfill. The federal
government is claiming $108 million, plus an estimated $90 million in
pre-judgment interest. The court has held OCC jointly and severally
liable under CERCLA for response costs, but OCC has asserted a
counterclaim against the federal government for its responsibility arising
from direct deposits of waste and the performance of wartime contracts.
The amount of liability of OCC and the federal government, respectively,
will be determined in a subsequent trial. In 1994, the Court approved a
settlement between OCC and the State of New York which resolved all
respective claims that had been asserted between them in this action.
Approximately 1,000 past and
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present residents of areas adjacent to this site and another former
chemical landfill site continue to pursue actions brought in the Supreme
Court, Niagara County, New York, against OCC and, in some instances,
Occidental and others, claiming damages for personal injuries or wrongful
death and property damages allegedly resulting from exposure to chemical
residues, as well as punitive damages. The Occidental defendants deny
liability in these actions. Occidental has brought an action against
various of its insurers in the same court to enforce coverage with respect
to this site, certain other former landfill sites and two chemical plants,
including the foregoing government and private actions in New York, which
the insurers are defending.
In 1988, the Office of Hearings and Appeals (OHA) of the U.S. Department
of Energy (DOE) issued a remedial order to Cities Service Oil and Gas
Corporation, now OXY USA Inc. (OXY USA), asserting that certain crude oil
tier trades by OXY USA between 1979 and 1981 violated the DOE's petroleum
price regulations and ordering OXY USA to make restitution. In 1992, an
administrative law judge (ALJ) upheld most of the remedial order. In 1993,
the Federal Energy Regulatory Commission (FERC) reversed the ALJ decision
and the remedial order, and held that there had been no violation of the
price regulations. Intervenors subsequently filed an action for judicial
review of the FERC decision in the U.S. District Court for the District of
Columbia, which the Court dismissed in June 1995. The intervenors have
noticed an appeal of that dismissal. In 1992, the DOE proposed a revised
remedial order to seek recovery of substantially the same amounts for most
of these same tier trades under an alternative theory, alleging violation
of certain regulations relating to the certification of crude oil to the
DOE's crude oil entitlements program, which is being contested. The
amount sought by the DOE in the proposed revised remedial order, which is
now before the OHA, was approximately $254 million plus accrued interest
amounting to approximately $868.5 million at December 31, 1994. In June
1995, Occidental and the DOE entered into a proposed consent order which,
if it is finalized, would require OXY USA to pay the DOE $275 million in
settlement of these tier trade disputes. One hundred million would be
paid to the DOE when the settlement becomes final, and the remainder would
be paid in five equal annual payments of $35 million plus interest at the
rate of 7.6 percent. Public comments have been received and the DOE will
now determine whether to finalize the settlement.
OCC and affiliated entities produced products containing
dibromochloropropane (DBCP) until 1977 when the State of California banned
DBCP. This pesticide was developed and initially registered by other
chemical companies, produced by several major U.S. chemical companies and
distributed by many U.S. companies. Seven public and private water
providers have actions pending against the developers, producers and
distributors of DBCP, including OCC and Occidental, in Superior Court, San
Francisco County, California. Currently, there are approximately 50 wells
of such providers which exceed California's maximum contaminant level. The
actions allege DBCP contamination of water supplies and seek contribution
from all defendants for remediation costs, including filtering of affected
wells, and punitive damages.
It is impossible at this time to determine the ultimate legal liabilities
that may arise from the lawsuits, proceedings and claims discussed above
or from various other lawsuits and proceedings pending against Occidental
and its subsidiaries, some of which involve substantial amounts. However,
in management's opinion, after taking into account reserves, none of the
lawsuits, proceedings and claims specifically discussed above nor the
various other pending lawsuits and proceedings should have a material
adverse effect upon the consolidated financial position of Occidental,
although the resolution in any reporting period of one or more of these
matters could have a material impact on Occidental's results of operations
for that period.
12. Other Commitments and Contingencies
Occidental has certain other commitments and contingent liabilities under
contracts, guarantees and joint ventures, as well as other potential
obligations.
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Natural Gas Pipeline Company of America (Natural) has been a party to a
number of contracts that require Natural to purchase natural gas at prices
in excess of the prevailing market price. As a result of a FERC order
prohibiting interstate pipelines from using their gas transportation and
storage facilities to market gas to sales customers, Natural no longer has
a sales market for the gas it is required to purchase under these
contracts. This order went into effect on Natural's system on December 1,
1993. Natural is incurring substantial transition costs to reform these
contracts with gas suppliers. Settlement agreements reached by Natural and
its former sales customers, under which Natural will recover from those
customers over a four-year period a significant amount of the gas supply
realignment (GSR) costs it incurs, have been approved by the FERC. The
FERC has also permitted Natural to implement, subject to possible refund,
a tariff mechanism to recover additional portions of its GSR costs in
rates charged to transportation customers that were not party to the
settlements.
Reference is made to Note 9 to the consolidated financial statements
incorporated by reference in the 1994 Form 10-K for information concerning
Occidental's long-term purchase obligations for certain products and
services.
In management's opinion, after taking into account reserves, none of such
commitments and contingencies discussed above should have a material
adverse effect upon the consolidated financial position of Occidental,
although the resolution in any reporting period of one or more of these
matters could have a material impact on Occidental's results of operations
for that period.
13. Income Taxes
The provision for taxes based on income for the 1995 and 1994 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, 1994, Occidental had, for U.S. federal income tax return
purposes, a net operating loss carryforward of approximately $650 million,
a business tax credit carryforward of $65 million and an alternative
minimum tax credit carryforward of $240 million available to reduce future
income taxes. To the extent not used, the net operating loss carryforward
expires in varying amounts beginning in 2002 and the business tax credit
expires in varying amounts during the years 1996 through 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 its financial position or results of operations.
14. Equity 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 June 30, 1995,
Occidental's equity investments consisted primarily of joint-interest
pipelines, including a pipeline
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in the Dutch sector of the North Sea, a 30 percent investment in the
common shares of CanadianOxy and chemical partnerships. 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
------------------------ ------------------------
1995 1994 1995 1994
========= ========= ========= =========
Revenues $ 212 $ 169 $ 404 $ 316
Costs and expenses 179 151 346 294
--------- --------- --------- ---------
Net income $ 33 $ 18 $ 58 $ 22
========= ========= ========= =========
15. 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
------------------------ ------------------------
1995 1994 1995 1994
========= ========= ========= =========
Revenues $ 186 $ 207 $ 362 $ 393
Costs and expenses 168 173 358 345
--------- --------- --------- ---------
Net income $ 18 $ 34 $ 4 $ 48
========= ========= ========= =========
Balance at June 30, 1995 December 31, 1994
================================== ============= =================
Current assets $ 96 $ 113
Intercompany receivable $ 406 $ 246
Noncurrent assets $ 2,015 $ 2,069
Current liabilities $ 258 $ 167
Interest bearing note to parent $ 129 $ 137
Noncurrent liabilities $ 1,118 $ 1,114
Stockholders' equity $ 1,012 $ 1,010
---------------------------------- ------------- -----------------
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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 1995 totaled $365 million,
on net sales and operating revenues of $5.4 billion, compared with a net loss
of $59 million, on net sales and operating revenues of $4.3 billion, for the
same period of 1994. Occidental's net income for the second quarter of 1995
was $187 million, on net sales and operating revenues of $2.7 billion, compared
with a net loss of $19 million, on net sales and operating revenues of $2.2
billion, for the same period of 1994. Earnings per common share were $1.00 for
the first six months of 1995, compared with a loss per common share of $.31 for
the same period of 1994. Earnings per common share were $.51 for the second
quarter of 1995, compared with a loss per common share of $.12 for the same
period of 1994.
The increase in net sales and operating revenues primarily reflected the impact
of improved chemical prices and higher worldwide crude oil production and
prices. The second quarter and first six months of 1995 earnings reflected
improved chemical profit margins, primarily for PVC, caustic soda and
petrochemicals. The 1995 results were negatively impacted by pretax charges of
$109 million for settlement of litigation. In addition the 1995 results, as
compared with the similar periods of 1994, reflected higher worldwide crude oil
production and prices, partially offset by lower domestic natural gas prices.
The 1994 first six months results reflected a net benefit of $7 million
resulting from the reversal of reserves no longer required and the adoption of
Statement of Financial Accounting Standards No. 112 -- "Employers' Accounting
for Postemployment Benefits."
The pretax gain on asset dispositions for the second quarter and the six months
ended June 30, 1995 included a gain of $40 million from the sale of
Occidental's polyvinyl chloride (PVC) facility at Addis, Louisiana.
Income from equity investments increased for the second quarter and first six
months of 1995, compared with the similar periods of 1994. The increase in
both periods of 1995 primarily reflected higher equity earnings from chemical
and oil and gas investments.
Other operating expenses increased for the second quarter and first six months
of 1995, compared with the similar periods of 1994. The increase in both
periods of 1995 primarily reflected the $109 million charge for settlement of
litigation.
The provision for income taxes was $106 million for the three months ended June
30, 1995, compared with $11 million for the same period of 1994. The provision
for income taxes was $260 million for the six months ended June 30, 1995,
compared with $7 million for the same period of 1994. The increase in both
periods of 1995, compared with the similar periods of 1994, primarily resulted
from higher divisional earnings in 1995.
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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
------------------------ ------------------------
1995 1994 1995 1994
========= ========= ========= =========
DIVISIONAL NET SALES
Oil and gas $ 756 $ 561 $ 1,461 $ 1,045
Natural gas transmission 468 479 1,006 1,113
Chemical 1,456 1,122 2,928 2,111
Other (1) -- (2) (1)
--------- --------- --------- ---------
NET SALES $ 2,679 $ 2,162 $ 5,393 $ 4,268
========= ========= ========= =========
DIVISIONAL EARNINGS
Oil and gas $ (30) $ 25 $ 30 $ 29
Natural gas transmission 62 54 137 130
Chemical 354 65 661 87
--------- --------- --------- ---------
386 144 828 246
UNALLOCATED CORPORATE ITEMS
Interest expense, net (133) (142) (277) (285)
Income taxes, administration and other (66) (21) (186) (20)
--------- --------- --------- ---------
NET INCOME(LOSS) $ 187 $ (19) $ 365 $ (59)
========= ========= ========= =========
Oil and gas earnings for the first six months of 1995 were $30 million,
compared with $29 million for the same period of 1994. Oil and gas earnings
before special items were $79 million for the second quarter of 1995, compared
with $25 million for the same period of 1994. The 1995 second quarter results,
after the previously mentioned charges of $109 million for litigation, were a
loss of $30 million. The increase in operating earnings in 1995, compared with
1994, reflected higher worldwide crude oil production and prices, partially
offset by lower domestic natural gas prices. Included in the 1994 first six
months results was a $7 million charge for severance and related costs. 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 six months of 1995 were $137
million, compared with $130 million for the same period of 1994. Natural gas
transmission earnings for the second quarter of 1995 were $62 million, compared
with earnings before special items of $45 million for the same period of 1994.
The second quarter earnings of 1994, after the benefit of $9 million from a
reduction of LIFO inventory, were $54 million. The 1994 first six months
results included a net benefit of $12 million from a reduction of the contract
impairment reserve. This reduction resulted from the elimination of certain
potential claims and the settlement of litigation. The 1994 first six months
earnings before the benefit of special items were $109 million. The
improvement in 1995 operating earnings resulted primarily from higher
transportation margins. The decrease in revenues for the first six months of
1995, compared with the same period of 1994, primarily reflected lower gas
sales prices and throughput volumes. Although overall revenues were lower,
significant volumes of gas are currently being sold by the unregulated
subsidiaries of MidCon Corp.
Chemical earnings for the first six months of 1995 were $661 million compared
with $87 million for the same period of 1994. Second quarter earnings of 1995
were $354 million, compared with $65 million for the same period of 1994. The
increase in 1995 earnings reflected the impact of improved profit margins for
PVC, caustic soda and petrochemicals. The 1995 results included a $40 million
pretax gain related to the sale of the PVC facility at Addis, Louisiana,
discussed above. Included in the 1994 results was an $11 million unfavorable
impact related to an explosion at the Taft plant and charges for start-up
costs related to
13
15
the Swift Creek chemical plant. Most of Occidental's chemical products are
commodity in nature, the prices of which are sensitive to a number of complex
factors. Although Occidental is unable to accurately forecast the trend of
sales prices for its commodity chemical products, at the present time some
product prices have softened slightly while others have remained firm.
Divisional earnings include credits in lieu of U.S. federal income taxes. In
the first six months of 1995, divisional earnings benefited by $46 million from
credits allocated. This included credits of $8 million, $24 million and $14
million at oil and gas, natural gas transmission and chemical, respectively.
Of the total amount for the first six months of 1995, $23 million was recorded
in the second quarter of 1995 as a benefit to divisional earnings, of which $4
million, $12 million and $7 million was recorded at oil and gas, natural gas
transmission and chemical, respectively. In the first six months of 1994,
divisional earnings benefited by $41 million. The comparable amounts allocated
to the divisions were credits of $9 million, $17 million and $15 million at oil
and gas, natural gas transmission and chemical, respectively. Of the total
amount for the six months of 1994, $24 million was recorded in the second
quarter of 1994 as a benefit to divisional earnings, of which $4 million, $12
million and $8 million was recorded at oil and gas, natural gas transmission
and chemical, respectively.
Occidental and certain of its subsidiaries are parties to various lawsuits,
proceedings and claims which involve substantial amounts. See Note 11 to the
consolidated condensed financial statements. Occidental also has commitments
under contracts, guarantees and joint ventures and certain other contingent
liabilities. See Note 12 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 the consolidated financial
position of Occidental, although the resolution in any reporting period of one
or more of these matters could have a material impact on Occidental's results
of operations for that period.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Occidental's net cash provided by operating activities was $695 million for the
first six months of 1995, compared with $94 million for the same period of
1994. The 1995 improvement, compared with 1994, reflected higher operating
earnings primarily in the chemical and oil and gas divisions. The 1995 noncash
charges reflected the previously mentioned charges of $109 million for
litigation. The 1994 noncash charges included credits of $20 million from
the reduction of the contract impairment reserve and $7 million from the
reversal of reserves no longer needed, both discussed above, and a credit of
$21 million for foreign currency revaluation effects.
Occidental's net cash provided by investing activities was $272 million for the
first six months of 1995, compared with net cash used by investing activities
of $472 million for the same period of 1994. Capital expenditures were $380
million in 1995, including $260 million in oil and gas, $40 million in natural
gas transmission and $79 million in chemical. Capital expenditures were $424
million in 1994, including $328 million in oil and gas, $27 million in natural
gas transmission and $68 million in chemical. The decrease in 1995 from 1994
reflected substantially higher spending during 1994 in oil and gas, in
particular the cash portion of the purchase price of certain U.S. Gulf Coast
oil and gas properties acquired from Agip Petroleum Co. Inc. Net proceeds from
the sale of businesses and disposals of property, plant and equipment for the
first six months of 1995 totaled $603 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 operations in Pakistan. Net proceeds from the sale
of businesses and disposals of property, plant and equipment for the first
six months of 1994 included the payment of a tax liability of $53 million
following the settlement of tax matters with foreign jurisdictions relating to
the disposition of certain international oil and gas assets.
Financing activities used net cash of $781 million in the first six months of
1995, compared with net cash provided of $272 million for the same period of
1994. In 1995, repayments of debt, net of proceeds from
14
16
borrowings, resulted in net cash used of $605 million to reduce long-term debt.
Additionally, dividend payments were $200 million. The 1994 cash provided by
financing activities included net cash proceeds of approximately $557 million
from the February issuance of 11,388,340 shares of $3.00 cumulative CXY-indexed
convertible preferred stock. The 1994 amount also reflected net cash used of
$125 million to reduce debt, net of proceeds from borrowings, and the payment
of dividends of $181 million.
During the second quarter of 1995, Occidental and Canadian Occidental Petroleum
Ltd. formed partnerships into which they contributed certain chemical assets.
Occidental retained a less-than-twenty-percent interest in these partnerships
to be accounted for on the equity method. This transaction did not result in
any gain or loss.
For 1995, 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 will be applied to debt
reduction. Occidental also has substantial borrowing capacity to meet
unanticipated cash requirements.
At June 30, 1995, Occidental's working capital was $179 million, compared with
$57 million at December 31, 1994. Available but unused lines of committed bank
credit totaled approximately $2.6 billion at June 30, 1995, compared with $2.2
billion at December 31, 1994.
Property, plant and equipment, net of accumulated depreciation, depletion and
amortization, decreased to $13.875 billion at June 30, 1995 from $14.502
billion at December 31, 1994. The net change reflected the sale of
Occidental's HDPE business and the PVC facility, as discussed above, partially
offset by capital expenditures.
Accrued liabilities decreased to $1.127 billion at June 30, 1995 from $1.212
billion at December 31, 1994. The change primarily reflected the payment of
rate refunds, attributable to 1994 activity, to customers of Natural Gas
Pipeline Company of America (Natural) following the FERC's approval of
Natural's rate case settlement in January 1995, partially offset by the charges
for settlement of litigation. In connection with the tentative settlement with
the U.S. Department of Energy (DOE), Occidental will pay the DOE $275 million
over five years, $100 million of which is payable when the settlement agreement
becomes final and the remainder will be paid in five equal annual payments of
$35 million plus interest at the rate of 7.6 percent.
Senior funded debt, net of current maturities and unamortized discount,
decreased to $5.191 billion at June 30, 1995 from $5.823 billion at December
31, 1994. The net reduction in debt reflected the application of high cash
flow from operations together with the net proceeds from the asset
dispositions, described above.
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 are also
subject to 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
15
17
potentially responsible party (PRP) or, 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 June 30, 1995, 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 284 Superfund or
comparable state sites. (This number does not include 46 sites where
Occidental has been successful in resolving its involvement.) The 284 sites
include 77 former Diamond Shamrock Chemical sites as to which Maxus Energy
Corporation has retained all liability, and two sites at which the extent of
such retained liability is disputed. Of the remaining 205 sites, Occidental
has had no communication or activity with government agencies or other PRPs in
three years at 35 sites, has denied involvement at 29 sites and has yet to
determine involvement in 23 sites. With respect to the remaining 118 of these
sites, Occidental is in various stages of evaluation. For 108 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 108 sites include 38 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 these sites, Occidental does not have
sufficient information to determine a range of liability, but Occidental does
have sufficient information on which to base management's opinion expressed
above under the caption "Results of Operations." For further discussion of one
separately disclosed site, see Note 11 to the consolidated condensed financial
statements.
16
18
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 1994 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, 1995 and Note 11 to the consolidated condensed
financial statements in Part I hereof.
Pursuant to a settlement with the Federal Trade Commission (FTC) by Occidental
Chemical Corporation and various subsidiaries (collectively, OxyChem), arising
from OxyChem's acquisition of facilities from Tenneco Polymers, Inc. and a
subsequent FTC order of divestiture, OxyChem's sale of the Burlington South
facility to Ozite Corporation was approved by the FTC on July 13, 1995. The
sale is expected to close on August 14, 1995.
ENVIRONMENTAL PROCEEDINGS
OxyChem is contesting alleged violations of the West Virginia Hazardous Waste
Management Regulations regarding its closed facility located in Belle, West
Virginia and penalties sought by the State of West Virginia Division of
Environmental Protection.
On June 27, 1995, the Enforcement Staff of the Federal Energy Regulatory
Commission (FERC) and Natural Gas Pipeline Company of America (Natural)
entered into a Stipulation and Consent Agreement regarding a 1.6 mile pipeline
located in Latimer County, Oklahoma, under which Natural would pay a civil
penalty of $200,000. Such agreement is subject to approval by the FERC, which
is pending.
17
19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement regarding the computation of earnings per
share for the three and six months ended June 30,
1995 and 1994
12 Statement regarding the computation of total
enterprise ratios of earnings to fixed charges for
the six months ended June 30, 1995 and 1994 and the
five years ended December 31, 1994
27 Financial data schedule for the six month period
ended June 30, 1995 (included only in the copy of
this report filed electronically with the Commission)
(b) Reports on Form 8-K
During the quarter ended June 30, 1995, Occidental filed the
following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated April 20, 1995 (date
of earliest event reported), filed on April 21, 1995,
for the purpose of reporting, under Item 5,
Occidental's results of operations for the quarter
ended March 31, 1995
2. Current Report on Form 8-K dated June 27, 1995 (date
of earliest event reported), filed on June 30, 1995,
for the purpose of reporting, under Item 5,
Occidental's tentative settlement of all of the
administrative proceedings between its OXY USA Inc.
subsidiary and the U.S. Department of Energy
From June 30, 1995 to the date hereof, Occidental filed the
following Current Report on Form 8-K:
1. Current Report on Form 8-K dated July 20, 1995 (date
of earliest event reported), filed on July 21, 1995,
for the purpose of reporting, under Item 5,
Occidental's results of operations for the quarter
ended June 30, 1995
18
20
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 11, 1995 S. P. Dominick, Jr.
---------------------------------------
S. P. Dominick, Jr., Vice President
and Controller
(Chief Accounting and Duly Authorized
Officer)
19
21
EXHIBIT INDEX
EXHIBITS
--------
11 Statement regarding the computation of earnings per share for the three
and six months ended June 30, 1995 and 1994
12 Statement regarding the computation of total enterprise ratios of
earnings to fixed charges for the six months ended June 30, 1995 and
1994 and the five years ended December 31, 1994
27 Financial data schedule for the six month period ended June 30, 1995
(included only in the copy of this report filed electronically
with the Commission)
1
EXHIBIT 11
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(Amounts in thousands, except per-share amounts)
Three Six
Months Ended June 30 Months Ended June 30
---------------------- ----------------------
1995 1994 1995 1994
--------- --------- --------- ---------
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE
---------------------------------------------------------
Earnings(loss) applicable to common stock $ 163,648 $ (38,770) $ 318,493 $ (95,722)
========= ========= ========= =========
Common shares outstanding at beginning of period 317,442 311,500 316,853 305,603
Issuance of common shares, weighted average 307 415 709 3,484
Conversions, weighted average options exercised
and other 214 -- 121 --
Repurchase of common shares -- (16) (52) (51)
Effect of assumed exercises
Dilutive effect of exercise of options outstanding
and other 267 -- 142 --
--------- --------- --------- ---------
Weighted average common stock and common stock
equivalents 318,230 311,899 317,773 309,036
========= ========= ========= =========
Earnings(loss) per common and common equivalent
share $ .5142 $ (.1243) $ 1.0023 $ (.3097)
========= ========= ========= =========
$ .51 $ (.12) $ 1.00 $ (.31)
====== ====== ====== ======
FULLY DILUTED EARNINGS PER SHARE
---------------------------------------------------------
Earnings(loss) applicable to common stock $ 163,648 $ (38,770) $ 318,493 $ (95,722)
Dividends applicable to dilutive preferred stock:
$3.875 preferred stock(a) 14,634 -- 29,269 --
$3.00 preferred stock(a) 8,541 -- 17,082 --
--------- --------- --------- ---------
$ 186,823 $ (38,770) $ 364,844 $ (95,722)
========= ========= ========= =========
Common shares outstanding at beginning of period 317,442 311,500 316,853 305,603
Issuance of common shares, weighted average 307 415 709 3,484
Conversions, weighted average options exercised
and other 214 -- 121 --
Repurchase of common shares -- (16) (52) (51)
Effect of assumed conversions and exercises
Dilutive effect of assumed conversion of preferred stock:
$3.875 preferred stock(a) 33,186 -- 33,186 --
$3.00 preferred stock(a) 28,118 -- 28,118 --
Dilutive effect of exercise of options outstanding
and other 267 19 241 10
--------- --------- --------- ---------
Total for computation of fully diluted earnings per share 379,534 311,918 379,176 309,046
========= ========= ========= =========
Fully diluted earnings(loss) per share $ .4922 $ (.1243) $ .9622 $ (.3097)
========= ========= ========= =========
$ .49 $ (.12) $ .96 $ (.31)
====== ====== ====== ======
(a) Convertible securities are not considered in the calculations if the effect of the conversion is anti-dilutive.
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
------------------ -------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---------------------------------------- -------- -------- -------- -------- -------- -------- -------
Income(loss) from continuing
operations(a) $ 380 $ (65) $ (46) $ 80 $ 131 $ 374 $(1,416)
Add: -------- -------- -------- -------- -------- -------- -------
Provision (credit) for taxes on
income (other than foreign oil
and gas taxes) 187 (20) 50 204 114 343 (78)
Interest and debt expense(b) 295 306 594 601 666 880 919
Portion of lease rentals
representative of the interest
factor 27 26 55 53 56 57 62
Preferred dividends to minority
stockholders of subsidiaries(c) -- -- -- -- 7 11 7
-------- -------- -------- -------- -------- -------- -------
509 312 699 858 843 1,291 910
-------- -------- -------- -------- -------- -------- -------
Earnings(loss) before fixed charges $ 889 $ 247 $ 653 $ 938 $ 974 $ 1,665 $ (506)
======== ======== ======== ======== ======== ======== =======
Fixed charges
Interest and debt expense
including capitalized interest(b) $ 301 $ 308 $ 599 $ 612 $ 685 $ 912 $ 972
Portion of lease rentals
representative of the interest
factor 27 26 55 53 56 57 62
Preferred dividends to minority
stockholders of subsidiaries(c) -- -- -- -- 7 11 7
-------- -------- -------- -------- -------- -------- -------
Total fixed charges $ 328 $ 334 $ 654 $ 665 $ 748 $ 980 $ 1,041
======== ======== ======== ======== ======== ======== =======
Ratio of earnings to fixed charges 2.71 n/a(d) n/a(e) 1.41 1.30 1.70 n/a(f)
---------------------------------------- ======== ======== ======== ======== ======== ======== =======
(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) Adjusted to a pretax basis.
(d) Not computed due to less than one-to-one coverage. Earnings were inadequate to cover fixed charges by
$87 million.
(e) Not computed due to less than one-to-one coverage. Earnings were inadequate to cover fixed charges by
$1 million.
(f) Not computed due to negative result. Earnings were inadequate to cover fixed charges by $1.547 billion.
5
1,000,000
6-MOS
DEC-31-1995
JUN-30-1995
315
0
765
19
721
2,410
22,896
9,021
17,635
2,231
5,467
64
0
1,325
3,266
17,635
5,393
5,544
3,982
4,580
50
0
289
567
260
365
0
0
0
365
1.002
.962
