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 March 31, 2005
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). 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 March 31, 2005
- --------------------------------------- ---------------------------------
Common stock $.20 par value 398,251,720 shares
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets --
March 31, 2005 and December 31, 2004 2
Consolidated Condensed Statements of Income --
Three months ended March 31, 2005 and 2004 4
Consolidated Condensed Statements of Cash Flows --
Three months ended March 31, 2005 and 2004 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
Item 4. Controls and Procedures 25
PART II OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 6. Exhibits 26
1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 2005 AND DECEMBER 31, 2004
(Amounts in millions)
2005 2004
================================================================================ ========== ==========
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,092 $ 1,199
Short-term investments 270 250
Receivables, net 2,561 2,235
Inventories 531 545
Prepaid expenses and other 183 166
Assets held for sale 17 36
---------- ----------
Total current assets 4,654 4,431
LONG-TERM RECEIVABLES, net 238 239
INVESTMENTS IN UNCONSOLIDATED ENTITIES 1,906 1,727
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation, depletion and amortization of $8,962 at
March 31, 2005 and $8,626 at December 31, 2004 15,105 14,633
OTHER ASSETS 374 361
---------- ----------
$ 22,277 $ 21,391
================================================================================ ========== ==========
The accompanying notes are an integral part of these financial statements.
2
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 2005 AND DECEMBER 31, 2004
(Amounts in millions)
2005 2004
================================================================================ ========== ==========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease liabilities $ -- $ 459
Accounts payable 1,545 1,557
Accrued liabilities 1,253 1,123
Domestic and foreign income taxes 527 263
Liabilities held for sale 15 21
---------- ----------
Total current liabilities 3,340 3,423
---------- ----------
LONG-TERM DEBT, net of current maturities and unamortized discount 3,365 3,345
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred and other domestic and foreign income taxes 1,203 1,248
Other 2,781 2,498
---------- ----------
3,984 3,746
---------- ----------
MINORITY INTEREST 347 327
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, at par value 79 79
Additional paid-in capital 4,713 4,652
Retained earnings 6,387 5,664
Accumulated other comprehensive income 62 155
---------- ----------
11,241 10,550
---------- ----------
$ 22,277 $ 21,391
================================================================================ ========== ==========
The accompanying notes are an integral part of these financial statements.
3
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(Amounts in millions, except per-share amounts)
2005 2004
================================================================================ ========== ==========
REVENUES
Net sales $ 3,303 $ 2,557
Interest, dividends and other income 37 23
---------- ----------
3,340 2,580
---------- ----------
COSTS AND OTHER DEDUCTIONS
Cost of sales 1,532 1,380
Selling, general and administrative and other operating expenses 276 225
Environmental remediation 9 --
Exploration expense 47 54
Interest and debt expense, net 75 71
---------- ----------
1,939 1,730
---------- ----------
Income before taxes and other items 1,401 850
Provision for domestic and foreign income and other taxes 601 363
Minority interest 21 13
(Income)/loss from equity investments (71) (15)
---------- ----------
Income from continuing operations 850 489
Discontinued operations, net (4) (2)
---------- ----------
NET INCOME $ 846 $ 487
========== ==========
BASIC EARNINGS PER COMMON SHARE
Income from continuing operations $ 2.12 $ 1.25
Discontinued operations, net (.01) (.01)
---------- ----------
Basic earnings per common share $ 2.11 $ 1.24
========== ==========
DILUTED EARNINGS PER COMMON SHARE
Income from continuing operations $ 2.09 $ 1.24
Discontinued operations, net (.01) (.01)
---------- ----------
Diluted earnings per common share $ 2.08 $ 1.23
========== ==========
DIVIDENDS PER COMMON SHARE $ .31 $ .275
========== ==========
BASIC SHARES 400.4 391.5
========== ==========
DILUTED SHARES 406.3 397.2
================================================================================ ========== ==========
The accompanying notes are an integral part of these financial statements.
4
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(Amounts in millions)
2005 2004
================================================================================ ========== ==========
CASH FLOW FROM OPERATING ACTIVITIES
Income from continuing operations $ 850 $ 489
Adjustments to reconcile income to net cash provided by operating
activities:
Depreciation, depletion and amortization of assets 344 324
Deferred income tax provision 30 25
Other non-cash charges to income 152 91
Gains on disposition of assets, net (4) (1)
Income from equity investments (71) (15)
Dry hole and impairment expense 31 42
Changes in operating assets and liabilities (29) 68
Other operating, net (64) (50)
---------- ----------
Operating cash flow from continuing operations 1,239 973
Operating cash flow from discontinued operations (5) (8)
---------- ----------
Net cash provided by operating activities 1,234 965
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (536) (343)
Purchase of businesses, net (321) (138)
Sales of businesses and disposal of property, plant, and equipment, net 4 2
Purchase of short-term investments (41) (63)
Sales of short-term investments 21 80
Equity investments and other investing, net 27 (232)
---------- ----------
Net cash used by investing activities (846) (694)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term debt 46 --
Repurchase of trust preferred securities -- (466)
Payments on long-term debt and capital lease liabilities (459) --
Proceeds from issuance of common stock 1 2
Cash dividends paid (109) (101)
Stock options exercised 27 99
Other (1) (1)
---------- ----------
Net cash used by financing activities (495) (467)
---------- ----------
Decrease in cash and cash equivalents (107) (196)
Cash and cash equivalents--beginning of period 1,199 573
---------- ----------
Cash and cash equivalents--end of period $ 1,092 $ 377
================================================================================ ========== ==========
The accompanying notes are an integral part of these financial statements.
5
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2005
1. General
In these unaudited consolidated condensed financial statements,
"Occidental" means Occidental Petroleum Corporation (OPC) and/or one or
more entities where it owns a majority voting interest. Certain information
and disclosures normally included in notes to consolidated financial
statements have been condensed or omitted pursuant to the Securities and
Exchange Commission's rules and regulations, but resultant disclosures are
in accordance with accounting principles generally accepted in the United
States of America 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 in Occidental's
Annual Report on Form 10-K for the year ended December 31, 2004 (2004 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 fairly present Occidental's
consolidated financial position as of March 31, 2005, and the consolidated
statements of income and cash flows for the three months then ended. The
income and cash flows for the period ended March 31, 2005, are not
necessarily indicative of the income or cash flows to be expected for the
full year.
Certain financial statements and notes for the prior year have been
reclassified to conform to the 2005 presentation.
Occidental has reclassified its auction rate security investments from cash
and cash equivalents to short-term investments on its March 31, 2005
balance sheet. These investments contain a short-term repricing feature. As
a result, their carrying values approximate their fair values. There have
been no realized gains or losses on these investments during 2005 or 2004.
Prior period financial statements have also been reclassified to conform to
the current presentation. This reclassification resulted in no change to
Occidental's results of operations or cash flow from operations for any
period.
Refer to Note 1 to the consolidated financial statements in the 2004 Form
10-K for a summary of significant accounting policies.
2. Asset Acquisitions, Dispositions and Other Transactions
In the first quarter of 2005, Occidental made several oil and gas
acquisitions in the Permian Basin for approximately $304 million in cash.
In the first quarter of 2005, Occidental redeemed all of its 7.65 percent
senior notes which reduced current maturities of long-term debt by
approximately $459 million. This resulted in an after-tax charge of $6
million.
3. Accounting Changes
In April 2005, the FASB issued FASB Staff Position No. (FSP) FAS 19-1,
"Accounting for Suspended Well Costs." FSP FAS 19-1 specifies new
accounting guidance for when successful efforts companies can capitalize
exploratory well costs. The guidance also requires new disclosures related
6
to these costs. FSP FAS 19-1 is effective in the first reporting period
beginning after April 4, 2005 and should be applied prospectively to
existing and new exploratory well costs. Occidental plans to adopt this
statement effective July 1, 2005 and it is not expected to have a material
effect on the financial statements upon adoption.
In March 2005, the FASB issued FASB Interpretation No. (FIN) 47,
"Accounting for Conditional Asset Retirement Obligations." FIN 47 specifies
the accounting treatment for conditional asset retirement obligations under
the provisions of Statement of Accounting Standard (SFAS) No. 143. FIN 47
is effective no later than the end of fiscal years ending after December
15, 2005. Occidental plans to adopt this statement effective December 31,
2005. Occidental is currently assessing the effect of FIN 47 on its
financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004) (SFAS No.
123R) "Share-Based Payments." SFAS No. 123R requires that the cost from all
share-based payment transactions, including stock options, be recognized in
the financial statements at fair value. Occidental currently uses the
intrinsic-value method to account for these share-based payments. SFAS No.
123R is effective for public companies at the beginning of the first fiscal
year ending after June 15, 2005. Occidental will adopt the provisions of
this statement effective January 1, 2006. Occidental anticipates adopting
SFAS No. 123R using the modified prospective method, which will not require
Occidental to restate prior periods. Occidental is currently assessing the
effect of SFAS No. 123R on its financial statements.
4. Comprehensive Income
The following table presents Occidental's comprehensive income items (in
millions):
Three Months Ended March 31, 2005 2004
======================================================= ========== ==========
Net income $ 846 $ 487
Other comprehensive income items
Foreign currency translation adjustments (12) (7)
Derivative mark-to-market adjustments (184) (2)
Unrealized gain on securities 103 29
---------- ----------
Other comprehensive income, net of tax (93) 20
---------- ----------
Comprehensive income $ 753 $ 507
======================================================= ========== ==========
During the first quarter of 2005, Occidental entered into a series of fixed
price swaps and costless collar agreements that qualify as cash-flow hedges
for the sale of its crude oil production. These hedges, which begin in July
2005 and continue to the end of 2011, will hedge less than 4% of
Occidental's current crude oil production. The first quarter 2005
derivative mark-to-market adjustment includes an after-tax loss of $176
million from changes in these cash flow hedges. See Item 3. Quantitative
and Qualitative Disclosures About Market Risk for further information.
5. Supplemental Cash Flow Information
During the three months ended March 31, 2005 and 2004, net cash payments
for federal, foreign and state income taxes were approximately $108 million
and $64 million, respectively. Interest paid (net of interest capitalized
of $3 million and $2 million, respectively) totaled approximately $98
million and $83 million for the three months ended March 31, 2005 and 2004,
respectively.
7
6. Inventories
A portion of inventories is valued under the LIFO method. The valuation of
LIFO inventory for interim periods is based on Occidental's estimates of
year-end inventory levels and costs. Inventories consist of the following
(in millions):
Balance at March 31, 2005 December 31, 2004
=================================== ==================== ====================
Raw materials $ 60 $ 62
Materials and supplies 165 157
Finished goods 360 380
---------- ----------
585 599
LIFO reserve (54) (54)
---------- ----------
Total $ 531 $ 545
=================================== ========== ==========
7. Asset Retirement Obligations
The following summarizes the activity of the asset retirement obligations
of which $7 million and $4 million is included in accrued liabilities at
March 31, 2005 and 2004, respectively, and the remaining balance is
included in deferred credits and other liabilities - other (in millions):
Three Months Ended March 31, 2005 2004
============================================================ ========== ==========
Beginning balance $ 206 $ 167
Liabilities incurred in the period 1 9
Liabilities settled in the period (1) (3)
Acquisition and other 1 16
Accretion expense 3 3
---------- ----------
Ending balance $ 210 $ 192
============================================================ ========== ==========
8. Environmental Expenditures
Occidental's operations in the United States are subject to stringent
federal, state and local laws and regulations relating to improving or
maintaining environmental quality. Foreign operations also are subject to
environmental-protection laws. The laws that require or address
environmental remediation may apply to past waste disposal practices and
releases. In many cases, the laws apply regardless of fault, legality of
the original activities or current ownership or control of sites. OPC or
certain of its subsidiaries are currently participating in environmental
assessments and cleanups under these laws at sites subject to the federal
Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA), comparable state sites and other domestic and foreign remediation
sites, including Occidental facilities and previously owned sites.
8
The following table presents Occidental's environmental remediation
reserves at March 31, 2005, the current portion of which ($76 million) is
included in accrued liabilities. The remaining amount is included in
deferred credits and other liabilities - other. The reserves are grouped by
three categories of environmental remediation sites ($ amounts in
millions):
# of Sites Reserve
=================================== =============== ===============
CERCLA & Equivalent Sites 124 $ 240
Active Facilities 16 73
Closed or Sold Facilities 39 63
--------------- ---------------
Total 179 $ 376
=================================== =============== ===============
In determining the environmental remediation reserves and the reasonably
possible range of loss, Occidental refers to currently available
information, including relevant past experience, available technology,
regulations in effect, the timing of remediation and cost-sharing
arrangements. Occidental expects it may continue to incur additional
liabilities beyond those recorded for environmental remediation at these
and other sites. The range of reasonably possible loss for existing
environmental remediation matters could be up to $375 million beyond the
amount accrued.
The following table shows additional detail regarding reserves for CERCLA
or CERCLA-equivalent proceedings in which OPC or certain of its
subsidiaries were involved at March 31, 2005 ($ amounts in millions):
Description # of Sites Reserve
=================================== =============== ===============
Minimal/No Exposure (a) 99 $ 6
Reserves between $1-10 MM 18 69
Reserves over $10 MM 7 165
--------------- ---------------
Total 124 $ 240
=================================== =============== ===============
(a) Includes 27 sites for which Maxus Energy Corporation has retained the
liability and indemnified Occidental, 7 sites where Occidental has
denied liability without challenge, 52 sites where Occidental's
reserves are less than $50,000 each, and 13 sites where reserves are
between $50,000 and $1 million each.
Refer to Note 8 to the consolidated financial statements in the 2004 Form
10-K for additional information regarding Occidental's environmental
expenditures.
9. Lawsuits, Claims, Commitments, Contingencies and Related Matters
OPC and certain of its subsidiaries have been named in a substantial number
of lawsuits, claims and other legal proceedings. These actions seek, among
other things, compensation for alleged personal injury, breach of contract,
property damage, punitive damages, civil penalties or other losses; or
injunctive or declaratory relief. OPC and certain of its subsidiaries also
have been named in proceedings under CERCLA and similar federal, state,
local and foreign environmental laws. These environmental proceedings seek
funding or performance of remediation and, in some cases, compensation for
alleged property damage, punitive damages and civil penalties; however,
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. With respect to all such lawsuits, claims and proceedings,
including environmental proceedings, Occidental accrues reserves when it is
probable a liability has been incurred and the amount of loss can be
reasonably estimated.
In September 2004, Occidental received formal notification from
Petroecuador, the state oil company of Ecuador, initiating proceedings to
determine if Occidental had violated its Participation Contract for Block
15 or the Ecuadorian Hydrocarbons Law and whether the alleged violations
constitute grounds for terminating the Participation Contract. The
principal allegation stated in the notice is an assertion
9
that Occidental should have obtained government approval of a farmout
agreement entered into in 2000. Occidental believes that it has complied
with all material obligations under the Participation Contract and
Ecuadorian law and that any termination of the contract based upon the
stated allegations would be unfounded and would constitute an unlawful
expropriation. Earlier this year, Occidental made preliminary settlement
proposals to the Government of Ecuador as a potential framework to resolve
this dispute. It is reasonably possible that a negotiated settlement would
negatively affect the future profitability of, and production and reserves
from, Block 15 operations. On April 20, 2005, in the midst of significant
public protests, Ecuador's Congress removed the country's President from
office, and the country's Vice President became President. A new cabinet
has not been fully formed, and Occidental has not been able to determine
what position the new Government will take regarding foreign investors, the
petroleum industry in general and Occidental's dispute in particular.
Block 15 operations represent approximately 9 percent of Occidental's 2004
consolidated production, 4 percent of its proved consolidated reserves and
2 percent of its total property, plant and equipment, net of accumulated
depreciation, depletion and amortization.
In April 2004, a number of U.S. companies, including Occidental Chemical
Corporation (OxyChem), were served with seven lawsuits filed in Nicaragua
by approximately two thousand individual plaintiffs. These individuals
allege that they have sustained several billion dollars of personal injury
damages as a result of their alleged exposure to a pesticide. In the
opinion of management, these claims are without merit because, among other
things, OxyChem believes that none of the pesticide it manufactured was
ever sold or used in Nicaragua. Under the applicable Nicaraguan statute,
defendants are required to pay pre-trial deposits so large as to
effectively prohibit defendants from participating fully in their defense.
In similar situations, involving other defendants, Nicaraguan courts have
proceeded to enter significant judgments against the defendants under that
statute. OxyChem has filed a response to the complaints contesting
jurisdiction without posting such pre-trial deposit. In December 2004, the
judge in one of the cases ruled the court had jurisdiction over the
defendants, including OxyChem, and that the plaintiffs had waived the
requirement of the pre-trial deposit. OxyChem has appealed that portion of
the ruling relating to the jurisdiction of the Nicaraguan courts.
Thereafter, the trial court ordered defendants, including OxyChem, to file
an answer. In order to preserve its jurisdictional defense, OxyChem elected
not to make a substantive appearance in the case. In the opinion of
management, any judgment rendered under the statute would be unenforceable
in the United States.
During the course of its operations, Occidental is subject to audit by tax
authorities for varying periods in various federal, state, local and
foreign tax jurisdictions. Taxable years prior to 1997 are closed for U.S.
federal income tax purposes. Taxable years 1997 through 2003 are in various
stages of audit by the Internal Revenue Service. Disputes arise during the
course of such audits as to facts and matters of law. Occidental has been
in continuing tax audit settlement discussions with the Internal Revenue
Service on issues related to foreign tax credits and various domestic
income issues for the 1997 to 2000 audit years. Occidental believes that it
is reasonably possible that substantive issues for taxable years 1997 to
2000 could be favorably resolved during 2005 and that such resolutions, if
they occur, could have a positive and material effect on its results of
operations and its financial condition; however, Occidental believes such
resolutions will not have a significant cash effect.
Occidental has guarantees outstanding at March 31, 2005, which encompass
performance bonds, letters of credit, indemnities, commitments and other
forms of guarantees provided by Occidental to third parties, mainly to
provide assurance that Occidental and/or its subsidiaries and affiliates
will meet their various obligations (guarantees). At March 31, 2005, the
notional amount of these guarantees was approximately $500 million. Of this
amount, approximately $400 million relates to Occidental's guarantees of
equity investees' debt and other commitments. The remaining $100 million
relates to various indemnities and guarantees provided to third parties.
10
It is impossible at this time to determine the ultimate liabilities that
OPC and its subsidiaries may incur resulting from any lawsuits, claims and
proceedings, audits, commitments, contingencies and related matters. If
these matters were to be ultimately resolved unfavorably at amounts
substantially exceeding Occidental's reserves, an outcome not currently
anticipated, it is possible that such outcome could have a material adverse
effect upon Occidental's consolidated financial position or results of
operations. However, after taking into account reserves, management does
not expect the ultimate resolution of any of these matters to have a
material adverse effect upon Occidental's consolidated financial position
or results of operations.
10. Income Taxes
The provision for taxes based on income for the 2005 and 2004 interim
periods was computed in accordance with Interpretation No. 18 of Accounting
Principles Board Opinion (APB) No. 28 on reporting taxes for interim
periods and was based on projections of total year pretax income. The
provision for income taxes for the first quarter of 2005 includes a $10
million charge related to a state income tax issue. The provision for
income taxes for the first quarter of 2004 includes a $20 million credit
from settlement of a tax issue.
11. Stock-Based Compensation
Occidental accounts for its stock incentive plans (Plans) using the
intrinsic value method under APB No. 25 and related interpretations. Had
compensation expense for those Plans been determined in accordance with
SFAS No. 123, "Accounting for Stock Based Compensation", Occidental's
pro-forma net income and earnings per share would have been as follows (in
$ millions, except per share amounts):
Three Months Ended March 31, 2005 2004
================================================== ========== ==========
Net income $ 846 $ 487
Add: Stock-based compensation included in net
income, net of tax, under APB No. 25 35 9
Deduct : Stock-based compensation, net of tax,
determined under SFAS No. 123 fair value method (38) (13)
---------- ----------
Pro-forma net income $ 843 $ 483
================================================== ========== ==========
Earnings Per Share:
Basic - as reported $ 2.11 $ 1.24
Basic - pro forma $ 2.11 $ 1.23
Diluted - as reported $ 2.08 $ 1.23
Diluted - pro forma $ 2.08 $ 1.22
-------------------------------------------------- ---------- ----------
11
12. Retirement Plans and Postretirement Benefits
Occidental has various defined benefit and defined contribution retirement
plans for its salaried, domestic union and nonunion hourly, and certain
foreign national employees.
The following table sets forth the components of the net periodic benefit
costs for Occidental's defined benefit pension and postretirement benefit
plans as of March 31 (in millions):
Three Months Ended March 31, 2005 2004
=================================== ============================== ==============================
Pension Postretirement Pension Postretirement
Net Periodic Benefit Cost Benefit Benefit Benefit Benefit
=================================== ========== =============== ========== ===============
Service cost $ 3 $ 2 $ 3 $ 2
Interest cost 6 8 6 8
Expected return on plan assets (7) -- (5) --
Recognized actuarial (gain) / loss 1 4 1 3
---------- --------------- ---------- ---------------
Total $ 3 $ 14 $ 5 $ 13
=================================== ========== =============== ========== ===============
On December 8, 2003, President Bush signed into law a bill that expands
Medicare, primarily adding a prescription drug benefit for
Medicare-eligible retirees starting in 2006. Regulations governing the
Medical Prescription drug benefit and other key elements of the Medicare
Modernization Act were released by the Department of Health and Human
Services Centers for Medicare and Medicaid Services on January 21, 2005.
Occidental is reviewing its retiree health care plans in light of these
final regulations, which may change Occidental's obligations under the
plans. At this time, Occidental is unable to determine the impact of the
new Medicare provisions. The retiree medical obligations and costs reported
do not reflect the impact of this legislation in accordance with FSP No.
FAS 106-2. Occidental intends to adopt the accounting requirements of this
standard and adjust its retiree medical obligations and costs during the
second quarter of 2005.
Occidental funded approximately $2 million in cash to its domestic defined
benefit pension plans for the quarter ended March 31, 2005 and it does not
expect to contribute any further amount in 2005.
Refer to Note 13 to the consolidated financial statements in the 2004 Form
10-K for additional information regarding Occidental's retirement plans and
postretirement benefits.
12
13. Industry Segments
As of January 1, 2005, Occidental revised its reporting of segment earnings
to show segment earnings before income taxes. All domestic and foreign
income tax expense is now reflected in the "Corporate and other" column.
This change has been retrospectively applied to prior period results. The
following table presents Occidental's interim industry segment and
corporate disclosures (in millions):
Corporate
Oil and Gas Chemical and Other Total
======================================== =============== =============== =============== ===============
Quarter ended March 31, 2005
Net sales $ 2,219 $ 1,061 $ 23 $ 3,303
=============== =============== =============== ===============
Pretax operating profit (loss) $ 1,349 $ 214 $ (112)(a) $ 1,451
Income taxes -- -- (601)(b) (601)
Discontinued operations, net -- -- (4) (4)
--------------- --------------- --------------- ---------------
Net income (loss) $ 1,349 $ 214 $ (717)(c) $ 846
======================================== =============== =============== =============== ===============
Quarter ended March 31, 2004
Net sales $ 1,693 $ 834 $ 30 $ 2,557
=============== =============== =============== ===============
Pretax operating profit (loss) $ 915 $ 56 $ (119)(a) $ 852
Income taxes -- -- (363)(b) (363)
Discontinued operations, net -- -- (2) (2)
--------------- --------------- --------------- ---------------
Net income (loss) $ 915 $ 56 $ (484)(d) $ 487
======================================== =============== =============== =============== ===============
(a) Includes unallocated net interest expense, administration expense and other
items.
(b) Includes all foreign and domestic income taxes. The 2005 amount includes a
$10 million charge related to a state income tax issue. The 2004 amount
includes a $20 million tax credit settlement.
(c) Includes a $10 million pre-tax interest charge to redeem 7.65 percent
senior notes ($6 million net of tax).
(d) Includes a trust preferred securities redemption pre-tax charge of $11
million ($7 million net of tax).
14. Subsequent Events
In April 2005, Valero Energy Corp. (Valero) and Premcor Inc. (Premcor)
announced that the companies have executed a merger agreement for Valero to
acquire Premcor in an $8 billion transaction. Under the terms of the
agreement, Premcor shareholders will have the right to receive 0.99 shares
of Valero common stock or $72.76 in cash for each share of Premcor common
stock, or they can receive a combination of both, subject to proration so
that 50 percent of the total Premcor shares are acquired for cash. At March
31, 2005, Occidental owned over 9 million shares of Premcor.
In April 2005, Occidental signed a heads of agreement with the government
of Oman to develop the Mukhaizna oil field in Oman. If the terms of the
understanding are implemented, Occidental would be operator of the field.
In May 2005, Dolphin Energy Limited signed a gas sales agreement with Dubai
Supply Authority (DUSUP) to deliver future supplies of Dolphin gas from
Qatar to the DUSUP power plant in Jebel Ali. The agreement provides for the
supply of up to 700 million standard cubic feet of gas per day for a period
of 25 years.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
Occidental (as defined in Note 1 to the consolidated condensed financial
statements) reported net income for the first quarter of 2005 of $846 million,
on net sales of $3.3 billion, compared with net income of $487 million, on net
sales of $2.6 billion, for the same period of 2004. Basic earnings per common
share were $2.11 for the first quarter of 2005, compared with basic earnings per
common share of $1.24 for the same period of 2004.
Net income for the first quarter of 2005 included a $10 million pre-tax interest
charge to redeem outstanding 7.65 percent senior notes and a $10 million charge
related to a state income tax issue. Net income for the first quarter of 2004
included a pre-tax charge of $11 million for the redemption of all of the
outstanding 8.16 percent Trust Preferred Redeemable Securities (trust preferred
securities) and a $20 million credit from settlement of a tax issue. Net income
for the first quarter of 2005, compared to the same period in 2004, reflected
higher oil and gas prices and higher chemical margins resulting from higher
chemical prices.
SELECTED INCOME STATEMENT ITEMS
The increase of $746 million in net sales in the first quarter of 2005, compared
with the same period in 2004, primarily reflected higher worldwide crude oil,
natural gas and chemical prices.
The increase of $152 million in cost of sales for the first quarter of 2005,
compared with the same period in 2004, primarily reflected higher oil and gas
production costs, higher energy and chemical raw material costs and higher DD&A
expense mainly due to accelerated drilling and workovers in Yemen and Elk Hills
and a facility expansion in Qatar. The increase of $51 million in selling,
general and administrative and other operating expenses for the first quarter of
2005, compared to the same period in 2004, primarily reflected increases in
various oil and gas costs, including production-related taxes and other
operating costs. Interest and debt expense, net for the first quarter of 2005
included a pre-tax debt redemption charge of $10 million and for the first
quarter of 2004 included a trust preferred securities redemption pre-tax charge
of $11 million. The provision for income taxes for the first quarter of 2005
included a $10 million charge related to a state tax issue and the first quarter
of 2004 included a $20 million credit from settlement of a tax issue. The
increase of $56 million in income from equity investments for the first quarter
of 2005, compared to the same period in 2004, was attributable primarily to
first quarter 2005 income of $44 million from the Lyondell equity investment
compared to a loss of $3 million in the first quarter of 2004.
SELECTED ANALYSIS OF FINANCIAL POSITION
The increase in receivables, net of $326 million at March 31, 2005, compared
with December 31, 2004, was due to higher sales prices. The increase of $179
million in investments in unconsolidated entities at March 31, 2005, compared
with December 31, 2004, was due to increased equity investee income and a fair
value adjustment recorded in other comprehensive income on the Premcor Inc.
available-for-sale investment, partially offset by dividends received from
equity investees.
The increase in domestic and foreign income taxes payable of $264 million at
March 31, 2005, compared with December 31, 2004, was due to the fact that the
first estimated payment for federal and state income taxes is not paid until
April 2005.
14
SEGMENT OPERATIONS
As of January 1, 2005, Occidental revised its reporting of segment earnings to
show segment earnings before income taxes. All domestic and foreign income tax
expense is now reflected in the income taxes line under Unallocated Corporate
Items. This reporting change has been retrospectively applied to prior period
results. The following table sets forth the sales and earnings of each industry
segment and unallocated corporate items (in millions):
Three Months Ended
March 31
-------------------------
2005 2004
================================================================================ ========== ==========
NET SALES
Oil and gas $ 2,219 $ 1,693
Chemical 1,061 834
Other 23 30
---------- ----------
NET SALES $ 3,303 $ 2,557
========== ==========
SEGMENT EARNINGS
Oil and gas $ 1,349 $ 915
Chemical 214 56
---------- ----------
1,563 971
UNALLOCATED CORPORATE ITEMS
Interest expense, net (a) (61) (68)
Income taxes (b) (601) (363)
Other (51) (51)
---------- ----------
INCOME FROM CONTINUING OPERATIONS 850 489
Discontinued operations, net (4) (2)
---------- ----------
NET INCOME $ 846 $ 487
================================================================================ ========== ==========
(a) The first quarter 2005 includes a $10 million pre-tax interest charge to
redeem all the outstanding 7.65 percent senior notes. The first quarter
2004 includes an $11 million pre-tax interest charge to redeem the trust
preferred securities.
(b) The first quarter 2005 includes a $10 million charge related to a state
income tax issue. The first quarter 2004 includes a $20 million credit
related to the settlement of an issue with the Internal Revenue Service.
15
SIGNIFICANT ITEMS AFFECTING EARNINGS
Occidental's results of operations often include the effects of significant
transactions and events affecting earnings that vary widely and unpredictably in
nature, timing and amount. Therefore, management uses a measure called "core
earnings", which excludes those items. This non-GAAP measure is not meant to
disassociate those items from management's performance, but rather is meant to
provide useful information to investors interested in comparing Occidental's
earnings performance between periods. Reported earnings are considered
representative of management's performance over the long term. Core earnings is
not considered to be an alternative to operating income in accordance with
generally accepted accounting principles.
The following table sets forth the core earnings and significant items affecting
earnings for each operating segment and corporate and other:
Three Months Ended March 31
-------------------------------------------------------
(in millions, except per share amounts) 2005 EPS 2004 EPS
======================================================= ========== ========== ========== ==========
TOTAL REPORTED EARNINGS $ 846 $ 2.11 $ 487 $ 1.24
========== ========== ========== ==========
OIL AND GAS
Segment Earnings $ 1,349 $ 915
No significant items affecting earnings -- --
---------- ----------
Segment Core Earnings 1,349 915
---------- ----------
CHEMICAL
Segment Earnings 214 56
No significant items affecting earnings -- --
---------- ----------
Segment Core Earnings 214 56
---------- ----------
CORPORATE AND OTHER
Results (717) (484)
Less:
Trust preferred securities redemption charge -- (11)
7.65% debt redemption charge (10) --
State tax issue charge (10) --
Settlement of tax issue -- 20
Tax effect of pre-tax adjustments 4 4
Discontinued operations, net * (4) (2)
---------- ----------
Corporate Core Results (697) (495)
---------- ----------
TOTAL CORE EARNINGS $ 866 $ 2.16 $ 476 $ 1.22
======================================================= ========== ========== ========== ==========
* These amounts are shown after tax
16
WORLDWIDE EFFECTIVE TAX RATE
The following table sets forth the calculation of the worldwide effective tax
rate for reported income and core earnings:
Three Months Ended
March 31
----------------------------
(in millions) 2005 2004
================================================================================ ========== ==========
REPORTED INCOME
Oil & Gas (a) $ 1,349 $ 915
Chemicals 214 56
Corporate & other (112) (119)
---------- ----------
Pre-tax income 1,451 852
Income tax expense
Federal and state 349 193
Foreign (a) 252 170
---------- ----------
Total 601 363
---------- ----------
Income from continuing operations $ 850 $ 489
========== ==========
Worldwide effective tax rate 41% 43%
========== ==========
CORE EARNINGS
Oil & Gas (a) $ 1,349 $ 915
Chemical 214 56
Corporate & other (102) (108)
---------- ----------
Pre-tax income 1,461 863
Income tax expense
Federal and state 343 217
Foreign (a) 252 170
---------- ----------
Total 595 387
---------- ----------
Core Earnings $ 866 $ 476
========== ==========
Worldwide effective tax rate 41% 45%
================================================================================ ========== ==========
(a) Revenues and income tax expense include taxes owed by Occidental but
paid by governmental entities on its behalf. Oil and gas pre-tax
income includes revenue amounts of $187 million for the first quarter
of 2005 and $116 million for the first quarter of 2004.
Occidental's first quarter 2005 worldwide effective tax rate was 41 percent. The
first quarter 2005 reflected a lower U.S. income tax rate resulting from the
crediting of foreign income taxes. Prior to the second quarter 2004, foreign
income taxes were deducted in determining U.S. taxable income. An annual tax
election permits a taxpayer to claim a credit or deduction for foreign income
taxes, whichever is more beneficial. Occidental expects to continue its election
to credit foreign income taxes in future years. Occidental expects the tax rate
for the second quarter to be approximately 41 percent.
17
OIL AND GAS SEGMENT
Three Months Ended
March 31
-------------------------
Summary of Operating Statistics 2005 2004
======================================================= ========== ==========
NET PRODUCTION PER DAY:
CRUDE OIL AND NATURAL GAS LIQUIDS (MBL)
United States 247 258
Latin America 74 79
Middle East 101 95
Other Eastern Hemisphere 5 9
NATURAL GAS (MMCF)
United States 528 527
Middle East 56 11
Other Eastern Hemisphere 78 75
BARRELS OF OIL EQUIVALENT (MBOE)(A)
Consolidated subsidiaries 537 543
Other interests 28 25
---------- ----------
Worldwide production 565 568
======================================================= ========== ==========
AVERAGE SALES PRICE:
CRUDE OIL ($/BBL)
United States $ 44.24 $ 32.62
Latin America $ 39.87 $ 28.99
Middle East $ 42.00 $ 30.08
Other Eastern Hemisphere $ 37.97 $ 29.37
Total consolidated subsidiaries $ 42.68 $ 31.19
Other interests $ 28.20 $ 19.75
Total Worldwide $ 41.71 $ 30.44
NATURAL GAS ($/MCF)
United States $ 5.94 $ 5.00
Middle East $ 0.96 $ 0.97
Other Eastern Hemisphere $ 2.21 $ 2.23
Total consolidated subsidiaries $ 5.04 $ 4.55
Other interests $ 0.15 $ --
Total Worldwide $ 4.89 $ 4.55
======================================================= ========== ==========
(a) Natural gas volumes have been converted to equivalent BOE based on energy
content of 6,000 cubic feet (one thousand cubic feet is referred to as an
"Mcf") of gas to one barrel of oil.
Oil and gas segment and core earnings for the first quarter of 2005 were $1.3
billion, compared with $915 million for the same period of 2004. The increase in
earnings for the first quarter of 2005, compared to the first quarter of 2004,
reflected higher prices for crude oil and natural gas, partially offset by
higher production-related taxes and higher utility costs which were the result
of higher oil and gas prices, and higher DD&A rates due to accelerated drilling
and workovers of wells in Yemen and Elk Hills and a facilities expansion project
in Qatar.
The increase of $526 million in net sales in the first quarter of 2005, compared
with the same period in 2004, reflected higher prices for crude oil and natural
gas.
18
The average West Texas Intermediate price in the first quarter of 2005 was
$49.84 per barrel and the average New York Mercantile Exchange (NYMEX) price for
natural gas was $6.89 per million BTUs. A change of 10 cents per million BTUs in
NYMEX gas prices impacts quarterly oil and gas segment earnings by approximately
$5 million while a $1.00 per-barrel change in oil prices has a quarterly impact
of approximately $36 million.
Average production costs for the first quarter 2005 were $7.77 per barrel of oil
equivalent (BOE) compared to the average 2004 production cost of $6.95 per BOE.
Occidental expects second quarter 2005 oil and gas production to be slightly
higher than the first quarter 2005 production because the first quarter did not
include production from the Permian Basin acquisitions which occurred at the end
of the quarter. The effect of these acquisitions will be partially offset by
downtime expected at Horn Mountain for scheduled pipeline maintenance. In
addition, production could vary due to price-driven adjustments in the volumes
under production-sharing contracts in Oman, Qatar, Yemen and Long Beach.
In April 2005, Occidental signed a heads of agreement with the government of
Oman to develop the Mukhaizna oil field in Oman. If the terms of the
understanding are implemented, Occidental would be operator of the field. The
field currently is producing approximately 10,000 barrels of oil per day.
Occidental and its partners would expect to invest over $2 billion to implement
a large-scale steam flood to increase production to approximately 150,000
barrels of oil per day within the next few years.
CHEMICAL SEGMENT
Three Months Ended
March 31
-------------------------
Summary of Operating Statistics 2005 2004
================================================== ========== ==========
MAJOR PRODUCT VOLUMES (M TONS, EXCEPT PVC
RESINS)
Chlorine (a) 705 706
Caustic Soda 714 732
Ethylene Dichloride 130 122
PVC Resins (millions of pounds) 1,025 1,071
MAJOR PRODUCT PRICE INDEX (1987 THROUGH 1990
AVERAGE PRICE = 1.0)
Chlorine 2.56 1.60
Caustic Soda 1.52 0.71
Ethylene Dichloride 1.78 1.32
PVC Resins (b) 1.29 0.94
================================================== ========== ==========
(a) Product volumes include those manufactured and consumed internally.
(b) Product volumes produced at former PolyOne facilities, now part of
Occidental, are excluded from the product price indexes.
Chemical segment and core earnings for the first quarter of 2005 were $214
million, compared with $56 million for the same period of 2004. The increase in
earnings for the first quarter of 2005, compared with the same period in 2004,
was due primarily to higher margins in all major products resulting from higher
sales prices, partially offset by higher energy and feedstock costs.
The increase of $227 million in net sales in the first quarter of 2005, compared
with the same period in 2004, primarily reflected higher prices for all major
products.
Occidental expects second quarter 2005 chemical earnings to be similar to the
first quarter 2005 as it expects no weakening in demand or margin decline for
its major products in the second quarter.
19
CORPORATE AND OTHER
Unallocated corporate items - income taxes for the first quarter of 2005
includes a $10 million charge related to a state tax issue. The first quarter of
2004 includes a $20 million credit related to a settlement of a tax issue.
LIQUIDITY AND CAPITAL RESOURCES
Occidental's net cash provided by operating activities was $1.2 billion for the
first quarter of 2005, compared with $965 million for the same period of 2004.
The significant increase in operating cash flow in 2005, compared to 2004,
resulted from several factors. The most important drivers were the significantly
higher oil and natural gas prices and, to a much lesser extent, higher chemical
prices. In the first quarter of 2005, compared to the same period in 2004,
Occidental's realized oil price was higher by 37 percent and Occidental's
realized natural gas price increased almost 19 percent in the U.S., where
approximately 80 percent of Occidental's natural gas was produced.
Increases in sales prices realized for Occidental's major chemical product lines
for the first quarter of 2005, compared to the first quarter of 2004, ranged
from 35 to 114 percent. Chemical prices increased in the first quarter of 2005
at a higher rate than the energy-driven increase in feedstock and power costs,
thereby improving margins and cash flow. Chemical price changes had a less
significant effect on cash flow because chemical segment earnings and cash flow
are significantly smaller than those for the oil and gas segment and because of
increases in energy price-driven feedstock and electric power costs, which are
major elements of manufacturing cost for the chemical segment's products.
Increases in the costs of producing oil and gas, such as purchased goods and
services, particularly materials and oil field services, partially offset oil
and gas sales price increases, but such cost increases had a much lower effect
on cash flow than the realized price increases. Other cost elements, such as
labor costs and overheads, are not significant drivers of cash flow because they
are mainly fixed within a narrow range over the short-to-intermediate term.
Occidental's net cash used by investing activities was $846 million for the
first quarter of 2005, compared with $694 million for the same period of 2004.
The 2005 amount includes two Permian Basin acquisitions totaling $304 million.
The 2004 amount includes the purchase of a pipeline and gathering system in the
Permian Basin and a $208 million advance to the Elk Hills Power LLC (EHP) equity
investment which EHP used to repay a portion of its debt. Capital expenditures
for the first quarter of 2005 were $536 million, including $506 million in oil
and gas. Capital expenditures for the first quarter of 2004 were $343 million,
including $326 million in oil and gas. The 2005 amount includes $90 million for
exploration lease bonuses in Libya.
Occidental's net cash used by financing activities was $495 million in the first
quarter of 2005, compared with $467 million for the same period of 2004. The
2005 amount includes total cash paid of $459 million for the redemption of 7.65
percent senior notes. The 2004 amount includes total cash paid of $466 million
to repurchase the trust preferred securities in January 2004.
In the first quarter 2005, Occidental filed a shelf registration statement for
up to $1.5 billion of various securities. No securities have been issued.
Available but unused lines of committed bank credit totaled approximately $1.5
billion at March 31, 2005 and cash and cash equivalents and short-term
investments totaled $1.4 billion on the March 31, 2005 balance sheet.
At March 31, 2005, under the most restrictive covenants of certain financing
agreements, Occidental's capacity for additional unsecured borrowing was
approximately $24.9 billion, and the capacity for the payment of cash dividends
and other distributions on, and for acquisitions of, Occidental's capital stock
20
was approximately $9.2 billion, assuming that such dividends, distributions and
acquisitions were made without incurring additional borrowing.
Occidental currently expects to spend approximately $2.2 billion on its 2005
capital spending program. Although its income and cash flows are largely
dependent on oil and gas prices and production, Occidental believes that cash on
hand, short-term investments and cash generated from operations will be
sufficient to fund its operating needs, capital expenditure requirements,
dividend payments and potential acquisitions. If needed, Occidental could access
its existing credit facilities.
ENVIRONMENTAL EXPENDITURES
Occidental's operations in the United States are subject to stringent federal,
state and local laws and regulations relating to improving or maintaining
environmental quality. Foreign operations also are subject to
environmental-protection laws. The laws that require or address environmental
remediation may apply to past waste disposal practices and releases. In many
cases, the laws apply regardless of fault, legality of the original activities
or current ownership or control of sites. OPC or certain of its subsidiaries are
currently participating in environmental assessments and cleanups under these
laws at sites subject to the federal Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA), comparable state sites and other
domestic and foreign remediation sites, including Occidental facilities and
previously owned sites.
The following table presents Occidental's environmental remediation reserves at
March 31, 2005, the current portion of which ($76 million) is included in
accrued liabilities. The remaining amount is included in deferred credits and
other liabilities - other. The reserves are grouped by three categories of
environmental remediation sites ($ amounts in millions):
# of Sites Reserve
=================================== =============== ===============
CERCLA & Equivalent Sites 124 $ 240
Active Facilities 16 73
Closed or Sold Facilities 39 63
--------------- ---------------
Total 179 $ 376
=================================== =============== ===============
In determining the environmental remediation reserves and the reasonably
possible range of loss, Occidental refers to currently available information,
including relevant past experience, available technology, regulations in effect,
the timing of remediation and cost-sharing arrangements. Occidental expects it
may continue to incur additional liabilities beyond those recorded for
environmental remediation at these and other sites. The range of reasonably
possible loss for existing environmental remediation matters could be up to $375
million beyond the amount accrued.
The following table shows additional detail regarding reserves for CERCLA or
CERCLA-equivalent proceedings in which OPC or certain of its subsidiaries were
involved at March 31, 2005 ($ amounts in millions):
Description # of Sites Reserve
=================================== =============== ===============
Minimal/No Exposure (a) 99 $ 6
Reserves between $1-10 MM 18 69
Reserves over $10 MM 7 165
--------------- ---------------
Total 124 $ 240
=================================== =============== ===============
(a) Includes 27 sites for which Maxus Energy Corporation has retained the
liability and indemnified Occidental, 7 sites where Occidental has
denied liability without challenge, 52 sites where Occidental's
reserves are less than $50,000 each, and 13 sites where reserves are
between $50,000 and $1 million each.
21
Refer to the "Environmental Expenditures" section of Management's Discussion and
Analysis of Financial Condition and Results of Operations in the 2004 Form 10-K
for additional information regarding Occidental's environmental expenditures.
LAWSUITS, CLAIMS, COMMITMENTS, CONTINGENCIES AND RELATED MATTERS
OPC and certain of its subsidiaries have been named in a substantial number of
lawsuits, claims and other legal proceedings. These actions seek, among other
things, compensation for alleged personal injury, breach of contract, property
damage, punitive damages, civil penalties or other losses; or injunctive or
declaratory relief. OPC and certain of its subsidiaries also have been named in
proceedings under CERCLA and similar federal, state, local and foreign
environmental laws. These environmental proceedings seek funding or performance
of remediation and, in some cases, compensation for alleged property damage,
punitive damages and civil penalties; however, 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. With respect to all such
lawsuits, claims and proceedings, including environmental proceedings,
Occidental accrues reserves when it is probable a liability has been incurred
and the amount of loss can be reasonably estimated.
In September 2004, Occidental received formal notification from Petroecuador,
the state oil company of Ecuador, initiating proceedings to determine if
Occidental had violated its Participation Contract for Block 15 or the
Ecuadorian Hydrocarbons Law and whether the alleged violations constitute
grounds for terminating the Participation Contract. The principal allegation
stated in the notice is an assertion that Occidental should have obtained
government approval of a farmout agreement entered into in 2000. Occidental
believes that it has complied with all material obligations under the
Participation Contract and Ecuadorian law and that any termination of the
contract based upon the stated allegations would be unfounded and would
constitute an unlawful expropriation. Earlier this year, Occidental made
preliminary settlement proposals to the Government of Ecuador as a potential
framework to resolve this dispute. It is reasonably possible that a negotiated
settlement would negatively affect the future profitability of, and production
and reserves from, Block 15 operations. On April 20, 2005, in the midst of
significant public protests, Ecuador's Congress removed the country's President
from office, and the country's Vice President became President. A new cabinet
has not been fully formed, and Occidental has not been able to determine what
position the new Government will take regarding foreign investors, the petroleum
industry in general and Occidental's dispute in particular. Block 15 operations
represent approximately 9 percent of Occidental's 2004 consolidated production,
4 percent of its proved consolidated reserves and 2 percent of its total
property, plant and equipment, net of accumulated depreciation, depletion and
amortization.
In April 2004, a number of U.S. companies, including Occidental Chemical
Corporation (OxyChem), were served with seven lawsuits filed in Nicaragua by
approximately two thousand individual plaintiffs. These individuals allege that
they have sustained several billion dollars of personal injury damages as a
result of their alleged exposure to a pesticide. In the opinion of management,
these claims are without merit because, among other things, OxyChem believes
that none of the pesticide it manufactured was ever sold or used in Nicaragua.
Under the applicable Nicaraguan statute, defendants are required to pay
pre-trial deposits so large as to effectively prohibit defendants from
participating fully in their defense. In similar situations, involving other
defendants, Nicaraguan courts have proceeded to enter significant judgments
against the defendants under that statute. OxyChem has filed a response to the
complaints contesting jurisdiction without posting such pre-trial deposit. In
December 2004, the judge in one of the cases ruled the court had jurisdiction
over the defendants, including OxyChem, and that the plaintiffs had waived the
requirement of the pre-trial deposit. OxyChem has appealed that portion of the
ruling relating to the jurisdiction of the Nicaraguan courts. Thereafter, the
trial court ordered defendants, including OxyChem, to file an answer. In order
to preserve its jurisdictional defense, OxyChem elected not to make a
substantive appearance in the case. In the opinion of management, any judgment
rendered under the statute would be unenforceable in the United States.
22
During the course of its operations, Occidental is subject to audit by tax
authorities for varying periods in various federal, state, local and foreign tax
jurisdictions. Taxable years prior to 1997 are closed for U.S. federal income
tax purposes. Taxable years 1997 through 2003 are in various stages of audit by
the Internal Revenue Service. Disputes arise during the course of such audits as
to facts and matters of law. Occidental has been in continuing tax audit
settlement discussions with the Internal Revenue Service on issues related to
foreign tax credits and various domestic income issues for the 1997 to 2000
audit years. Occidental believes that it is reasonably possible that substantive
issues for taxable years 1997 to 2000 could be favorably resolved during 2005
and that such resolutions, if they occur, could have a positive and material
effect on its results of operations and its financial condition; however,
Occidental believes such resolutions will not have a significant cash effect.
Occidental has guarantees outstanding at March 31, 2005, which encompass
performance bonds, letters of credit, indemnities, commitments and other forms
of guarantees provided by Occidental to third parties, mainly to provide
assurance that Occidental and/or its subsidiaries and affiliates will meet their
various obligations (guarantees). At March 31, 2005, the notional amount of
these guarantees was approximately $500 million. Of this amount, approximately
$400 million relates to Occidental's guarantees of equity investees' debt and
other commitments. The remaining $100 million relates to various indemnities and
guarantees provided to third parties.
It is impossible at this time to determine the ultimate liabilities that OPC and
its subsidiaries may incur resulting from any lawsuits, claims and proceedings,
audits, commitments, contingencies and related matters. If these matters were to
be ultimately resolved unfavorably at amounts substantially exceeding
Occidental's reserves, an outcome not currently anticipated, it is possible that
such outcome could have a material adverse effect upon Occidental's consolidated
financial position or results of operations. However, after taking into account
reserves, management does not expect the ultimate resolution of any of these
matters to have a material adverse effect upon Occidental's consolidated
financial position or results of operations.
ACCOUNTING CHANGES
In April 2005, the FASB issued FASB Staff Position No. (FSP) FAS 19-1,
"Accounting for Suspended Well Costs." FSP FAS 19-1 specifies new accounting
guidance for when successful efforts companies can capitalize exploratory well
costs. The guidance also requires new disclosures related to these costs. FSP
FAS 19-1 is effective in the first reporting period beginning after April 4,
2005 and should be applied prospectively to existing and new exploratory well
costs. Occidental plans to adopt this statement effective July 1, 2005 and it is
not expected to have a material effect on the financial statements upon
adoption.
In March 2005, the FASB issued FASB Interpretation No. (FIN) 47, "Accounting for
Conditional Asset Retirement Obligations." FIN 47 specifies the accounting
treatment for conditional asset retirement obligations under the provisions of
Statement of Accounting Standard (SFAS) No. 143. FIN 47 is effective no later
than the end of fiscal years ending after December 15, 2005. Occidental plans to
adopt this statement effective December 31, 2005. Occidental is currently
assessing the effect of FIN 47 on its financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004) (SFAS No. 123R)
"Share-Based Payments." SFAS No. 123R requires that the cost from all
share-based payment transactions, including stock options, be recognized in the
financial statements at fair value. Occidental currently uses the
intrinsic-value method to account for these share-based payments. SFAS No. 123R
is effective for public companies at the beginning of the first fiscal year
ending after June 15, 2005. Occidental will adopt the provisions of this
statement effective January 1, 2006. Occidental anticipates adopting SFAS No.
123R using the modified prospective method, which will not require Occidental to
restate prior periods. Occidental is currently assessing the effect of SFAS No.
123R on its financial statements.
23
SAFE HARBOR STATEMENT REGARDING OUTLOOK AND FORWARD-LOOKING INFORMATION
Portions of this report contain forward-looking statements and involve risks and
uncertainties that could significantly affect expected results of operations,
liquidity, cash flows and business prospects. Factors that could cause results
to differ materially include, but are not limited to: exploration risks such as
drilling unsuccessful wells, global commodity pricing fluctuations; competitive
pricing pressures; higher-than-expected costs, including feedstocks; crude oil
and natural gas prices; chemical prices; potential liability for remedial
actions under existing or future environmental regulations and litigation;
potential liability resulting from pending or future litigation; general
domestic and international political conditions; potential disruption or
interruption of Occidental's production or manufacturing facilities due to
accidents, political events or insurgent activity; potential failure to achieve
expected production from existing and future oil and gas development projects;
the supply/demand considerations for Occidental's products; any general economic
recession or slowdown domestically or internationally; regulatory uncertainties;
and not successfully completing, or any material delay of, any development of
new fields, expansion, capital expenditure, efficiency-improvement project,
acquisition or disposition. Forward-looking statements are generally accompanied
by words such as "estimate", "project", "predict", "will", "anticipate", "plan",
"intend", "believe", "expect" or similar expressions that convey the uncertainty
of future events or outcomes. Occidental expressly disclaims any obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information or otherwise. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed might not occur.
24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the first quarter of 2005, Occidental entered into a series of fixed
price swaps and costless collar agreements that qualify as cash-flow hedges for
the sale of its crude oil production. These hedges, which begin in July 2005 and
continue to the end of 2011, will hedge less than 4% of Occidental's current
crude oil production. The following table provides information about these
cash-flow hedges in a tabular presentation.
Fair Value
Liability
2005(a) 2006 2007 2008 2009 2010 2011 (in millions)
-------- -------- -------- -------- -------- -------- -------- -------------
Crude Oil Fixed
Price Swaps
- --------------------------
Daily Volume (bpd) 14 10 8 -- -- -- -- $ 114
Average Price $ 45.61 $ 41.61 $ 40.04
Crude Oil Costless Collars
- --------------------------
Daily Volume (bpd) 2 6 7 14 13 12 12 156
Average Floor $ 44.00 $ 41.33 $ 40.43 $ 34.07 $ 33.15 $ 33.00 $ 32.92
Average Cap $ 49.75 $ 48.05 $ 45.21 $ 47.47 $ 47.41 $ 46.35 $ 46.27
-------------
$ 270
=============
(a) Hedges for 2005 are in place only from July 2005 to December 2005.
For the three months ended March 31, 2005, there were no other material changes
in the information required to be provided under Item 305 of Regulation S-K
included under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations (Incorporating Item 7A) - Derivative
Activities and Market Risk" in Occidental's 2004 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Occidental's Chief Executive Officer and Chief Financial Officer supervised and
participated in Occidental's evaluation of its disclosure controls and
procedures as of the end of the period covered by this report. Disclosure
controls and procedures are controls and procedures designed to ensure that
information required to be disclosed in Occidental's periodic reports filed or
submitted under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. Based upon that
evaluation, Occidental's Chief Executive Officer and Chief Financial Officer
concluded that Occidental's disclosure controls and procedures are effective.
There has been no change in Occidental's internal control over financial
reporting during the first quarter of 2005 that has materially affected, or is
reasonably likely to materially affect, Occidental's internal control over
financial reporting.
25
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
This item incorporates by reference the information regarding lawsuits, claim,
commitments, contingencies and related matters in Note 9 to the consolidated
condensed financial statements in Part I of this Form 10-Q.
In September 2004, Occidental received formal notification from Petroecuador,
the state oil company of Ecuador, initiating proceedings to determine if
Occidental had violated its Participation Contract for Block 15 or the
Ecuadorian Hydrocarbons Law and whether the alleged violations constitute
grounds for terminating the Participation Contract. The principal allegation
stated in the notice is an assertion that Occidental should have obtained
government approval of a farmout agreement entered into in 2000. Occidental
believes that it has complied with all material obligations under the
Participation Contract and Ecuadorian law and that any termination of the
contract based upon the stated allegations would be unfounded and would
constitute an unlawful expropriation. Earlier this year, Occidental made
preliminary settlement proposals to the Government of Ecuador as a potential
framework to resolve this dispute. It is reasonably possible that a negotiated
settlement would negatively affect the future profitability of, and production
and reserves from, Block 15 operations. On April 20, 2005, in the midst of
significant public protests, Ecuador's Congress removed the country's President
from office, and the country's Vice President became President. A new cabinet
has not been fully formed, and Occidental has not been able to determine what
position the new Government will take regarding foreign investors, the petroleum
industry in general and Occidental's dispute in particular. Block 15 operations
represent approximately 9 percent of Occidental's 2004 consolidated production,
4 percent of its proved consolidated reserves and 2 percent of its total
property, plant and equipment, net of accumulated depreciation, depletion and
amortization.
In April 2004, a number of U.S. companies, including OxyChem, were served with
seven lawsuits filed in Nicaragua by approximately two thousand individual
plaintiffs. These individuals allege that they have sustained several billion
dollars of personal injury damages as a result of their alleged exposure to a
pesticide. In the opinion of management, these claims are without merit because,
among other things, OxyChem believes that none of the pesticide it manufactured
was ever sold or used in Nicaragua. Under the applicable Nicaraguan statute,
defendants are required to pay pre-trial deposits so large as to effectively
prohibit defendants from participating fully in their defense. In similar
situations, involving other defendants, Nicaraguan courts have proceeded to
enter significant judgments against the defendants under that statute. OxyChem
has filed a response to the complaints contesting jurisdiction without posting
such pre-trial deposit. In December 2004, the judge in one of the cases ruled
the court had jurisdiction over the defendants, including OxyChem, and that the
plaintiffs had waived the requirement of the pre-trial deposit. OxyChem has
appealed that portion of the ruling relating to the jurisdiction of the
Nicaraguan courts. Thereafter, the trial court ordered defendants, including
OxyChem, to file an answer. In order to preserve its jurisdictional defense,
OxyChem elected not to make a substantive appearance in the case. In the opinion
of management, any judgment rendered under the statute would be unenforceable in
the United States.
Accordingly, management does not expect the ultimate resolution of any of these
matters to have a material adverse effect upon Occidental's consolidated
financial position or results of operations.
ITEM 6. EXHIBITS
10.1 Executive Stock Ownership Guidelines.
10.2 1996 Restricted Stock Plan for Non-Employee Directors,
amended as of February 10, 2005.
26
11 Statement regarding the computation of earnings per
share for the three months ended March 31, 2005 and
2004.
12 Statement regarding the computation of total enterprise
ratios of earnings to fixed charges for the three
months ended March 31, 2005 and 2004 and the five years
ended December 31, 2004.
31.1 Certification of CEO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of CFO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certifications of CEO and CFO Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
27
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: May 4, 2005 S. P. Dominick, Jr.
--------------------------------------------------
S. P. Dominick, Jr., Vice President and Controller
(Chief Accounting and Duly Authorized Officer)
28
EXHIBIT INDEX
EXHIBITS
- --------
10.1 Executive Stock Ownership Guidelines.
10.2 1996 Restricted Stock Plan for Non-Employee Directors, amended as
of February 10, 2005.
11 Statement regarding the computation of earnings per share for the
three months ended March 31, 2005 and 2004.
12 Statement regarding the computation of total enterprise ratios of
earnings to fixed charges for the three months ended March 31,
2005 and 2004 and the five years ended December 31, 2004.
31.1 Certification of CEO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of CFO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certifications of CEO and CFO Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
29
EXHIBIT 10.1
OCCIDENTAL PETROLEUM CORPORATION
EXECUTIVE STOCK OWNERSHIP GUIDELINES
(ORIGINALLY PROMULGATED JANUARY 1, 1996, AS REVISED FEBRUARY 9, 2005)
Effective February 9, 2005, the officers of Occidental Petroleum Corporation
listed below are expected to comply with the following stock ownership
guidelines by four years from the latter of the effective date of the guidelines
or the date the individual is first selected to be an executive officer.
PARTICIPATION
- -------------
Chairman and Chief Executive Officer
Other Proxy 5
Executive Vice Presidents
Other Vice Presidents
TARGET STOCK HOLDINGS
- ---------------------
POSITION MULTIPLE OF BASE SALARY
Chairman and Chief Executive Officer 10
Other Proxy 5 5
Executive Vice Presidents 3
Other Vice Presidents 2
FORMS OF STOCK OWNERSHIP THAT WILL MEET THE GUIDELINES
- ------------------------------------------------------
o Direct stock holdings*
o Shares held in the Occidental Petroleum Corporation Savings Plan
(401K)
o Long-term stock awards, including, without limitation, restricted
stock awards, restricted stock units, performance stock awards and
performance stock units
o Deferred stock units
* For purposes of these guidelines shares held in a living trust or by a
family partnership or corporation controlled by the officer will be deemed
to be directly held unless the officer expressly disclaims beneficial
ownership of such shares.
EXHIBIT 10.2
OCCIDENTAL PETROLEUM CORPORATION
1996 RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
(AS AMENDED THROUGH FEBRUARY 10, 2005)
1. PURPOSE. The purpose of the Occidental Petroleum Corporation 1996
Restricted Stock Plan for Non-Employee Directors (the "Plan") is to provide
ownership of Occidental Petroleum Corporation's ("Occidental") Common Stock to
Non-Employee Directors in order to more closely align director and stockholder
interests, to provide a competitive compensation program for directors and to
enhance Occidental's ability to attract and retain top-quality directors.
2. ADMINISTRATION OF THE PLAN.
(a) Members of the Committee. The Plan shall be administered by the
Compensation Committee of the Board (the "Committee"). Members of the
Committee shall be appointed from time to time by the Board and shall serve
at the pleasure of the Board. Any Committee member may resign at any time
upon written notice to the Board.
(b) Authority of the Committee. The Committee shall adopt such rules as it
may deem appropriate in order to carry out the purpose of the Plan. All
questions of interpretation, administration, and application of the Plan
shall be determined by a majority of the members of the Committee then in
office, except that the Committee may authorize any one or more of its
members, or any officer of Occidental, to execute and deliver documents on
behalf of the Committee. The determination of such majority shall be final
and binding in all matters relating to the Plan. Determinations made with
respect to any individual Non-Employee Director shall be made without
participation by such Non-Employee Director in such determination. No
member of the Committee shall be liable for any act done or omitted to be
done by such member or by any other member of the Committee in connection
with the Plan, except for such member's own willful misconduct or as
expressly provided by statute.
3. STOCK RESERVED FOR THE PLAN. The number of shares of Common Stock
authorized for issuance under the Plan is 250,000, subject to adjustment
pursuant to Section 8 hereof. Shares of Common Stock delivered hereunder may be
Common Stock of original issuance or Common Stock held in treasury, or a
combination thereof.
4. AWARDS OF RESTRICTED STOCK.
(a) Annual Awards. On the first business day following each annual meeting
commencing with the 1999 Annual Meeting, each Non-Employee Director who is
then a member of the Board shall be awarded two thousand five hundred
(2,500) whole shares of Restricted Stock.
(b) Special Awards. On the first business day following each annual
meeting, each Non-Employee Director who is then serving as a Chairman of
one or more committees of the Board or as Lead Independent Director shall
be awarded four hundred (400) whole shares of Restricted Stock with respect
to each such position, in addition to any Award he or she may be granted
pursuant to Section 4(a) above.
(c) Interim Awards. If a Non-Employee Director is elected other than at an
annual meeting, then on the first business day following his or her
election as a member of the Board, such newly elected Non-Employee Director
shall be awarded the number of shares (rounded to the nearest whole share)
of Restricted Stock equal to two thousand five hundred (2,500) multiplied
by a fraction, the numerator of which is the number of regularly scheduled
Board meetings remaining between the date of his or her election and the
next annual meeting and the denominator of which is the number of regularly
scheduled Board meetings between the most recent annual meeting and the
next annual meeting.
1
(d) Effectiveness of Awards. Notwithstanding anything in this Plan to the
contrary, no Award made pursuant to the Plan or any amendment to the Plan
shall be effective prior to the requisite approval of the Plan or such
amendment by the stockholders of Occidental. In the event requisite
stockholder approval is not obtained, the Plan, and any Award thereunder,
shall be null and void.
5. TERMS AND CONDITIONS OF AWARDS. Restricted Stock awarded to a Non-Employee
Director under the Plan shall be subject to the following restrictions:
(a) During the period of the director's service as a member of the Board
(the "Restriction Period"), any shares of Common Stock awarded under the
Plan shall not be sold, assigned, pledged, hypothecated or otherwise
transferred or encumbered. During the Restriction Period, the certificate
representing such shares of Common Stock shall contain a statement
referring to the restrictions contained in this Section 5(a) and such
certificate shall be held by the Company. Except as provided in Section 9,
as soon as practicable after the lapse of restrictions applicable to
Restricted Stock, all shares of Restricted Stock held by the Company for
the benefit of a Non-Employee Director shall be given to such Non-Employee
Director, free and clear of any restrictions applicable thereto during the
Restriction Period.
(b) Whenever cash dividends are paid by Occidental on outstanding Common
Stock, each Non-Employee Director will receive in cash all dividends paid
on the Restricted Stock then held by the Company for the benefit of such
Non-Employee Director on the record date for the dividend. Common Stock
distributed in connection with a stock split or stock dividend, and other
property distributed as a dividend, shall be subject to restrictions to the
same extent as the Restricted Stock with respect to which such Common Stock
or other property has been distributed.
(c) Each Non-Employee Director hereunder may designate from time to time
any beneficiary or beneficiaries (who may be designated concurrently,
contingently or successively) to whom any shares of Restricted Stock and
any cash amounts are to be paid in case of the Non-Employee Director's
death before receipt of any part or all of such Restricted Stock and cash.
Each designation will revoke all prior designations by the Non-Employee
Director, shall be in a form prescribed by the Committee, and will be
effective only when filed by the Non-Employee Director, in writing, with
the Secretary of Occidental. Reference in the Plan to a Non-Employee
Director's "beneficiary" at any date shall include such persons designated
as concurrent beneficiaries on the Non-Employee Director's beneficiary
designation form then in effect. In the absence of any such designation,
any shares of Restricted Stock being held by the Company for the benefit of
such Non-Employee Director at the time of his or her death may, in the sole
discretion of the Committee, be paid to such Non-Employee Director's estate
in a cash lump sum.
6. FOREIGN PARTICIPANTS. In order to facilitate the making of an Award, the
Board may provide for such special terms for Awards to Non-Employee Directors
who are foreign nationals, as the Board may consider necessary or appropriate to
accommodate differences in local law, tax policy or custom. Moreover, the Board
may approve such supplements to, or amendments, restatements or alternative
versions of, the Plan as it may consider necessary or appropriate for such
purposes without thereby affecting the terms of the Plan as in effect for any
other purpose, and the Secretary or other appropriate officer of Occidental may
certify any such document as having been approved and adopted in the same manner
as the Plan; provided that, no such supplements, amendments, restatements or
alternative versions shall include any provisions that are inconsistent with the
terms of the Plan, as then in effect, unless the Plan could have been amended to
eliminate the inconsistency without further approval by the stockholders of
Occidental.
2
7. CHANGE IN CONTROL. Upon the occurrence of a Change in Control, all
restrictions affecting Restricted Shares shall lapse and such shares shall be
delivered to each Non-Employee Director as soon as practicable thereafter;
provided that, the Committee may, in its sole discretion authorize the payment
of cash, in lieu of the issuance of such shares.
8. ADJUSTMENTS. The Board may make or provide for such adjustments in the
number of shares of Restricted Stock awarded under the Plan, as the Board may in
good faith determine to be required in order to prevent dilution or expansion of
the rights of Non-Employee Directors that otherwise would result from (i) any
stock dividend, stock split, combination of shares recapitalization or other
change in the capital structure of the Company or (ii) any merger,
consolidation, spin-off, spin-out, split-off, split-up, reorganization, partial
or complete liquidation or other distribution of assets, issuance of warrants or
other rights to purchase securities or any other corporate transaction or event
having an effect similar to any of the foregoing. In the event of any such
transaction or event, the Board may provide in substitution for any or all
outstanding Restricted Stock Awards under the Plan such alternative
consideration as it may in good faith determine to be appropriate under the
circumstances and may require the surrender of all Awards so replaced. Moreover,
the Board may, on or after the date of any Award, provide in the agreement
evidencing such Award that the Non-Employee Director may elect to receive an
equivalent Award in respect of securities of the surviving entity of any merger,
consolidation or other transaction or event having similar effect, or the Board
may provide that the Non-Employee Director will automatically be entitled to
receive such an equivalent Award. The Board may also provide for such
adjustments in the maximum number of shares of Common Stock specified in Section
3 as the Board, in good faith, determines to be appropriate in order to reflect
any transaction or event described in this Section 8.
9. WITHHOLDING. Occidental shall defer making payments or deliveries under the
Plan until satisfactory arrangements have been made for the payment of any
federal, state, local or foreign taxes (whether or not required to be withheld)
with respect to such payment or delivery. At the discretion of the Committee,
any such arrangements may without limitation include relinquishment of a portion
of any such payment or benefit or the surrender of outstanding Common Stock, and
any agreement pertaining to an Award may make such relinquishment the mandatory
form of satisfying such taxes. The Committee may also make similar arrangements
with respect to the payment of any taxes with respect to which withholding is
not required.
10. RIGHTS OF NON-EMPLOYEE DIRECTORS.
(a) Retention as Non-Employee Director. Nothing contained in the Plan or
with respect to any Award shall interfere with or limit in any way the
right of the stockholders of Occidental to remove any Non-Employee Director
from the Board, nor confer upon any Non-Employee Director any right to
continue in the service of Occidental as a Non-Employee Director.
(b) Nontransferability. No right or interest of any Non-Employee Director
in any Award shall be assignable or transferable during the lifetime of the
Non-Employee Director, either voluntarily or involuntarily, or subjected to
any lien, directly or indirectly, by operation of law, or otherwise,
including execution, levy, garnishment, attachment, pledge or bankruptcy.
In the event of a Non-Employee Director's death, a Non-Employee Director's
rights and interests in his or her Award shall be transferable by
testamentary will or the laws of descent and distribution. If in the
opinion of the Committee a person entitled to payments or to exercise
rights with respect to the Plan is disabled from caring for his or her
affairs because of mental condition, physical condition or age, payment due
such person may be made to, and such rights shall be exercised by, such
person's guardian, conservator or other legal personal representative upon
furnishing the Committee with evidence satisfactory to the Committee of
such status.
3
(c) Except to the extent restricted under the terms of an agreement
evidencing a grant of Restricted Stock, a Non-Employee Director awarded
such stock shall have all of the rights of a stockholder, including,
without limitation, the right to vote Restricted Stock and the right to
receive dividends thereon.
11. AMENDMENT; TERMINATION. The Board may at any time and from time to time
alter, amend, suspend or terminate the Plan in whole or in part; provided that,
no amendment which requires stockholder approval shall be effective unless the
same shall be approved by the stockholders of Occidental entitled to vote
thereon. Stockholder approval shall be required for any amendment to the Plan
that would (a) materially increase the benefits accruing to participants under
the Plan, (b) materially increase the number of securities which may be issued
under the Plan, or (c) materially modify the requirements as to eligibility for
participation in the Plan. Notwithstanding the foregoing, no amendment shall
affect adversely any of the rights of any Non-Employee Director, without such
Non-Employee Director's consent.
12. GENERAL RESTRICTIONS.
(a) Regulations and Offer Approvals. The obligation of Occidental to
deliver Common Stock with respect to any Award under the Plan shall be
subject to all applicable laws, rules and regulations, including all
applicable federal and state securities laws, and the obtaining of all such
approvals by governmental agencies as may be deemed necessary or
appropriate by the Committee.
(b) Each Award granted under the Plan is subject to the requirement that,
if at any time the Committee determines, in its absolute discretion, that
the listing, registration or qualification of Common Stock issuable
pursuant to the Plan is required by any securities exchange or under any
state or federal law, or the consent or approval of any governmental
regulatory body is necessary or desirable as a condition of, or in
connection with, such Award or the issuance of Common Stock, no such Award
or payment shall be made or Common Stock issued, in whole or in part,
unless listing, registration, qualification, consent or approval has been
effected or obtained free of any conditions not acceptable to the
Committee. Nothing herein shall be deemed to require Occidental to apply
for or to obtain such listing, registration or qualification.
(c) In the event that the disposition of Common Stock acquired pursuant to
the Plan is not covered by a then current registration statement under the
Securities Act and is not otherwise exempt from such registration, such
Common Stock shall be restricted against transfer to the extent required by
the Securities Act or regulations thereunder, and Occidental may require
any Non-Employee Director to whom Common Stock is granted, as a condition
of receiving such Common Stock, to give written assurances in substance and
form satisfactory to Occidental and its counsel to the effect that such
person is acquiring the Common Stock for his or her own account and not
with any present intention of selling or otherwise distributing the same,
and to such other effects as Occidental deems necessary or appropriate in
order to comply with federal and applicable state securities laws.
13. GOVERNING LAW. The Plan and all rights hereunder shall be construed in
accordance with and governed by the laws of the State of Delaware.
14. PLAN INTERPRETATION. The Plan is intended to comply with Rule 16b-3 and
shall be construed to so comply.
15. HEADINGS. The headings of sections and subsections herein are included
solely for convenience of reference and shall not affect the meaning of any of
the provisions of the Plan.
16. TERM OF PLAN. This Plan shall become effective on the Effective Date, and
shall remain in effect for ten (10) years from such date, unless sooner
terminated by the Board.
4
17. DEFINITIONS. For purposes of the Plan, the following terms shall have the
following meanings:
(a) "Award" means any award of Restricted Stock under the Plan.
(b) "Board" means the Board of Directors of Occidental.
(c) "Change in Control" means a change in control of Occidental, which
shall be deemed to have occurred if:
(i) any "person," as such term is used in Sections 13(d) and 14(d)
of the Exchange Act (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of
Occidental or any company owned, directly or indirectly, by the
stockholders of Occidental in substantially the same proportions as
their ownership of the Common Stock of Occidental), is or becomes,
after the Effective Date of the Plan, the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of Occidental (not including in the securities
beneficially owned by such person any securities acquired directly
from Occidental or its affiliates) representing 50 percent (50%) or
more of the combined voting power of Occidental's then-outstanding
securities; or
(ii) during any period of two consecutive years (not including any
period prior to the Effective Date), individuals who at the beginning
of such period constitute the Board, and any new director (other than
a director designated by a person who has entered into an agreement
with Occidental to effect a transaction described in clause (i),
(iii), or (iv) of this definition) whose election by the Board or
nomination for election by Occidental's stockholders was approved by a
vote of at least two thirds (2/3) of the directors then still in
office who either were directors at the beginning of such period or
whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority of the Board;
or
(iii) the stockholders of Occidental approve a merger or consolidation
of Occidental with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of
Occidental outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity), in combination with the
ownership of any trustee or other fiduciary holding securities under
any employee benefit plan of Occidental, at least 50 percent of the
combined voting power of the voting securities of Occidental or such
surviving entity outstanding immediately after such merger or
consolidation or (B) a merger or consolidation effected to implement a
recapitalization of Occidental (or similar transaction) in which no
person acquires more than 50 percent (50%) of the combined voting
power of Occidental's then-outstanding securities; or (iv) the
stockholders of Occidental approve a plan of complete liquidation of
Occidental or an agreement for the sale or disposition of all or
substantially all of Occidental's assets; provided that, prior to the
occurrence of any of the events described in clauses (i) through (iii)
above, the Board may determine that such an event shall not constitute
a Change of Control for purposes of the Plan.
(d) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor thereto.
(e) "Common Stock" means shares of the common stock, par value $.20 per
share, of Occidental.
(f) "Company" means Occidental Petroleum Corporation and its subsidiaries,
collectively.
(g) "Effective Date" means April 26, 1996 or the date of approval of the
Plan by the stockholders of Occidental, whichever comes first.
5
(h) "Exchange Act" means the Securities Exchange Act of 1934, as now or
hereafter construed, interpreted and applied by regulations, rulings and
cases.
(i) "Fair Market Value" means the per share fair market value of Common
Stock as determined by such methods or procedures as shall be established
from time to time by the Committee. Unless otherwise determined by the
Committee in good faith, the per share Fair Market Value of Common Stock as
of a particular date shall mean (i) the closing sales price per share of
Common Stock on the national securities exchange on which the Common Stock
is principally traded, for the last preceding date on which there was a
sale of such Common Stock on such exchange, or (ii) if the shares of Common
Stock are then traded in an over-the-counter market, the average of the
closing bid and asked prices for the shares of Common Stock in such
over-the-counter market for the last preceding date on which there was a
sale of such Common Stock in such market, or (iii) if the shares of Common
Stock are not then listed on a national securities exchange or traded in an
over-the-counter market, such value as the Committee, in its sole
discretion, shall determine.
(j) "Non-Employee Director" means a member of the Board who is neither an
officer nor employee of the Company.
(k) "Plan" means this Occidental Petroleum Corporation 1996 Restricted
Stock Plan For Non-Employee Directors.
(l) "Restriction Period" means, in respect of Restricted Stock, the period
referenced in Section 5(a).
(m) "Restricted Stock" means a grant of shares of Common Stock, which
shares are subject to the restrictions on transfer described in Section
5(a).
(n) "Rule 16b-3" means Rule 16b-3, as promulgated and amended from time to
time by the Securities and Exchange Commission under the Exchange Act, or
any successor rule to the same effect.
6
EXHIBIT 11
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(Amounts in thousands, except per-share amounts)
Three Months Ended
March 31
-------------------------
2005 2004
================================================================================ ========== ==========
BASIC EARNINGS PER SHARE
Earnings applicable to common stock $ 845,991 $ 487,027
========== ==========
Basic shares
Weighted average common shares outstanding 397,634 389,386
Issued, unvested restricted stock -- (55)
Vested, unissued restricted stock 1,100 547
Deferred share units 1,670 1,610
---------- ----------
Basic shares 400,404 391,488
========== ==========
Basic earnings per share
Income from continuing operations $ 2.12 $ 1.25
Discontinued operations, net (.01) (.01)
---------- ----------
Basic earnings per common share $ 2.11 $ 1.24
========== ==========
DILUTED EARNINGS PER SHARE
Earnings applicable to common stock $ 845,991 $ 487,027
========== ==========
Diluted shares
Basic shares 400,404 391,488
Dilutive effect of exercise of options outstanding 4,853 4,491
Issued, unvested restricted stock -- 55
Deferred, restricted stock 1,029 1,172
---------- ----------
Diluted shares 406,286 397,206
========== ==========
Diluted earnings per share
Income before effect of changes in accounting principles $ 2.09 $ 1.24
Discontinued operations, net (.01) (.01)
---------- ----------
Diluted earnings per common share $ 2.08 $ 1.23
================================================================================ ========== ==========
EXHIBIT 12
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF TOTAL ENTERPRISE RATIOS OF EARNINGS TO FIXED CHARGES
(Amounts in millions, except ratios)
Three Months Ended Year Ended
March 31 December 31
-------------------- --------------------------------------------------------
2005 2004 2004 2003 2002 2001 2000
======================================== ======== ======== ======== ======== ======== ======== ========
Income from continuing
operations $ 850 $ 489 $ 2,606 $ 1,601 $ 1,181 $ 1,182 $ 1,559
Add:
Minority interest(a) 21 13 75 62 77 143 185
Adjusted income from equity
investments(b) (35) 4 (6) 69 308 89 31
-------- -------- -------- -------- -------- -------- --------
836 506 2,675 1,732 1,566 1,414 1,775
-------- -------- -------- -------- -------- -------- --------
Add:
Provision (credit)for taxes on
income (other than foreign oil
and gas taxes) 356 193 982 682 (41) 172 871
Interest and debt expense(c) 76 72 266 335 309 411 540
Portion of lease rentals
representative of the interest
factor 9 2 40 8 6 7 6
-------- -------- -------- -------- -------- -------- --------
441 267 1,288 1,025 274 590 1,417
-------- -------- -------- -------- -------- -------- --------
Earnings before fixed charges $ 1,277 $ 773 $ 3,963 $ 2,757 $ 1,840 $ 2,004 $ 3,192
======== ======== ======== ======== ======== ======== ========
Fixed charges
Interest and debt expense
including capitalized
interest(c) $ 79 $ 73 $ 281 $ 341 $ 321 $ 417 $ 543
Portion of lease rentals
representative of the interest
factor 9 2 40 8 6 7 6
-------- -------- -------- -------- -------- -------- --------
Total fixed charges $ 88 $ 75 $ 321 $ 349 $ 327 $ 424 $ 549
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges 14.51 10.31 12.35 7.90 5.63 4.73 5.81
======================================== ======== ======== ======== ======== ======== ======== ========
(a) Represents minority interests in net income of majority-owned subsidiaries
and partnerships having fixed charges.
(b) Represents income from less-than-50-percent-owned equity investments
adjusted to reflect only dividends received.
(c) Includes proportionate share of interest and debt expense of
50-percent-owned equity investments.
EXHIBIT 31.1
CERTIFICATION
I, Ray R. Irani, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Occidental Petroleum
Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: May 4, 2005
/s/ Ray R. Irani
-------------------------------------------------
Ray R. Irani
Chairman of the Board of Directors, President and
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION
I, Stephen I. Chazen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Occidental Petroleum
Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: May 4, 2005
/s/ Stephen I. Chazen
-------------------------------------------------
Stephen I. Chazen
Senior Executive Vice President and
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION OF CEO AND CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Occidental Petroleum
Corporation (the "Company") for the fiscal period ended March 31, 2005, as filed
with the Securities and Exchange Commission on May 4, 2005 (the "Report"), Ray
R. Irani, as Chief Executive Officer of the Company, and Stephen I. Chazen, as
Chief Financial Officer of the Company, each hereby certifies, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Ray R. Irani
- -----------------------------------------------------
Name: Ray R. Irani
Title: Chairman of the Board of Directors, President and Chief Executive Officer
Date: May 4, 2005
/s/ Stephen I. Chazen
- -----------------------------------------------------
Name: Stephen I. Chazen
Title: Senior Executive Vice President and Chief Financial Officer
Date: May 4, 2005
A signed original of this written statement required by Section 906 has been
provided to Occidental Petroleum Corporation and will be retained by Occidental
Petroleum Corporation and furnished to the Securities and Exchange Commission or
its staff upon request.
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.