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, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- -----------
Commission file number 1-9210
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OCCIDENTAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-4035997
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10889 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(Address of principal executive offices) (Zip Code)
(310) 208-8800
(Registrant's telephone number, including area code)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
----- -----
Indicate 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, 2004
- --------------------------------------- -----------------------------
Common stock $.20 par value 391,187,719 shares
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets --
March 31, 2004 and December 31, 2003 2
Consolidated Condensed Statements of Income --
Three months ended March 31, 2004 and 2003 4
Consolidated Condensed Statements of Cash Flows --
Three months ended March 31, 2004 and 2003 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Item 4. Controls and Procedures 22
PART II OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 23
1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 2004 AND DECEMBER 31, 2003
(Amounts in millions)
2004 2003
================================================================================ ========== ==========
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 470 $ 683
Receivables, net 1,466 1,154
Inventories 396 510
Prepaid expenses and other 140 127
---------- ----------
Total current assets 2,472 2,474
LONG-TERM RECEIVABLES, net 296 264
INVESTMENTS IN UNCONSOLIDATED ENTITIES 1,405 1,155
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation, depletion and amortization of $7,782 at
March 31, 2004 and $7,467 at December 31, 2003 14,150 14,005
OTHER ASSETS 343 270
---------- ----------
$ 18,666 $ 18,168
================================================================================ ========== ==========
The accompanying notes are an integral part of these financial statements.
2
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 2004 AND DECEMBER 31, 2003
(Amounts in millions)
2004 2003
================================================================================ ========== ==========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease liabilities $ 23 $ 23
Accounts payable 1,199 909
Accrued liabilities 841 978
Domestic and foreign income taxes 454 163
Trust preferred securities -- 453
---------- ----------
Total current liabilities 2,517 2,526
---------- ----------
LONG-TERM DEBT, net of current maturities and unamortized discount 4,018 3,993
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred and other domestic and foreign income taxes 1,036 1,001
Other 2,306 2,407
---------- ----------
3,342 3,408
---------- ----------
MINORITY INTEREST 325 312
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, at par value 78 77
Additional paid-in capital 4,407 4,272
Retained earnings 3,909 3,530
Accumulated other comprehensive income 70 50
---------- ----------
8,464 7,929
---------- ----------
$ 18,666 $ 18,168
================================================================================ ========== ==========
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, 2004 AND 2003
(Amounts in millions, except per-share amounts)
2004 2003
================================================================================ ========== ==========
REVENUES
Net sales $ 2,580 $ 2,371
Interest, dividends and other income 22 34
Gains on disposition of assets, net 1 --
---------- ----------
2,603 2,405
---------- ----------
COSTS AND OTHER DEDUCTIONS
Cost of sales 1,406 1,298
Selling, general and administrative and other operating expenses 226 187
Exploration expense 54 28
Interest and debt expense, net 71 131
---------- ----------
1,757 1,644
---------- ----------
Income before taxes and other items 846 761
Provision for domestic and foreign income and other taxes 361 333
Minority interest 13 19
(Income) loss from equity investments (15) 16
---------- ----------
Income from continuing operations 487 393
Cumulative effect of changes in accounting principles, net -- (68)
---------- ----------
NET INCOME $ 487 $ 325
========== ==========
BASIC EARNINGS PER COMMON SHARE
Income from continuing operations $ 1.24 $ 1.04
Cumulative effect of changes in accounting principles, net -- (.18)
---------- ----------
Basic earnings per common share $ 1.24 $ .86
========== ==========
DILUTED EARNINGS PER COMMON SHARE
Income from continuing operations $ 1.23 $ 1.03
Cumulative effect of changes in accounting principles, net -- (.18)
---------- ----------
Diluted earnings per common share $ 1.23 $ .85
========== ==========
DIVIDENDS PER COMMON SHARE $ .275 $ .26
========== ==========
BASIC SHARES 391.5 379.1
========== ==========
DILUTED SHARES 397.2 383.2
================================================================================ ========== ==========
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, 2004 AND 2003
(Amounts in millions)
2004 2003
===================================================================================== ========== ==========
CASH FLOW FROM OPERATING ACTIVITIES
Income from continuing operations $ 487 $ 393
Adjustments to reconcile income to net cash provided by operating
activities:
Depreciation, depletion and amortization of assets 325 285
Deferred income tax provision 23 32
Other non-cash charges to income 91 25
Gains on disposition of assets, net (1) --
(Income) loss from equity investments (15) 16
Dry hole and impairment expense 42 15
Changes in operating assets and liabilities 64 (18)
Other operating, net (51) (74)
---------- ----------
Net cash provided by operating activities 965 674
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (343) (298)
Purchase of businesses, net (138) (42)
Sales of businesses and disposal of property, plant, and equipment, net 2 1
Equity investments and other investing, net (232) (87)
---------- ----------
Net cash used by investing activities (711) (426)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Repurchase of trust preferred securities (466) (1)
Proceeds from long-term debt -- 298
Payments on long-term debt and capital lease liabilities -- (482)
Proceeds from issuance of common stock 2 1
Cash dividends paid (101) (94)
Stock options exercised 99 30
Other (1) --
---------- ----------
Net cash used by financing activities (467) (248)
---------- ----------
Decrease in cash and cash equivalents (213) --
Cash and cash equivalents--beginning of period 683 146
---------- ----------
Cash and cash equivalents--end of period $ 470 $ 146
===================================================================================== ========== ==========
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, 2004
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, 2003 (2003 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, 2004, 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, 2004, 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 2004 presentation.
Refer to Note 1 to the consolidated financial statements in the 2003 Form
10-K for a summary of significant accounting policies.
2. Asset Acquisitions and Other Transactions
In January 2004, Occidental acquired a 1,300-mile oil pipeline and
gathering system located in the Permian Basin for approximately $143
million in cash (including a $5 million deposit in 2003).
In January 2004, Occidental redeemed all of the outstanding 8.16 percent
Trust Preferred Redeemable Securities (trust preferred securities) at par
plus accrued interest which resulted in a decrease in current liabilities
of approximately $453 million. This resulted in an after-tax charge of $7
million.
3. Accounting Changes
In December 2003, the FASB revised Interpretation No. (FIN) 46,
"Consolidation of Variable Interest Entities" to exempt certain entities
from its requirements and to clarify certain issues arising during the
initial implementation of FIN 46. Occidental adopted the revised FIN 46 in
the first quarter of 2004 and it did not have a material effect on its
financial statements when adopted.
The Emerging Issues Task Force (EITF) is currently addressing whether
contract-based oil and gas mineral rights are tangible or intangible assets
based on their interpretation of Statement of Financial Accounting
Standards (SFAS) No. 141, "Business Combinations" and SFAS No. 142
"Goodwill and Other Intangible Assets". Historically, Occidental has
classified all of its contract-based mineral rights within property, plant
and equipment and has generally not identified these amounts
6
separately. If the EITF determines that these mineral rights should be
presented as intangible assets, Occidental would have to reclassify its
contract-based oil and gas mineral rights to intangible assets and make
additional disclosures in accordance with SFAS No. 142. If Occidental
adopted this change for rights acquired after June 30, 2001, approximately
$471 million and $492 million of the property, plant and equipment balance
would be reclassified to intangible assets as at March 31, 2004 and
December 31, 2003, respectively. These amounts, which are net of
accumulated depreciation, depletion and amortization, include approximately
$464 million and $475 million of mineral rights related to proved
properties as of March 31, 2004 and December 31, 2003, respectively.
Occidental currently amortizes these amounts under the unit-of-production
method and would continue to amortize the mineral rights under this method.
Occidental believes the adoption of this would have no material effect on
its results of operations.
4. Comprehensive Income
The following table presents Occidental's comprehensive income items (in
millions):
Three Months Ended March 31, 2004 2003
================================================== ========== ==========
Net income $ 487 $ 325
Other comprehensive income items
Foreign currency translation adjustments (7) 2
Derivative mark-to-market adjustments (2) (12)
Unrealized gain on securities 29 23
---------- ----------
Other comprehensive income, net of tax 20 13
---------- ----------
Comprehensive income $ 507 $ 338
================================================== ========== ==========
5. Supplemental Cash Flow Information
During the three months ended March 31, 2004 and 2003, net cash payments
for federal, foreign and state income taxes were approximately $64 million
and $13 million, respectively. Interest paid (net of interest capitalized
of $2 million and $1 million, respectively) totaled approximately $83
million and $155 million (including a $61 million debt repayment fee) for
the three months ended March 31, 2004 and 2003, respectively.
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, 2004 December 31, 2003
================================== ==================== ====================
Raw materials $ 50 $ 46
Materials and supplies 146 143
Finished goods 221 342
---------- ----------
417 531
LIFO reserve (21) (21)
---------- ----------
Total $ 396 $ 510
================================== ========== ==========
7
7. Asset Retirement Obligations
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires companies to recognize the
fair value of a liability for an asset retirement obligation in the period
in which the liability is incurred if there is a legal obligation to
dismantle the asset and reclaim or remediate the property at the end of its
useful life. When the liability is initially recorded, the company
capitalizes the cost into property, plant and equipment. Over time, the
liability is accreted and the cost is depreciated, both over the asset's
useful life. Occidental's asset retirement obligations primarily relate to
the cost of plugging and abandoning wells, well-site cleanup, facilities
abandonment and environmental closure and post-closure care.
The following summarizes the activity of the asset retirement obligations
(in millions):
Three Months Ended March 31, 2004 2003
============================================================ ========== ==========
Beginning balance $ 167 $ --
Cumulative effect of change in accounting principles -- 151
Liabilities incurred in the period 9 --
Liabilities settled in the period (3) (3)
Acquisition and other 16 --
Accretion expense 3 3
---------- ----------
Ending balance $ 192 $ 151
============================================================ ========== ==========
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 retroactively 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, or are otherwise
involved in proceedings involving historical practices, at federal
Superfund sites and other sites subject to the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA), comparable state sites
and other remediation sites, including Occidental facilities and previously
owned sites.
The following table presents Occidental's environmental remediation
reserves at March 31, 2004, grouped by three categories of environmental
remediation sites ($ amounts in millions):
# of Sites Reserve
=================================== =============== ===============
CERCLA & Equivalent Sites 119 $ 232
Active Facilities 14 78
Closed or Sold Facilities 40 53
--------------- ---------------
Total 173 $ 363
=================================== =============== ===============
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 that 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 $400 million beyond the
amount accrued.
8
At March 31, 2004, OPC or certain of its subsidiaries have been named in
CERCLA or state equivalent proceedings, as shown below ($ amounts in
millions):
Description # of Sites Reserve
=================================== =============== ===============
Minimal/No Exposure (a) 97 $ 5
Reserves between $1-10 MM 15 57
Reserves over $10 MM 7 170
--------------- ---------------
Total 119 $ 232
=================================== =============== ===============
(a) Includes 26 sites for which Maxus Energy Corporation has retained the
liability and indemnified Occidental, 7 sites where Occidental has
denied liability without challenge, 54 sites where Occidental's
reserves are less than $50,000 each, and 10 sites where reserves are
between $50,000 and $1 million each.
Refer to Note 8 to the consolidated financial statements in the 2003 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 and
local 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.
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 2002 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 guarantees outstanding at March 31, 2004, 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, 2004, the
notional amount of these guarantees was approximately $400 million. Of this
amount, approximately $300 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.
9
10. Income Taxes
The provision for taxes based on income for the 2004 and 2003 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 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.
Occidental's policy is to recognize compensation expense over the vesting
period of the award. 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, 2004 2003
============================================================ ========== ==========
Net income $ 487 $ 325
Add: Stock-based compensation included in net income, net
of tax, under APB No. 25 9 7
Deduct : Stock-based compensation, net of tax, determined
under SFAS No. 123 fair value method (13) (11)
---------- ----------
Pro-forma net income $ 483 $ 321
============================================================ ========== ==========
Earnings Per Share:
Basic - as reported $ 1.24 $ 0.86
Basic - pro forma $ 1.23 $ 0.85
Diluted - as reported $ 1.23 $ 0.85
Diluted - pro forma $ 1.22 $ 0.84
------------------------------------------------------------ ---------- ----------
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.
10
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, 2004 2003
======================================== =================================== ===================================
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 (5) -- (5) --
Amortization of transition obligation -- -- -- --
/ (asset)
Amortization of prior service cost -- -- -- --
Recognized actuarial (gain) / loss 1 3 1 3
--------------- --------------- --------------- ---------------
Total $ 5 $ 13 $ 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. Occidental intends to review
its retirees' health care plans in light of the new Medicare provisions,
which may change Occidental's obligations under the plan. Therefore, the
retiree medical obligations and costs reported do not reflect the impact of
this legislation. Deferring the recognition of the new Medicare provisions'
impact is permitted by Financial Accounting Standards Board Staff Position
106-b due to open questions about some of the new Medicare provisions and a
lack of authoritative accounting guidance about certain matters. The final
accounting guidance could require changes to previously reported
information.
Occidental funded approximately $2 million to its domestic defined benefit
pension plans for the quarter ended March 31, 2004 and it expects to
contribute a total of $6 million during 2004. All of the contributions are
expected to be in the form of cash.
Refer to Note 13 to the consolidated financial statements in the 2003 Form
10-K for additional information regarding Occidental's retirement plans and
postretirement benefits.
13. Investments in Unconsolidated Entities
The following table presents Occidental's proportionate interest in the
summarized financial information of its equity method investments (in
millions):
Three Months Ended March 31, 2004 2003
================================================== ========== ==========
Revenues $ 353 $ 426
Costs and expenses 338 442
---------- ----------
Net income (loss) from continuing operations $ 15 $ (16)
================================================== ========== ==========
Occidental has a 50-percent interest in Elk Hills Power LLC (EHP), a
limited liability company that operates a gas-fired, power-generation plant
in California. EHP is a variable interest entity under the provisions of
FIN 46. Occidental has concluded it is not the primary beneficiary of EHP
and, therefore, accounts for its investment using the equity method. In the
first quarter of 2004, Occidental loaned approximately $208 million to EHP
which it used to repay its debt that had been guaranteed by Occidental.
Occidental's maximum exposure to loss, which is measured as its net
investment in EHP plus loans and advances, totaled approximately $208
million at March 31, 2004.
11
14. Industry Segments
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, 2004
Net sales $ 1,693 $ 857 $ 30 $ 2,580
============= ============= ============= =============
Pretax operating profit (loss) $ 919 $ 52 $ (123)(a) $ 848
Income taxes (169) (2) (190)(b) (361)
------------- ------------- ------------- -------------
Net income (loss) $ 750 $ 50 $ (313)(c) $ 487
======================================== ============= ============= ============= =============
Quarter ended March 31, 2003
Net sales $ 1,553 $ 790 $ 28 $ 2,371
============= ============= ============= =============
Pretax operating profit (loss) $ 880 $ 38 $ (192)(a) $ 726
Income taxes (153) (3) (177)(b) (333)
Cumulative effect of changes in
accounting principles, net -- -- (68) (68)
------------- ------------- ------------- -------------
Net income (loss) $ 727 $ 35 $ (437)(d) $ 325
======================================== ============= ============= ============= =============
(a) Includes unallocated net interest expense, administration expense and other
items.
(b) Includes unallocated income taxes. The 2004 amount includes a $20 million
credit from a tax settlement.
(c) Includes a trust preferred securities redemption pre-tax charge of $11
million ($7 million net of tax).
(d) Includes a $61 million pre-tax interest charge ($40 million net of tax) to
repay a $450 million 6.4 percent senior note issue that had ten years of
remaining life, but was subject to remarketing on April 1, 2003.
12
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 2004 of $487 million,
on net sales of $2.6 billion, compared with net income of $325 million, on net
sales of $2.4 billion, for the same period of 2003. Basic earnings per common
share were $1.24 for the first quarter of 2004, compared with basic earnings per
common share of $0.86 for the same period of 2003.
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 2003
included a pre-tax debt repayment charge of $61 million and a $68 million
after-tax cumulative effect of changes in accounting principles. Net income for
the first quarter of 2004, compared to the same period in 2003, reflected higher
crude oil and natural gas prices and volumes and higher chemical margins.
SELECTED INCOME STATEMENT ITEMS
The increase of $209 million in net sales in the first quarter of 2004, compared
with the same period in 2003, primarily reflected higher worldwide crude oil
volumes and prices, higher natural gas prices and higher chemical volumes and
prices.
The increase of $108 million in cost of sales for the first quarter of 2004,
compared with the same period in 2003, primarily reflected higher energy and raw
material costs and higher DD&A expense due to accelerated drilling in Colombia
and Yemen and a facility expansion in Qatar. The increase of $39 million in
selling, general and administrative and other operating expenses for the first
quarter of 2004, compared to the same period in 2003, primarily reflected
increases in various oil and gas costs, including higher production-related
taxes, and higher other operating costs. The increase of $26 million in
exploration expense for the first quarter of 2004, compared to the same period
in 2003, primarily reflected higher lease impairment charges. Interest and debt
expense, net for the first quarter of 2004 included a trust preferred securities
redemption pre-tax charge of $11 million. Interest and debt expense, net for the
first quarter of 2003 included a pre-tax debt repayment charge of $61 million.
The provision for income taxes for the first quarter of 2004 includes a $20
million credit from settlement of a tax issue. The income from equity
investments of $15 million in the first quarter of 2004, compared to an equity
investment loss of $16 million in the same period in 2003, was primarily
attributable to a smaller loss from the Lyondell equity investment and higher
income from a Russian oil and gas affiliate.
13
SEGMENT OPERATIONS
The following table sets forth the sales and earnings of each industry segment
and unallocated corporate items (in millions):
Three Months Ended
March 31
-------------------------
2004 2003
======================================================= ========== ==========
NET SALES
Oil and gas $ 1,693 $ 1,553
Chemical 857 790
Other 30 28
---------- ----------
NET SALES $ 2,580 $ 2,371
========== ==========
SEGMENT EARNINGS
Oil and gas $ 750 $ 727
Chemical 50 35
---------- ----------
800 762
UNALLOCATED CORPORATE ITEMS
Interest expense, net
Debt, net (54) (124)
Trust preferred distributions and other (14) (11)
Income taxes (190) (178)
Other (55) (56)
---------- ----------
INCOME FROM CONTINUING OPERATIONS 487 393
Cumulative effect of changes in accounting principles, net -- (68)
---------- ----------
Net Income $ 487 $ 325
======================================================= ========== ==========
14
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) 2003 EPS 2002 EPS
================================================== ========== ========== ========== ==========
TOTAL REPORTED EARNINGS $ 487 $ 1.24 $ 325 $ 0.86
========== ========== ========== ==========
OIL AND GAS
- -----------
Segment Earnings $ 750 $ 727
No significant items affecting earnings -- --
---------- ----------
Segment Core Earnings 750 727
---------- ----------
CHEMICAL
- --------
Segment Earnings 50 35
No significant items affecting earnings -- --
---------- ----------
Segment Core Earnings 50 35
---------- ----------
CORPORATE AND OTHER
- -------------------
Results (313) (437)
Less:
Trust preferred securities redemption charge (11) --
Settlement of tax issue 20 --
Debt repayment charge -- (61)
Tax effect of pre-tax adjustments 4 21
Changes in accounting principles, net * -- (68)
---------- ----------
TOTAL CORE EARNINGS $ 474 $ 1.21 $ 433 $ 1.14
================================================== ========== ========== ========== ==========
* These amounts are shown after tax
15
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) 2004 2003
======================================================= ========== ==========
REPORTED INCOME
Income before taxes $ 848 726
Income tax expense
Domestic 191 179
Foreign 170 154
---------- ----------
Total 361 333
Income for continuing operations 487 393
Cumulative effect of accounting changes -- (68)
---------- ----------
Net income $ 487 325
========== ==========
Worldwide effective tax rate 43% 46%
========== ==========
CORE EARNINGS
Income before taxes $ 859 787
Income tax expense
Domestic 215 200
Foreign 170 154
---------- ----------
Total 385 354
Core Earnings $ 474 433
========== ==========
Worldwide effective tax rate 45% 45%
======================================================= ========== ==========
16
OIL AND GAS SEGMENT
Three Months Ended
March 31
-------------------------
Summary of Operating Statistics 2004 2003
============================================================ ========== ==========
NET PRODUCTION PER DAY:
CRUDE OIL AND NATURAL GAS LIQUIDS (MBL)
United States 258 241
Latin America 79 53
Middle East 95 99
Other Eastern Hemisphere 9 10
NATURAL GAS (MMCF)
United States 527 528
Middle East 11 --
Other Eastern Hemisphere 75 75
BARRELS OF OIL EQUIVALENT (MBOE)
Consolidated subsidiaries 543 504
Other interests 25 28
---------- ----------
Worldwide production 568 532
============================================================ ========== ==========
AVERAGE SALES PRICE:
CRUDE OIL ($/BBL)
United States $ 32.62 $ 31.57
Latin America $ 28.99 $ 31.23
Middle East $ 30.08 $ 30.40
Other Eastern Hemisphere $ 29.37 $ 28.05
NATURAL GAS ($/MCF)
United States $ 5.00 $ 4.30
Middle East $ 0.97 $ --
Other Eastern Hemisphere $ 2.23 $ 1.89
============================================================ ========== ==========
Oil and gas segment and core earnings for the first quarter of 2004 were $750
million, compared with $727 million for the same period of 2003. The increase of
$23 million in earnings for the first quarter of 2004, compared to the first
quarter of 2003, reflected higher prices for crude oil and natural gas and
increased crude oil volumes. This was partially offset by higher exploration
expense and higher DD&A rates due to accelerated drilling of wells in Colombia
and Yemen and a facilities expansion project in Qatar. Also, increased
production-related taxes and higher utility costs were the result of higher oil
and gas prices. Apart from these and other energy price-related costs, lifting
costs are not materially higher compared to the first quarter 2003. Worldwide
production costs for the first quarter 2004 were $6.54 per barrels of oil
equivalent (BOE) compared to the average 2003 production cost of $6.08 per BOE.
The increase of $140 million in net sales in the first quarter of 2004, compared
with the same period in 2003, primarily reflected increased crude oil volumes
and higher prices for crude oil and natural gas.
The average West Texas Intermediate price in the first quarter of 2004 was
$35.15 per barrel and the average New York Mercantile Exchange (NYMEX) price for
natural gas was $5.84 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 $32 million. Occidental expects second quarter 2004 production
to be approximately the same as the first quarter 2004 and exploration expense
to be about $40 million.
17
CHEMICAL SEGMENT
Three Months Ended
March 31
-------------------------
Summary of Operating Statistics 2004 2003
============================================================ ========== ==========
MAJOR PRODUCT VOLUMES (M TONS, EXCEPT PVC
RESINS)
Chlorine (a) 706 686
Caustic Soda 732 637
Ethylene Dichloride 122 131
PVC Resins (millions of pounds) 1,071 1,063
MAJOR PRODUCT PRICE INDEX (1987 THROUGH 1990
AVERAGE PRICE = 1.0)
Chlorine 1.60 1.64
Caustic Soda 0.71 0.81
Ethylene Dichloride 1.32 1.23
PVC Resins (b) 0.94 0.89
============================================================ ========== ==========
(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 2004 were $50
million, compared with $35 million for the same period of 2003. The increase of
$15 million in earnings for the first quarter of 2004, compared with the same
period in 2003, was due primarily to higher margins and volumes in vinyls, which
were partially offset by higher ethylene costs and also by lower caustic soda
margins.
The increase of $67 million in net sales in the first quarter of 2004, compared
with the same period in 2003, primarily reflected higher volumes and prices in
vinyls.
Occidental expects second quarter 2004 chemical earnings of $60 to $70 million
compared to $43 million in the second quarter of 2003, assuming the economy
continues to strengthen.
CORPORATE AND OTHER
Unallocated corporate items - income taxes includes a $20 million credit related
to a settlement of a tax issue. Continuing tax audit discussions could result in
additional settlements in 2004 or later.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Occidental's net cash provided by operating activities was $965 million for the
first quarter of 2004, compared with $674 million for the same period of 2003.
The increase of $291 million is primarily attributable to higher income from
continuing operations after non-cash charges to income including depreciation,
depletion and amortization expense and lower working capital usage.
Occidental's net cash used by investing activities was $711 million for the
first quarter of 2004, compared with $426 million for the same period of 2003.
The 2004 amount includes a $208 million advance to the Elk Hills Power LLC (EHP)
equity investment which EHP used to repay a portion of their debt. The 2004
amount also includes the purchase of the pipeline and gathering system in the
Permian Basin. The 2003 amount includes a deposit for the purchase of Permian
assets, advances to equity investees, purchases of equity investee debt and an
additional stock purchase of a cost-method investee. Capital expenditures for
the first quarter of 2004 were $343 million, including $326 million in oil and
gas. Capital expenditures for the first quarter of 2003 were $298 million,
including $225 million in oil and gas and $68 million for chemical which
included $44 million related to the exercise of purchase options for certain
leased railcars.
18
Occidental's net cash used by financing activities was $467 million in the first
quarter of 2004, compared with $248 million for the same period of 2003. The
2004 amount includes the total cash paid of $466 million to repurchase the trust
preferred securities in January 2004. The 2003 amount includes net debt payments
of approximately $184 million.
In January 2004, Occidental redeemed all of the outstanding trust preferred
securities at par plus accrued interest which resulted in a decrease in current
liabilities of approximately $453 million.
Available but unused lines of committed bank credit totaled approximately $1.5
billion at March 31, 2004. Occidental believes that cash on hand and cash
generated from its operations will be sufficient to fund its operating needs,
capital expenditure requirements and dividend payments. If needed, Occidental
could access its existing unused credit facilities.
ENVIRONMENTAL EXPENDITURES
Occidental's operations in the United States are subject to stringent federal,
state and local laws and regulations relating to improving or maintaining
environmental quality. Foreign operations also are subject to
environmental-protection laws. The laws that require or address environmental
remediation may apply retroactively to past waste disposal practices and
releases. In many cases, the laws apply regardless of fault, legality of the
original activities or current ownership or control of sites. Occidental
Petroleum Corporation (OPC) or certain of its subsidiaries are currently
participating in environmental assessments and cleanups under these laws, or are
otherwise involved in proceedings involving historical practices, at federal
Superfund sites and other sites subject to the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA), comparable state sites and
other remediation sites, including Occidental facilities and previously owned
sites.
The following table presents Occidental's environmental remediation reserves at
March 31, 2004, grouped by three categories of environmental remediation sites
($ amounts in millions):
# of Sites Reserve
=================================== =============== ===============
CERCLA & Equivalent Sites 119 $ 232
Active Facilities 14 78
Closed or Sold Facilities 40 53
--------------- ---------------
Total 173 $ 363
=================================== =============== ===============
In determining the environmental remediation reserves and 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 that 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 $400
million beyond the amount accrued.
19
At March 31, 2004, OPC or certain of its subsidiaries have been named in CERCLA
or state equivalent proceedings, as shown below ($ amounts in millions):
Description # of Sites Reserve
=================================== =============== ===============
Minimal/No Exposure (a) 97 $ 5
Reserves between $1-10 MM 15 57
Reserves over $10 MM 7 170
--------------- ---------------
Total 119 $ 232
=================================== =============== ===============
(a) Includes 26 sites for which Maxus Energy Corporation has retained the
liability and indemnified Occidental, 7 sites where Occidental has denied
liability without challenge, 54 sites where Occidental's reserves are less
than $50,000 each, and 10 sites where reserves are between $50,000 and $1
million each.
Refer to the "Environmental Expenditures" section of Management's Discussion and
Analysis of Financial Condition and Results of Operations in the 2003 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 and local 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.
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 2002 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 guarantees outstanding at March 31, 2004, 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, 2004, the notional amount of
these guarantees was approximately $400 million. Of this amount, approximately
$300 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.
20
ACCOUNTING CHANGES
In December 2003, the FASB revised FIN 46, "Consolidation of Variable Interest
Entities" to exempt certain entities from its requirements and to clarify
certain issues arising during the initial implementation of FIN 46. Occidental
adopted the revised FIN 46 in the first quarter of 2004 and it did not have a
material effect on its financial statements when adopted.
The Emerging Issues Task Force (EITF) is currently addressing whether
contract-based oil and gas mineral rights are tangible or intangible assets
based on their interpretation of Statement of Financial Accounting Standards
(SFAS) No. 141, "Business Combinations" and SFAS No. 142 "Goodwill and Other
Intangible Assets". Historically, Occidental has classified all of its
contract-based mineral rights within property, plant and equipment and has
generally not identified these amounts separately. If the EITF determines that
these mineral rights should be presented as intangible assets, Occidental would
have to reclassify its contract-based oil and gas mineral rights to intangible
assets and make additional disclosures in accordance with SFAS No. 142. If
Occidental adopted this change for rights acquired after June 30, 2001,
approximately $471 million and $492 million of the property, plant and equipment
balance would be reclassified to intangible assets as of March 31, 2004 and
December 31, 2003, respectively. These amounts, which are net of accumulated
depreciation, depletion and amortization, include approximately $464 million and
$475 million of mineral rights related to proved properties as at March 31, 2004
and December 31, 2003, respectively. Occidental currently amortizes these
amounts under the unit-of-production method and would continue to amortize the
mineral rights under this method. Occidental believes the adoption of this would
have no material effect on its results of operations.
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: 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the three months ended March 31, 2004, there were no material changes in the
information required to be provided under Item 305 of Regulation S-X 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 2003 Annual Report on Form 10-K.
21
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 2004 that has materially affected, or is
reasonably likely to materially affect, Occidental's internal control over
financial reporting.
22
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
This item incorporates by reference the information regarding legal proceedings
in Note 9 to the consolidated condensed financial statements in Part I of this
Form 10-Q.
In April 2004, a number of U.S. companies, including Occidental Chemical
Corporation, 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 the pesticide DBCP. In the opinion of management, all
of these claims are without merit because, among other things, the Company
believes that Occidental DBCP was never sold or used in Nicaragua. Under the
applicable Nicaraguan statute, DBCP defendants are required to pay pre-trial
deposits so large as to effectively prohibit defendants from participating fully
in their defense. In two such situations, involving other defendants, Nicaraguan
courts proceeded to enter significant judgments against the defendants under
that statute. 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 AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Occidental Petroleum Corporation 1996 Restricted Stock Plan for
Non-Employee Directors, as amended April 30, 2004 (filed as
Exhibit 99.1 to the Registration Statement on Form S-8 of
Occidental, File No. 333-115099)
11 Statement regarding the computation of earnings per share for the
three months ended March 31, 2004 and 2003.
12 Statement regarding the computation of total enterprise ratios of
earnings to fixed charges for the three months ended March 31,
2004 and 2003 and the five years ended December 31, 2003.
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
(b) Reports on Form 8-K
During the quarter ended March 31, 2004, Occidental filed the
following Current Report on Form 8-K:
1. Current Report on Form 8-K dated January 22, 2004 (date of
earliest event reported), filed on January 22, 2004, for the
purpose of reporting, under Items 9 and 12, Occidental's results
of operations for the fourth quarter ended December 31, 2003, and
speeches and supplemental investor information relating to
Occidental's fourth
23
quarter 2003 earnings announcement (which information under Items
9 and 12 shall not be deemed to be filed).
2. Current Report on Form 8-K dated February 5, 2004 (date of
earliest event reported), filed on February 5, 2004, for the
purpose of reporting, under Item 9, a presentation by Dr. Dale R.
Laurance, President (which information under Item 9 shall not be
deemed to be filed).
From March 31, 2004 to the date hereof, Occidental filed the following
Current Reports on Form 8-K:
1. Current Report on Form 8-K dated April 23, 2004 (date of earliest
event reported), filed on April 23, 2004, for the purpose of
reporting, under Item 5, Occidental's results of operations for
the first quarter ended March 31, 2004, and under Items 9 and 12,
speeches and supplemental investor information relating to
Occidental's first quarter 2004 earnings announcement (which
information under Items 9 and 12 shall not be deemed to be
filed).
2. Current Report on Form 8-K dated April 30, 2004 (date of earliest
event reported), filed on April 30, 2004, for the purpose of
reporting, under Item 9, a presentation by Dr. Ray R. Irani, CEO,
at Occidental's 2004 Annual Meeting of Stockholders (which
information under Item 9 shall not be deemed to be filed).
24
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, 2004 S. P. Dominick, Jr.
--------------------------------------------------
S. P. Dominick, Jr., Vice President and Controller
(Chief Accounting and Duly Authorized Officer)
25
EXHIBIT INDEX
EXHIBITS
- --------
11 Statement regarding the computation of earnings per share for the
three months ended March 31, 2004 and 2003.
12 Statement regarding the computation of total enterprise ratios of
earnings to fixed charges for the three months ended March 31,
2004 and 2003 and the five years ended December 31, 2003.
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
26
EXHIBIT 11
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Amounts in thousands, except per-share amounts)
Three Months Ended
March 31
--------------------------
2004 2003
================================================================================= =========== ===========
BASIC EARNINGS PER SHARE
Earnings applicable to common stock $ 487,027 $ 325,157
=========== ===========
Basic shares
Weighted average common shares outstanding 389,386 378,409
Issued, unvested restricted stock (55) (206)
Vested, unissued restricted stock 547 127
Deferred share units 1,610 753
----------- -----------
Basic shares 391,488 379,083
=========== ===========
Basic earnings per share
Income from continuing operations $ 1.24 $ 1.04
Cumulative effect of changes in accounting principles, net of tax -- (.18)
----------- -----------
Basic earnings per common share $ 1.24 $ .86
=========== ===========
DILUTED EARNINGS PER SHARE
Earnings applicable to common stock $ 487,027 $ 325,157
=========== ===========
Diluted shares
Basic shares 391,488 379,083
Dilutive effect of exercise of options outstanding 4,491 3,079
Issued, unvested restricted stock 55 206
Deferred, restricted stock 1,172 796
----------- -----------
Diluted shares 397,206 383,164
=========== ===========
Diluted earnings per share
Income before effect of changes in accounting principles $ 1.23 $ 1.03
Cumulative effect of changes in accounting principles, net of tax -- (.18)
----------- -----------
Diluted earnings per common share $ 1.23 $ .85
================================================================================= =========== ===========
The following items were not included in the computation of diluted earnings per
share because their effect was antidilutive (in thousands, except per-share
amounts):
Three Months Ended March 31, 2004 2003
================================================== ==================== ====================
Stock options
Number of shares None 6
Price per share $ 29.438
Expiration date 12/01/07
================================================== ==================== ====================
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
------------------ ---------------------------------------------------
2004 2003 2003 2002 2001 2000 1999
========================================= ======= ======= ======= ======= ======= ======= =======
Income from continuing
operations $ 487 $ 393 $ 1,595 $ 1,163 $ 1,179 $ 1,557 $ 461
Add:
Minority interest(a) 13 19 62 77 143 185 58
Adjusted income from equity
investments(b) 4 25 69 308 89 31 73
------- ------- ------- ------- ------- ------- -------
504 437 1,726 1,548 1,411 1,773 592
------- ------- ------- ------- ------- ------- -------
Add:
Provision for taxes on
income (other than foreign oil
and gas taxes) 199 183 682 (41) 172 871 306
Interest and debt expense(c) 72 133 335 309 411 540 515
Portion of lease rentals
representative of the interest
factor 2 7 8 6 7 6 31
------- ------- ------- ------- ------- ------- -------
273 323 1,025 274 590 1,417 852
------- ------- ------- ------- ------- ------- -------
Earnings before fixed charges $ 777 $ 760 $ 2,751 $ 1,822 $ 2,001 $ 3,190 $ 1,444
======= ======= ======= ======= ======= ======= =======
Fixed charges
Interest and debt expense
including capitalized
interest(c) $ 74 $ 134 $ 341 $ 321 $ 417 $ 543 $ 522
Portion of lease rentals
representative of the interest
factor 2 7 8 6 7 6 31
------- ------- ------- ------- ------- ------- -------
Total fixed charges $ 76 $ 141 $ 349 $ 327 $ 424 $ 549 $ 553
======= ======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 10.22 5.39 7.88 5.57 4.72 5.81 2.61
========================================= ======= ======= ======= ======= ======= ======= =======
(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)) 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) 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
(c) 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, 2004
/s/ Ray R. Irani
---------------------------------------------
Ray R. Irani
Chairman of the Board of Directors 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)) 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) 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
(c) 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, 2004
/s/ Stephen I. Chazen
---------------------------------------------
Stephen I. Chazen
Executive Vice President - Corporate
Development 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 quarterly period ending March 31, 2004, as
filed with the Securities and Exchange Commission on May 4, 2004 (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 and Chief Executive Officer
Date: May 4, 2004
/s/ Stephen I. Chazen
- -----------------------------------------------------
Name: Stephen I. Chazen
Title: Executive Vice President - Corporate Development and Chief Financial
Officer
Date: May 4, 2004
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
Section18 of the Securities Exchange Act of 1934, as amended.