SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 1-9210
---------------------
OCCIDENTAL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-4035997
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10889 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(Address of principal executive offices) (Zip Code)
(310) 208-8800
(Registrant's telephone number, including area code)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at June 30, 2001
--------------------------- ----------------------------
Common stock $.20 par value 373,317,772 shares
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets--
June 30, 2001 and December 31, 2000 2
Consolidated Condensed Statements of Operations--
Three and six months ended June 30, 2001 and 2000 4
Consolidated Condensed Statements of Cash Flows--
Six months ended June 30, 2001 and 2000 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 2001 AND DECEMBER 31, 2000
(Amounts in millions)
2001 2000
================================================================================= ============ =============
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 163 $ 97
Receivables, net 1,223 1,326
Inventories 436 485
Prepaid expenses and other 172 159
------------ -------------
Total current assets 1,994 2,067
LONG-TERM RECEIVABLES, net 2,279 2,119
EQUITY INVESTMENTS 1,326 1,327
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation, depletion and amortization of $6,158
at June 30, 2001 and $6,041 at December 31, 2000 13,482 13,471
OTHER ASSETS 405 430
------------ -------------
$ 19,486 $ 19,414
================================================================================= ============ =============
The accompanying notes are an integral part of these financial statements.
2
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 2001 AND DECEMBER 31, 2000
(Amounts in millions)
2001 2000
================================================================================= ============ =============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease liabilities $ 242 $ 258
Notes payable 1 2
Accounts payable 842 1,091
Accrued liabilities 1,153 1,311
Domestic and foreign income taxes 103 78
------------ -------------
Total current liabilities 2,341 2,740
------------ -------------
LONG-TERM DEBT, net of current maturities and unamortized discount 3,294 3,285
------------ -------------
NON-RECOURSE DEBT 1,500 1,900
------------ -------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred and other domestic and foreign income taxes 1,384 1,280
Obligation under natural gas delivery commitment 215 282
Other 2,467 2,415
------------ -------------
4,066 3,977
------------ -------------
MINORITY INTEREST 2,222 2,265
------------ -------------
OCCIDENTAL OBLIGATED MANDATORILY REDEEMABLE
TRUST PREFERRED SECURITIES OF A SUBSIDIARY
TRUST HOLDING SOLELY SUBORDINATED NOTES OF
OCCIDENTAL 468 473
------------ -------------
STOCKHOLDERS' EQUITY
Common stock, at par value 75 74
Additional paid-in capital 3,820 3,743
Retained earnings 1,778 1,007
Accumulated other comprehensive income (78) (50)
------------ -------------
5,595 4,774
------------ -------------
$ 19,486 $ 19,414
================================================================================= ============ =============
The accompanying notes are an integral part of these financial statements.
3
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Amounts in millions, except per-share amounts)
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
2001 2000 2001 2000
=============================================================== ========== =========== =========== ==========
REVENUES
Net sales 3,845 3,195 8,320 5,769
Interest, dividends and other income 53 63 134 100
Gains on disposition of assets, net 10 491 13 495
Income (loss) from equity investments -- 52 (35) 85
---------- ----------- ----------- ----------
3,908 3,801 8,432 6,449
---------- ----------- ----------- ----------
COSTS AND OTHER DEDUCTIONS
Cost of sales 2,750 2,243 6,039 4,030
Selling, general and administrative and other
operating expenses 178 291 376 445
Exploration expense 18 15 39 21
Environmental remediation -- -- 49 --
Minority interest 44 56 76 86
Interest and debt expense, net 106 143 222 247
---------- ----------- ----------- ----------
3,096 2,748 6,801 4,829
---------- ----------- ----------- ----------
Income before taxes 812 1,053 1,631 1,620
Provision for domestic and foreign income and
other taxes 339 489 647 785
---------- ----------- ----------- ----------
Income before extraordinary item and effect of changes
in accounting principles 473 564 984 835
Extraordinary loss, net -- -- (3) --
Cumulative effect of changes in accounting principles, net -- -- (24) --
---------- ----------- ----------- ----------
NET INCOME 473 564 957 835
Effect of repurchase of Trust Preferred Securities -- -- -- 1
---------- ----------- ----------- ----------
EARNINGS APPLICABLE TO COMMON STOCK $ 473 $ 564 $ 957 $ 836
========== =========== =========== ==========
BASIC EARNINGS PER COMMON SHARE
Income before extraordinary item and effect of changes
in accounting principles $ 1.27 $ 1.53 $ 2.65 $ 2.27
Extraordinary loss, net -- -- (.01) --
Cumulative effect of changes in accounting principles, net -- -- (.06) --
---------- ----------- ----------- ----------
Basic earnings per common share $ 1.27 $ 1.53 $ 2.58 $ 2.27
========== =========== =========== ==========
DILUTED EARNINGS PER COMMON SHARE
Income before extraordinary item and effect of changes
in accounting principles $ 1.26 $ 1.53 $ 2.64 $ 2.27
Extraordinary loss, net -- -- (.01) --
Cumulative effect of changes in accounting principles, net -- -- (.06) --
---------- ----------- ----------- ----------
Diluted earnings per common share $ 1.26 $ 1.53 $ 2.57 $ 2.27
========== =========== =========== ==========
DIVIDENDS PER COMMON SHARE $ .25 $ .25 $ .50 $ .50
========== =========== =========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 372.0 368.8 371.1 368.5
=============================================================== ========== =========== =========== ==========
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 SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Amounts in millions)
2001 2000
========================================================================================= =========== ===========
CASH FLOW FROM OPERATING ACTIVITIES
Income before extraordinary item and effect of changes in accounting principles $ 984 $ 835
Adjustments to reconcile income to net cash provided by
operating activities:
Depreciation, depletion and amortization of assets 482 419
Deferred income tax provision 66 244
Other noncash charges to income 47 168
Gains on disposition of assets, net (13) (495)
Loss (income) from equity investments 35 (85)
Exploration expense 39 21
Changes in operating assets and liabilities (254) (108)
Other operating, net (77) (77)
----------- -----------
Net cash provided by operating activities 1,309 922
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (547) (333)
Sales of businesses and disposal of property, plant and equipment, net 10 842
Purchase of businesses, net (38) (3,701)
Other investing, net (75) 47
----------- -----------
Net cash used by investing activities (650) (3,145)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term debt and non-recourse debt 42 2,432
Net proceeds from commercial paper and revolving credit agreements -- 265
Repurchase of trust preferred securities (5) (9)
Purchases for natural gas delivery commitment (59) (56)
Payments on long-term debt, non-recourse debt and capital lease liabilities (459) (380)
Proceeds from issuance of common stock 9 19
(Payments) proceeds from notes payable (2) 20
Cash dividends paid (186) (184)
Stock options exercised 67 --
Other financing, net -- (1)
----------- -----------
Net cash (used) provided by financing activities (593) 2,106
----------- -----------
Increase (decrease) in cash and cash equivalents 66 (117)
Cash and cash equivalents--beginning of period 97 214
----------- -----------
Cash and cash equivalents--end of period $ 163 $ 97
========================================================================================= =========== ===========
The accompanying notes are an integral part of these financial statements.
5
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2001
1. General
The accompanying unaudited consolidated condensed financial statements have
been prepared by Occidental Petroleum Corporation (Occidental) pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and disclosures normally included in notes to
consolidated financial statements have been condensed or omitted pursuant
to such rules and regulations, but resultant disclosures are in accordance
with generally accepted accounting principles as they apply to interim
reporting. The consolidated condensed financial statements should be read
in conjunction with the consolidated financial statements and the notes
thereto in Occidental's Annual Report on Form 10-K for the year ended
December 31, 2000 (2000 Form 10-K).
In the opinion of Occidental's management, the accompanying consolidated
condensed financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly Occidental's
consolidated financial position as of June 30, 2001 and the consolidated
results of operations for the three and six months then ended and the
consolidated cash flows for the six months then ended. The results of
operations and cash flows for the periods ended June 30, 2001 are not
necessarily indicative of the results of operations or cash flows to be
expected for the full year.
Certain financial statements and notes for the prior year have been changed
to conform to the 2001 presentation.
Reference is made to Note 1 to the consolidated financial statements in the
2000 Form 10-K for a summary of significant accounting policies.
2. Extraordinary Items and Accounting Changes
On March 5, 2001, Occidental retired $20.5 million of 7.8 percent pollution
control revenue bonds due on December 1, 2005. As a result of this
transaction, Occidental recognized an after-tax extraordinary loss of $3
million in the first quarter of 2001.
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations". SFAS No. 141 establishes new standards for accounting and
reporting business combinations including the elimination of the pooling
method of accounting. The standard applies to all business combinations
initiated after June 30, 2001. Occidental has implemented the provisions of
SFAS No. 141, which had no impact on the financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 changes the accounting and reporting requirements for
acquired goodwill and intangible assets. The provisions of this statement
must be applied starting with fiscal years beginning after December 15,
2001. Occidental must implement SFAS No. 142 by the first quarter of 2002
and has not yet made a determination of its impact on the financial
statements.
In the fourth quarter of 2000, Occidental adopted the provisions of EITF
Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs,"
which establishes accounting and reporting standards for the treatment of
shipping and handling costs. Among its provisions, EITF Issue No. 00-10
requires that transportation costs that had been accounted for as
deductions from revenues should now be recorded as an expense. The
implementation of EITF Issue No. 00-10 had no effect on net income. All
prior year balances have been adjusted to reflect this accounting change.
Transportation costs in the amount of $67 million and $133 million have
been removed as deductions from revenues and included in cost of sales for
the three months and six months ended June 30, 2000, respectively.
6
See Note 10 regarding accounting changes related to derivatives.
3. Comprehensive Income
The following table presents Occidental's comprehensive income items (in
millions):
Periods Ended June 30
------------------------------------------------------------
Three Months Six Months
---------------------------- ----------------------------
2001 2000 2001 2000
=================================================== ============ ============ ============ ============
Net income $ 473 $ 564 $ 957 $ 835
Other comprehensive income items
Foreign currency translation adjustments (4) 6 (12) 10
Net derivative gain 9 -- 9 --
Cumulative effect of change in
accounting principles -- -- (27) --
Other -- (1) 2 (1)
------------ ------------ ------------ ------------
Other comprehensive income, net of tax 5 5 (28) 9
------------ ------------ ------------ ------------
Comprehensive income $ 478 $ 569 $ 929 $ 844
============ ============ ============ ============
4. Asset Acquisitions and Dispositions
Reference is made to Note 3 to the consolidated financial statements in the
2000 Form 10-K for a description of asset acquisitions and dispositions.
5. Supplemental Cash Flow Information
Cash payments during the six months ended June 30, 2001 and 2000 included
federal, foreign and state income taxes of approximately $362 million and
$343 million, respectively. Interest paid (net of interest capitalized)
totaled approximately $223 million and $241 million for the six months
ended June 30, 2001 and 2000, respectively.
6. Cash and Cash Equivalents
Cash equivalents consist of highly liquid money-market mutual funds and
bank deposits with maturities of three months or less when purchased. Cash
equivalents totaled $121 million and $46 million at June 30, 2001, and
December 31, 2000, respectively.
7
7. Inventories
A portion of inventories is valued under the LIFO method. The valuation of
LIFO inventory for interim periods is based on management's estimates of
year-end inventory levels and costs. Inventories consist of the following
(in millions):
Balance at June 30, 2001 December 31, 2000
======================== =================== =====================
Raw materials $ 61 $ 68
Materials and supplies 138 125
Work in process 2 3
Finished goods 271 343
--------- ---------
472 539
LIFO adjustment (36) (54)
--------- ---------
Total $ 436 $ 485
========= =========
8. Property, Plant and Equipment
Reference is made to the consolidated balance sheets and Note 1 thereto in
the 2000 Form 10-K for a description of investments in property, plant and
equipment.
9. Trust Preferred Securities
Reference is made to Note 12 to the consolidated financial statements in
the 2000 Form 10-K for a description of the Trust Preferred Securities. The
Trust Preferred Securities balances reflected in the consolidated financial
statements at June 30, 2001, and December 31, 2000, are net of issue costs
and also reflect amortization of a portion of the issue costs, and the
repurchase during 2001 and 2000 of 197,500 shares and 555,760 shares with
liquidation values of $4.9 million and $13.9 million, respectively.
10. Derivative Activities
Effective January 1, 2001, Occidental implemented SFAS No. 133, "Accounting
for Derivative Instruments and Hedging," as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB Statement No. 133," and SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities." These statements establish accounting and reporting standards
for derivative instruments, including derivative instruments embedded in
other contracts, and hedging activities and require an entity to recognize
all derivatives in the statement of financial position and measure those
instruments at fair value, and classify them as either assets or
liabilities on the condensed consolidated balance sheet. Changes in the
derivative instruments' fair value must be recognized in earnings unless
specific hedge accounting criteria are met. Occidental's initial adoption
of SFAS No. 133 resulted in (i) a first quarter after-tax reduction in net
income of $24 million recorded as a cumulative effect of a change in
accounting principles and (ii) an after-tax reduction in other
comprehensive income (OCI) of approximately $27 million.
Occidental uses commodity futures contracts, options and swaps to hedge the
impact of oil and natural gas price fluctuations and to engage in trading
activities. Occidental also uses forward rate locks and interest rate swaps
to hedge changes in interest rates. Gains and losses from derivatives that
qualify for cash flow hedge accounting are deferred until recognized as an
adjustment to earnings when the hedged transaction is finalized. For cash
flow hedges, the portion of the change in the value of the derivative that
is not offset by an equal change in the value of the underlying transaction
is referred to as hedge ineffectiveness and is recorded in earnings. Gains
or losses on derivatives that do not qualify for hedge accounting are
recognized in earnings. At June 30, 2001, Occidental had no derivatives
that qualified as fair value hedges.
8
For the three and six months ended June 30, 2001, the results of operations
included a net gain of $26 million and $40 million, respectively, related
to derivative mark-to-market adjustments. During the three and six months
ended June 30, 2001, a $2 million loss and a $8 million loss, respectively,
were reclassified from OCI to income resulting from the expiration of cash
flow hedges. During the three and six months ended June 30, 2001, net
unrealized gains of $7 million and $1 million, respectively, were recorded
to OCI relating to changes in current cash flow hedges. During the next
twelve months, Occidental expects that $5 million of net derivative losses
included in OCI, based on their valuation at June 30, 2001, will be
reclassified into earnings. Hedge ineffectiveness did not have a
significant impact on earnings for the three and six months ended June 30,
2001.
11. Retirement Plans and Postretirement Benefits
Reference is made to Note 14 to the consolidated financial statements in
the 2000 Form 10-K for a description of the retirement plans and
postretirement benefits of Occidental and its subsidiaries.
12. Lawsuits, Claims, Commitments, Contingencies and Related Matters
Occidental and certain of its subsidiaries have been named as defendants or
as potentially responsible parties in a substantial number of lawsuits,
claims and proceedings, including governmental proceedings under the
Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) and corresponding state acts. These governmental proceedings seek
funding, remediation and, in some cases, compensation for alleged property
damage, punitive damages and civil penalties, aggregating substantial
amounts. Occidental is usually one of many companies in these proceedings,
and has to date been successful in sharing response costs with other
financially sound companies. Occidental has accrued reserves at the most
likely cost to be incurred in those proceedings where it is probable that
Occidental will incur remediation costs which can be reasonably estimated.
During the course of its operations, Occidental is subject to audit by
taxing authorities for varying periods in various tax jurisdictions.
Occidental has certain other commitments under contracts, guarantees and
joint ventures, and certain other contingent liabilities.
It is impossible at this time to determine the ultimate liabilities that
Occidental and its subsidiaries may incur resulting from the foregoing
lawsuits, claims and proceedings, audits, commitments, contingencies and
related matters. Several of these matters may involve substantial amounts,
and if these were to be ultimately resolved unfavorably to the full amount
of their maximum potential exposure, an event not currently anticipated, it
is possible that such event could have a material adverse effect upon
Occidental's consolidated financial position or results of operations.
However, in management's opinion, after taking into account reserves, it is
unlikely that any of the foregoing matters will have a material adverse
effect upon Occidental's consolidated financial position or results of
operations.
Reference is made to Note 9 to the consolidated financial statements in the
2000 Form 10-K for information concerning Occidental's long-term purchase
obligations for certain products and services.
13. Income Taxes
The provision for taxes based on income for the 2001 and 2000 interim
periods was computed in accordance with Interpretation No. 18 of APB
Opinion No. 28 on reporting taxes for interim periods and was based on
projections of total year pre-tax income.
The provision for taxes for the six months ended June 30, 2001, includes an
after-tax benefit of $45 million (pre-federal tax benefit of $70 million)
related to a settlement of a state tax issue.
9
14. Investments
Investments in entities, other than oil and gas exploration and production
companies, in which Occidental has a voting stock interest of at least 20
percent, but not more than 50 percent, and certain partnerships are
accounted for on the equity method. At June 30, 2001, Occidental's equity
investments consisted primarily of a 29.5 percent interest in Equistar
acquired in May 1998 and interests in various chemical partnerships and
joint ventures. The following table presents Occidental's proportionate
interest in the summarized financial information of its equity method
investments (in millions):
Periods Ended June 30
-----------------------------------------------------------
Three Months Six Months
--------------------------- ---------------------------
2001 2000 2001 2000
=========== =========== =========== ===========
Revenues $ 614 $ 674 $ 1,276 $ 1,363
Costs and expenses 614 622 1,311 1,278
----------- ----------- ----------- -----------
Net income $ -- $ 52 $ (35) $ 85
=========== =========== =========== ===========
15. Industry Segments
The following table presents Occidental's interim industry segment
disclosures (in millions):
Oil and Gas Chemical Corporate Total
======================================== ============= ============= ============= =============
Six months ended June 30, 2001
Net sales $ 6,576 $ 1,744 $ -- $ 8,320
============= ============= ============= =============
Pre-tax operating profit (loss) $ 1,996 (g) $ (16)(c) $ (349)(a)(d) $ 1,631
Income taxes (244) (5) (398)(b)(e) (647)
Extraordinary loss, net -- -- (3) (3)
Cumulative effect of changes in
accounting principles, net -- -- (24) (24)
------------- ------------- ------------- -------------
Net income (loss) $ 1,752 $ (21) $ (774) $ 957
======================================== ============= ============= ============= =============
Six months ended June 30, 2000
Net sales $ 3,662 $ 2,107 $ -- $ 5,769
============= ============= ============= =============
Pre-tax operating profit $ 1,242 $ 187 (h) $ 191 (a)(f) $ 1,620
Income taxes (291) (10) (484)(b)(i) (785)
------------- ------------- ------------- -------------
Net income (loss) $ 951 $ 177 $ (293) $ 835
======================================== ============= ============= ============= =============
(a) Includes unallocated net interest expense, administration expense and
other items.
(b) Includes unallocated income taxes.
(c) Includes a pre-tax charge of $26 million related to severance and
plant shut-down costs.
(d) Includes a pre-tax charge of $49 million related to environmental
remediation costs and an insurance dividend of $6 million.
(e) Includes an after-tax benefit of $45 million (pre-federal tax benefit
of $70 million) related to a settlement of a state tax issue.
(f) Includes an insurance dividend of $11 million and a pre-tax gain of
approximately $493 million related to the sale of the CanOxy
investment.
(g) Includes an after-tax gain of $7 million related to the sale of
additional interests in Gulf of Mexico assets.
(h) Includes a pre-tax charge of $120 million related to the decision to
exit several chemical intermediate businesses.
(i) Includes income taxes of approximately $193 million related to the
sale of the CanOxy investment.
16. Subsequent Event
On July 10, 2001, Occidental completed the sale of its interest in the
Tangguh LNG project in Indonesia to Mitsubishi Corporation of Japan for a
sale price of $480 million. On July 18, 2001, Occidental announced the sale
of its residual interest in a Texas pipeline to Kinder Morgan Energy
Partners, L.P. for $360 million. The sale is expected to close in the third
quarter of 2001. These transactions will generate a net after-tax gain of
approximately $125 million in the third quarter of 2001.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Occidental Petroleum Corporation (Occidental) reported net income for the first
six months of 2001 of $957 million, on net sales of $8.3 billion, compared with
net income of $835 million, on net sales of $5.8 billion, for the same period of
2000. Occidental's net income for the second quarter of 2001 was $473 million,
on net sales of $3.8 billion, compared with net income of $564 million, on net
sales of $3.2 billion, for the same period of 2000. Basic earnings per common
share were $2.58 for the first six months of 2001, compared with $2.27 per share
for the same period of 2000. Basic earnings per common share were $1.27 for the
second quarter of 2001, compared with earnings per share of $1.53 for the same
period of 2000.
Earnings before special items were $976 million for the first six months of
2001, compared with earnings before special items of $607 million, for the same
period of 2000. Earnings before special items were $466 million for the second
quarter of 2001, compared with earnings before special items of $343 million,
for the same period of 2000. See the Special Item table below for a description
of special items. The increase in earnings before special items for the six
months ended June 30, 2001, compared with the same period in 2000, reflected
higher domestic gas prices and higher domestic crude oil production from
acquisitions, partially offset by lower crude oil and chemical prices, lower
international production primarily in Colombia, higher exploration expense,
lower earnings from equity affiliates and higher energy costs. The increase in
earnings before special items for the three months ended June 30, 2001, compared
with the same period in 2000, reflected higher domestic gas prices, partially
offset by lower worldwide crude oil and chemical prices, lower international
production primarily in Colombia, lower earnings from equity affiliates and
higher energy costs.
The increase in net sales for the three and six months ended June 30, 2001,
compared with the same periods in 2000, primarily reflected higher natural gas
prices and higher oil and gas trading revenues, partially offset by lower crude
oil and chemical prices and lower international production primarily in
Colombia. Additionally, for the six months ended June 30, 2001, domestic crude
oil production was higher than the same period in 2000 as a result of
acquisitions.
Interest, dividends and other income for the three and six months ended June 30,
2001 includes $28 million and $61 million, respectively, of interest income on
notes receivable from Altura partners, compared to $30 million for both the
three and six months ended June 30, 2000. Gains on disposition of assets for
three and six months ended June 30, 2000 included a pre-tax gain of $493 million
on the sale of the investment in CanOxy. The loss from equity investments for
the three and six months ended June 30, 2001, compared with income from equity
investments for the same periods in 2000, was primarily the result of a 2001
loss from operations in the Equistar and OxyMar equity investments. The increase
in cost of sales for the three and six months ended June 30, 2001, compared with
the same periods in 2000, primarily reflected the higher oil and gas trading
activity and higher energy costs in the chemical segment. Selling, general and
administrative and other operating (SG&A) expenses for the six months ended June
30, 2001 include severance charges for the chemical segment and additional oil
and gas production taxes and other costs as a result of the acquisition of
Altura. SG&A expenses for the three and six months ended June 30, 2000 included
a pre-tax charge of $120 million to exit several chemical intermediate
businesses. The provision for income taxes for the six months ended June 30,
2001 included a $45 million after-tax benefit ($70 million pre-federal tax
benefit) for the settlement of a state tax issue.
Although energy prices remain near historically high levels, increasing the
costs of electricity and impacting Occidental's chemical segment adversely,
Occidental does not generally perceive that its business has been or will be
impacted adversely by changing prices or inflation in other areas.
11
The following table sets forth the sales and earnings of each operating segment
and corporate items (in millions):
Periods Ended June 30
-------------------------------------------------------
Three Months Six Months
------------------------- -------------------------
2001 2000 2001 2000
======================================================= ========== ========== ========== ==========
SEGMENT NET SALES
Oil and Gas $ 2,964 $ 2,128 $ 6,576 $ 3,662
Chemical 881 1,067 1,744 2,107
---------- ---------- ---------- ----------
NET SALES $ 3,845 $ 3,195 $ 8,320 $ 5,769
========== ========== ========== ==========
SEGMENT EARNINGS (LOSS)
Oil and Gas $ 806 $ 557 $ 1,752 $ 951
Chemical 58 34 (21) 177
---------- ---------- ---------- ----------
864 591 1,731 1,128
UNALLOCATED CORPORATE ITEMS
Interest expense, net (71) (104) (147) (203)
Income taxes (249) (349) (424) (499)
Trust preferred distributions and others (14) (16) (30) (33)
Other (57) 442 (146) 442
---------- ---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEMS AND EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES 473 564 984 835
Extraordinary loss, net -- -- (3) --
Cumulative effect of changes in accounting
principles, net -- -- (24) --
---------- ---------- ---------- ----------
NET INCOME $ 473 $ 564 $ 957 $ 835
========== ========== ========== ==========
EARNINGS BEFORE SPECIAL ITEMS (A) $ 466 $ 343 $ 976 $ 607
======================================================= ========== ========== ========== ==========
(a) Earnings before special items reflect adjustments to net income to exclude
the after-tax effect of certain infrequent transactions that may affect
comparability between periods. These transactions are shown in the table
below. Management believes the presentation of earnings before special
items provides a meaningful comparison of earnings between periods to the
readers of the consolidated financial statements. Earnings before special
items is not considered to be an alternative to operating income in
accordance with generally accepted accounting principles.
The following table sets forth the special items for each operating segment and
corporate:
Periods Ended June 30
-------------------------------------------------------
Three Months Six Months
Benefit (Charge) ------------------------- -------------------------
(in millions) 2001 2000 2001 2000
============================================================= ========== ========== ========== ==========
OIL AND GAS
Sale of additional interests in Gulf of Mexico assets * $ 7 $ -- $ 7 $ --
- ------------------------------------------------------------- ---------- ---------- ---------- ----------
CHEMICAL
Severance, plant shutdown and plant writedown costs $ -- $ -- $ (26) $ --
Write-down of chemical intermediate businesses -- (120) -- (120)
- ------------------------------------------------------------- ---------- ---------- ---------- ----------
CORPORATE
Settlement of state tax issue $ -- $ -- $ 70 $ --
Environmental remediation -- -- (49) --
Insurance dividend -- -- 6 11
Gain on sale of CanOxy investment -- 493 -- 493
Changes in accounting principles, net * -- -- (24) --
Extraordinary loss on debt redemption, net * -- -- (3) --
============================================================= ========== ========== ========== ==========
* These amounts are shown after-tax.
12
OIL AND GAS SEGMENT
Periods Ended June 30
----------------------------------------------------
Three Months Six Months
------------------------ ------------------------
Summary of Operating Statistics 2001 2000 2001 2000
================================================= ========== ========== ========== ==========
NET PRODUCTION PER DAY:
CRUDE OIL AND NATURAL GAS LIQUIDS (MBL)
United States 209 192 208 131
Latin America 14 62 23 57
Eastern Hemisphere 118 130 121 124
NATURAL GAS (MMCF)
United States 607 680 619 652
Eastern Hemisphere 49 51 50 51
BARRELS OF OIL EQUIVALENT - THOUSANDS (MBOE) 450 506 463 429
- ------------------------------------------------- ---------- ---------- ---------- ----------
AVERAGE SALES PRICE:
CRUDE OIL ($/BBL)
United States 23.11 24.98 23.71 24.68
Latin America 18.90 25.86 21.69 26.11
Eastern Hemisphere 23.36 23.64 22.69 23.93
NATURAL GAS ($/MCF)
United States 8.55 2.81 9.30 2.63
Eastern Hemisphere 2.41 1.69 2.30 1.71
================================================= ========== ========== ========== ==========
Oil and gas earnings for the first six months of 2001 were $1.752 billion,
compared with $951 million for the same period of 2000. Oil and gas earnings for
the second quarter of 2001 were $806 million, compared with $557 million for the
same period of 2000. The oil and gas segment had earnings before special items
of $1.745 billion for the six months ended June 30, 2001 and $799 million for
the three months ended June 30, 2001. See Special Items table for a description
of special items. The increase in earnings for the three and six months ended
June 30, 2001, compared with the same periods in 2000, reflected higher domestic
gas prices, partially offset by lower crude oil prices and lower international
production primarily in Colombia. Additionally, for the six months ended June
30, 2001, domestic crude oil production and exploration expenses were higher
than the same period in 2000.
The second quarter 2001 average domestic natural gas price realizations were
approximately three times higher this year at $8.55 per thousand cubic feet
compared to $2.81 per thousand cubic feet in the same quarter of 2000. The
primary driver behind Occidental's higher gas prices was the premium of
approximately $8.00 per million BTUs above the average NYMEX price received on
California gas production. For the third quarter of 2001, Occidental expects a
softening of California natural gas prices and a narrowing of the differential
to about $2.50 per thousand cubic feet above the NYMEX price. Occidental
produces about 300 million cubic feet per day in California and a differential
of one dollar in price per thousand cubic feet equates to approximately $27
million in quarterly oil and gas earnings.
Oil price realizations declined during the second quarter from an average price
of $24.69 per barrel in the second quarter of 2000 to $23.02 per barrel in the
second quarter of 2001. A $1.00 per barrel change in oil prices will impact
quarterly oil and gas earnings by $28 million.
During the second quarter of 2001, there was no oil production in Colombia due
to an outage at the Cano Limon pipeline. Occidental expects to recover the
reserves attributable to its contract in Colombia, which amount to less than 3
percent of its proved worldwide oil and gas reserves.
13
In July 2001, Occidental's Colombian subsidiary announced it encountered
hydrocarbon shows from its Gibraltar-1 wildcat in the Siriri Block. The
hydrocarbon shows appear to be primarily natural gas and condensate. Additional
seismic surveys are being planned to evaluate the commercial potential of the
hydrocarbon shows. The drilling rig currently on location will be demobilized
after the well has been suspended to allow additional operations, such as
testing to be conducted at a later date. The appraisal phase of the Gibraltar
structure and further exploration of the Siriri Block will require the
acquisition of both 2-D and 3-D seismic data and possibly the implementation of
an appropriate testing program. The commercial potential of the Siriri Block
will depend on the results of these exploration and appraisal activities.
The increase in net sales for the three and six months ended June 30, 2001,
compared with the same periods in 2000, primarily reflected higher natural gas
prices and higher oil and gas trading revenues, partially offset by lower crude
oil prices and lower international production primarily in Colombia.
Additionally, for the six months ended June 30, 2001, domestic crude oil
production was higher than the same period in 2000 as a result of acquisitions.
Approximately 54 percent and 44 percent of oil and gas net sales were
attributable to oil and gas trading activities in the first six months of 2001
and 2000, respectively. The results of oil and gas trading activity were not
significant.
CHEMICAL SEGMENT
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ------------------------
Summary of Operating Statistics 2001 2000 2001 2000
======================================================= ========== ========== ========== ==========
MAJOR PRODUCT VOLUMES
Chlorine (M Tons) 786 751 1,491 1,604
Caustic (M Tons) 750 842 1,419 1,645
Ethylene Dichloride (M Tons) 154 242 376 546
PVC Resins (MM Lbs.) 496 487 997 937
MAJOR PRODUCT PRICE INDEX (BASE 1987-1990 = 1.0)
Chlorine 0.76 1.67 0.82 1.49
Caustic 1.42 0.65 1.37 0.69
Ethylene Dichloride 0.74 1.66 0.78 1.65
PVC Resins 0.77 1.03 0.75 0.99
======================================================= ========== ========== ========== ==========
Chemical results for the first six months of 2001 were a loss of $21 million,
compared with earnings of $177 million for the same period of 2000. Chemical
earnings for the second quarter of 2001 were $58 million, compared with $34
million for the same period of 2000. Chemical earnings before special items were
$5 million for the first six months of 2001, compared with $297 million for the
first six months of 2000. Chemical earnings before special items were $58
million for the second quarter of 2001, compared with $154 million for the
second quarter of 2000. See Special Items table for a description of special
items. The decrease in six months and second quarter 2001 earnings before
special items was the result of lower sales prices for polyvinyl chloride resins
(PVC), ethylene dichloride (EDC) and chlorine, lower earnings from the equity
investments in Equistar and Oxymar and higher energy costs, partially offset by
higher prices for caustic soda. Credits in lieu of U.S. federal income taxes and
asset writedowns offset each other.
The decrease in net sales for the three and six months ended June 30, 2001,
compared with the same periods in 2000, primarily reflected lower sales prices
for PVC, EDC and chlorine, lower chemical sales volumes and the disposition of
the Durez businesses, partially offset by higher prices for caustic soda.
Although the inventory liquidations that occurred over the last several quarters
appear to be over, the fundamental weakness in chemicals demand is continuing.
Meaningful improvement in the results of the chemical business will depend
largely on any improvements in general economic conditions.
14
CORPORATE AND OTHER
Segment earnings include credits/(charges) in lieu of U.S. federal income taxes.
In the first six months of 2001 and 2000, segment earnings benefited by $20
million and $11 million, respectively, from credits allocated. This included a
charge of $2 million at oil and gas and a credit of $22 million at chemicals in
the first six months of 2001 and credits of $3 million and $8 million at oil and
gas and chemical, respectively, for the first six months of 2000.
Occidental and certain of its subsidiaries have been named as defendants or as
potentially responsible parties in a substantial number of lawsuits, claims and
proceedings, including governmental proceedings under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) and
corresponding state acts. These governmental proceedings seek funding,
remediation and, in some cases, compensation for alleged property damage,
punitive damages and civil penalties, aggregating substantial amounts.
Occidental is usually one of many companies in these proceedings, and has to
date been successful in sharing response costs with other financially sound
companies. Occidental has accrued reserves at the most likely cost to be
incurred in those proceedings where it is probable that Occidental will incur
remediation costs which can be reasonably estimated.
During the course of its operations, Occidental is subject to audit by taxing
authorities for varying periods in various tax jurisdictions. Occidental has
certain other commitments under contracts, guarantees and joint ventures, and
certain other contingent liabilities.
It is impossible at this time to determine the ultimate liabilities that
Occidental and its subsidiaries may incur resulting from the foregoing lawsuits,
claims and proceedings, audits, commitments, contingencies and related matters.
Several of these matters may involve substantial amounts, and if these were to
be ultimately resolved unfavorably to the full amount of their maximum potential
exposure, an event not currently anticipated, it is possible that such event
could have a material adverse effect upon Occidental's consolidated financial
position or results of operations. However, in management's opinion, after
taking into account reserves, it is unlikely that any of the foregoing matters
will have a material adverse effect upon Occidental's consolidated financial
position or results of operations.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Occidental's net cash provided by operating activities from continuing
operations was $1.3 billion for the first six months of 2001, compared with net
cash provided of $922 million for the same period of 2000. The 2001 amount is
primarily attributed to higher net income before special items.
Occidental's net cash used by investing activities was $650 million for the
first six months of 2001, compared with net cash used of $3.1 billion for the
same period of 2000. The 2000 amount primarily reflected the $3.6 billion cost
of the Altura acquisition partially offset by pre-tax asset sale proceeds mainly
from the sale of Occidental's 29.2 percent interest in CanOxy for approximately
$800 million. Capital expenditures for the first six months of 2001 were $547
million, including $498 million in oil and gas and $45 million in chemical.
Capital expenditures for the first six months of 2000 were $333 million,
including $287 million in oil and gas and $44 million in chemical.
Financing activities used net cash of $593 million in the first six months of
2001, compared with cash provided of $2.1 billion for the same period of 2000.
The 2001 amount primarily reflects debt payments from free cash flow and cash
dividends paid of $186 million. The 2000 amount mainly reflects proceeds of $2.4
billion from non-recourse debt and cash dividends paid of $184 million.
On July 10, 2001, Occidental completed the sale of its interest in the Tangguh
LNG project in Indonesia to Mitsubishi Corporation of Japan for a sale price of
$480 million. On July 18, 2001, Occidental announced the sale of its residual
interest in a Texas pipeline to Kinder Morgan Energy Partners, L.P. for $360
million. This sale is expected to close in the third quarter of 2001. These
transactions will generate a net after-tax gain of approximately $125 million in
the third quarter of 2001. The combined after-tax proceeds from these
transactions will provide approximately $750 million, which will be used for
debt reduction purposes.
Occidental expects to generate sufficient cash from operations in 2001 to fund
its operating needs, capital expenditure requirements, dividend payments and
required debt repayments. Occidental also expects to have
15
sufficient cash for such requirements in 2002. Occidental currently expects to
spend approximately $1.3 billion on its 2001 capital spending program with about
$100 million for chemicals. Available but unused lines of committed bank credit
totaled approximately $2.1 billion at June 30, 2001, compared with $2.1 billion
at December 31, 2000. During the first six months of 2001, Occidental reduced
total debt by $478 million including payments for gas presale delivery
commitments. Occidental expects to continue to use free cash flow to pay down
debt for the remainder of 2001 and for fiscal year 2002.
DERIVATIVE ACTIVITIES
Effective January 1, 2001, Occidental implemented SFAS No. 133, "Accounting for
Derivative Instruments and Hedging," as amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133," and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." These statements establish
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and hedging activities and
require an entity to recognize all derivatives in the statement of financial
position and measure those instruments at fair value, and classify them as
either assets or liabilities on the condensed consolidated balance sheet.
Changes in the derivative instruments' fair value must be recognized in earnings
unless specific hedge accounting criteria are met. Occidental's initial adoption
of SFAS No. 133 resulted in (i) a first quarter after-tax reduction in net
income of $24 million recorded as a cumulative effect of a change in accounting
principles and (ii) an after-tax reduction in other comprehensive income (OCI)
of approximately $27 million.
Occidental uses commodity futures contracts, options and swaps to hedge the
impact of oil and natural gas price fluctuations and to engage in trading
activities. Occidental also uses forward rate locks and interest rate swaps to
hedge changes in interest rates. Gains and losses from derivatives that qualify
for cash flow hedge accounting are deferred until recognized as an adjustment to
earnings when the hedged transaction is finalized. For cash flow hedges, the
portion of the change in the value of the derivative that is not offset by an
equal change in the value of the underlying transaction is referred to as hedge
ineffectiveness and is recorded in earnings. Gains or losses on derivatives that
do not qualify for hedge accounting are recognized in earnings. At June 30,
2001, Occidental had no derivatives that qualified as fair value hedges.
For the three and six months ended June 30, 2001, the results of operations
included a net gain of $26 million and $40 million, respectively, related to
derivative mark-to-market adjustments. During the three and six months ended
June 30, 2001, a $2 million loss and a $8 million loss, respectively, were
reclassified from OCI to income resulting from the expiration of cash flow
hedges. During the three and six months ended June 30, 2001, net unrealized
gains of $7 million and $1 million, respectively, were recorded to OCI relating
to changes in current cash flow hedges. During the next twelve months,
Occidental expects that $5 million of net derivative losses included in OCI,
based on their valuation at June 30, 2001, will be reclassified into earnings.
Hedge ineffectiveness did not have a significant impact on earnings for the
three and six months ended June 30, 2001.
ENVIRONMENTAL MATTERS
Occidental's operations in the United States are subject to stringent federal,
state and local laws and regulations relating to improving or maintaining the
quality of the environment. Foreign operations also are subject to varied
environmental protection laws. Costs associated with environmental compliance
have increased over time and may continue to rise in the future.
The laws which require or address environmental remediation may apply
retroactively to previous waste disposal practices. And, in many cases, the laws
apply regardless of fault, legality of the original activities or ownership or
control of sites. Occidental is currently participating in environmental
assessments and cleanups under these laws at federal Superfund sites, comparable
state sites and other remediation sites, including Occidental facilities and
previously owned sites.
Occidental does not consider the number of Superfund and comparable state sites,
at which it has been notified that it has been identified as being involved, to
be a relevant measure of exposure. Although the liability of a potentially
responsible party (PRP), and in many cases its equivalent under state law, may
be joint and several, Occidental is usually one of many companies cited as a PRP
at these sites and has, to date, been successful in sharing cleanup
16
costs with other financially sound companies. Also, many of these sites are
still under investigation by the Environmental Protection Agency (EPA) or the
equivalent state agencies. Prior to actual cleanup, the parties involved assess
site conditions and responsibility and determine the appropriate remedy. The
majority of remediation costs are incurred after the parties obtain EPA or other
equivalent state agency approval to proceed. The ultimate future cost of
remediation of certain of the sites for which Occidental has been notified that
it has been identified as being involved cannot reasonably be determined at this
time.
As of June 30, 2001, Occidental had been notified by the EPA or equivalent state
agencies or otherwise had become aware that it had been identified as being
involved at 125 Superfund or comparable state sites. (This number does not
include those sites where Occidental has been successful in resolving its
involvement.) The 125 sites include 34 former Diamond Shamrock Chemical sites as
to which Maxus Energy Corporation has retained all liability. Of the remaining
91 sites, Occidental has denied involvement at 9 sites and has yet to determine
involvement in 20 sites. With respect to the remaining 62 of these sites,
Occidental is in various stages of evaluation, and the extent of liability
retained by Maxus Energy Corporation is disputed at 2 of these sites. For 54 of
these sites, where environmental remediation efforts are probable and the costs
can be reasonably estimated, Occidental has accrued reserves at the most likely
cost to be incurred. The 54 sites include 11 sites as to which present
information indicates that it is probable that Occidental's aggregate exposure
is insignificant. In determining the reserves, Occidental uses the most current
information available, including similar past experiences, available technology,
regulations in effect, the timing of remediation and cost-sharing arrangements.
For the remaining 8 of the 62 sites being evaluated, Occidental does not have
sufficient information to determine a range of liability, but Occidental does
have sufficient information on which to base the opinion expressed above under
the caption "Results of Operations."
ACCOUNTING CHANGES
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations". SFAS
No. 141 establishes new standards for accounting and reporting business
combinations including the elimination of the pooling method of accounting. The
standard applies to all business combinations initiated after June 30, 2001.
Occidental has implemented the provisions of SFAS No. 141, which had no impact
on the financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 changes the accounting and reporting requirements for
acquired goodwill and intangible assets. The provisions of this statement are
required to be applied starting with fiscal years beginning after December 15,
2001. Occidental must implement SFAS No. 142 by the first quarter of 2002 and
has not yet made a determination of its impact on the financial statements.
In the fourth quarter of 2000, Occidental adopted the provisions of EITF Issue
No. 00-10, "Accounting for Shipping and Handling Fees and Costs," which
establishes accounting and reporting standards for the treatment of shipping and
handling costs. Among its provisions, EITF Issue No. 00-10 requires that
transportation costs that had been accounted for as deductions from revenues
should now be recorded as an expense. The implementation of EITF Issue No. 00-10
had no effect on net income. All prior year balances have been adjusted to
reflect this accounting change. Transportation costs in the amount of $67
million and $133 million have been removed as deductions from revenues and
included in cost of sales for the three months and six months ended June 30,
2000, respectively.
See "Derivative Activities" for accounting change related to derivatives.
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
17
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
domestically or internationally; regulatory uncertainties; and not successfully
completing, or any material delay of, any development of new fields, expansion,
capital expenditure, efficiency improvement, acquisition or disposition.
Forward-looking statements are generally accompanied by words such as
"estimate", "project", "predict", "believes" or "expect", that convey the
uncertainty of future events or outcomes. Occidental undertakes no 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 period ended June 30, 2001, 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" in
Occidental's 2000 Annual Report on Form 10-K.
18
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GENERAL
There is incorporated by reference herein the information regarding legal
proceedings in Note 12 to the consolidated condensed financial statements in
Part I hereof.
In April 1998, a civil action was filed on behalf of the U.S. Environmental
Protection Agency against OxyChem relating to the Centre County Kepone Superfund
Site at State College, Pennsylvania. The lawsuit seeks approximately $12 million
in penalties and governmental response costs, a declaratory judgment that
OxyChem is a liable party under CERCLA, and an order requiring OxyChem to carry
out the remedy that is being performed by the site owner. In October 1998, the
U.S. District Court for the Middle District of Pennsylvania granted OxyChem's
motion to dismiss the United States' case. In December 1999, the United States
Court of Appeals for the Third Circuit reversed the dismissal and remanded the
case to the District Court. The court has stayed all proceedings so the parties
can attempt to finalize a resolution to this matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement regarding the computation of earnings per
share for the three and six months ended June 30, 2001
and 2000
12 Statement regarding the computation of total enterprise
ratios of earnings to fixed charges for the six months
ended June 30, 2001 and 2000 and the five years ended
December 31, 2000
(b) Reports on Form 8-K
During the quarter ended June 30, 2001, Occidental filed the
following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated April 18, 2001 (date of
earliest event reported), filed on April 18, 2001, for
the purpose of reporting, under Item 5, Occidental's
results of operations for the first quarter ended March
31, 2001, and under Item 9, text and supplemental
financial schedules from Occidental's first quarter 2001
conference call.
2. Current Report on Form 8-K dated April 20, 2001 (date of
earliest event reported), filed on April 20, 2001, for
the purpose of reporting, under Item 9, text and
schedules from speech made by Dr. Ray R. Irani, Chairman
and Chief Executive Officer, at Occidental's 2001 Annual
Meeting of Stockholders.
From June 30, 2001 to the date hereof, Occidental filed the
following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated July 11, 2001 (date of
earliest event reported), filed on July 11, 2001, for
the purpose of reporting under Item 5, the sale of
Occidental's interest in Tangguh LNG project.
2. Current Report on Form 8-K dated July 19, 2001 (date of
earliest event reported), filed on July 19, 2001, for
the purpose of reporting, under Item 5, Occidental's
results of
19
operations for the second quarter ended June 30, 2001,
and under Item 9, text and supplemental financial
schedules from Occidental's second quarter 2001
conference call.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OCCIDENTAL PETROLEUM CORPORATION
DATE: August 9, 2001 /s/ S. P. DOMINICK, JR.
----------------------------------------
S. P. Dominick, Jr., Vice President and
Controller (Chief Accounting and Duly
Authorized Officer)
21
EXHIBIT INDEX
EXHIBITS
- --------
11 Statement regarding the computation of earnings per share for the
three and six months ended June 30, 2001 and 2000
12 Statement regarding the computation of total enterprise ratios of
earnings to fixed charges for the six months ended June 30, 2001 and
2000 and the five years ended December 31, 2000
EXHIBIT 11
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Amounts in millions, except per-share amounts)
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
2001 2000 2001 2000
- ----------------------------------------------------- ------------ ------------ ------------ ------------
BASIC EARNINGS PER SHARE
Income before extraordinary item and effect
of changes in accounting principles $ 473 $ 564 $ 984 $ 835
Effect of repurchase of Trust Preferred Securities -- -- -- 1
------------ ------------ ------------ ------------
Earnings before extraordinary item and effect of
changes in accounting principles 473 564 984 836
Extraordinary loss, net -- -- (3) --
Cumulative effect of changes in
accounting principles, net -- -- (24) --
------------ ------------ ------------ ------------
Earnings applicable to common stock $ 473 $ 564 $ 957 $ 836
============ ============ ============ ============
Weighted average common shares outstanding 372.0 368.8 371.1 368.5
============ ============ ============ ============
Basic earnings per share
Income before extraordinary item and effect
of changes in accounting principles $ 1.27 $ 1.53 $ 2.65 $ 2.27
Extraordinary loss, net -- -- (.01) --
Cumulative effect of changes in
accounting principles, net -- -- (.06) --
------------ ------------ ------------ ------------
Basic earnings per common share $ 1.27 $ 1.53 $ 2.58 $ 2.27
============ ============ ============ ============
DILUTED EARNINGS PER SHARE
Earnings before extraordinary item and effect of
changes in accounting principles $ 473 $ 564 $ 984 $ 836
Extraordinary loss, net -- -- (3) --
Cumulative effect of changes in
accounting principles, net -- -- (24) --
------------ ------------ ------------ ------------
Earnings applicable to common stock $ 473 $ 564 $ 957 $ 836
============ ============ ============ ============
Weighted average common shares outstanding 372.0 368.8 371.1 368.5
Dilutive effect of exercise of options outstanding 2.7 .3 1.7 .2
------------ ------------ ------------ ------------
374.7 369.1 372.8 368.7
============ ============ ============ ============
Diluted earnings per share
Income before extraordinary item and effect
of changes in accounting principles $ 1.26 $ 1.53 $ 2.64 $ 2.27
Extraordinary loss, net -- -- (.01) --
Cumulative effect of changes in
accounting principles, net -- -- (.06) --
------------ ------------ ------------ ------------
Diluted earnings per common share $ 1.26 $ 1.53 $ 2.57 $ 2.27
===================================================== ============ ============ ============ ============
EXHIBIT 11 (CONTINUED)
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(Amounts in millions, except per-share amounts)
The following items were not included in the computation of diluted earnings per
share because their effect was antidilutive:
Three Months Ended Six Months Ended
June 30 June 30
----------------------------------------- -----------------------------------------
2001 2000 2001 2000
------------------- ------------------ ------------------- ------------------
STOCK OPTIONS
Number of shares .02 4.16 .02 4.61
Price range per share $29.063 -- $29.438 $23.125 -- $29.438 $29.063 -- $29.438 $21.250 -- $29.438
Expiration range 12/01/07 -- 4/29/08 8/18/00 -- 7/08/08 12/01/07 -- 4/29/08 8/18/00 -- 7/08/08
- --------------------------- ------------------- ------------------ ------------------- ------------------
EXHIBIT 12
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF TOTAL ENTERPRISE RATIOS OF EARNINGS TO FIXED CHARGES
(Amounts in millions, except ratios)
Six Months Ended
June 30 Year Ended December 31
--------------------- ---------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
- --------------------------------------- --------- --------- --------- --------- --------- --------- ---------
Income from continuing
operations(a) $ 1,095 $ 921 $ 1,785 $ 699 $ 400 $ 245 $ 486
--------- --------- --------- --------- --------- --------- ---------
Add:
Provision for taxes on
income (other than foreign
and gas taxes) 359 482 871 306 204 47 99
Interest and debt expense(b) 232 258 540 515 576 446 492
Portion of lease rentals
representative of the interest
factor 15 3 6 31 36 39 38
--------- --------- --------- --------- --------- --------- ---------
606 743 1,417 852 816 532 629
--------- --------- --------- --------- --------- --------- ---------
Earnings before fixed charges $ 1,701 $ 1,664 $ 3,202 $ 1,551 $ 1,216 $ 777 $ 1,115
========= ========= ========= ========= ========= ========= =========
Fixed charges
Interest and debt expense
including capitalized
interest(b) $ 235 $ 258 $ 543 $ 522 $ 594 $ 462 $ 499
Portion of lease rentals
representative of the interest
factor 15 3 6 31 36 39 38
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges $ 250 $ 261 $ 549 $ 553 $ 630 $ 501 $ 537
========= ========= ========= ========= ========= ========= =========
Ratio of earnings to fixed charges 6.80 6.38 5.83 2.80 1.93 1.55 2.08
- --------------------------------------- ========= ========= ========= ========= ========= ========= =========
(a) Includes (1) minority interest in net income of majority-owned subsidiaries
and partnerships having fixed charges and (2) income from
less-than-50-percent-owned equity investments adjusted to reflect only
dividends received.
(b) Includes proportionate share of interest and debt expense of
50-percent-owned equity investments.