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 September 30, 2000
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 September 30, 2000
--------------------------- ---------------------------------
Common stock $.20 par value 369,373,874 shares
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets--
September 30, 2000 and December 31, 1999 2
Consolidated Condensed Statements of Operations--
Three and nine months ended September 30, 2000 and 1999 4
Consolidated Condensed Statements of Cash Flows--
Nine months ended September 30, 2000 and 1999 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 6. Exhibits and Reports on Form 8-K 21
1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2000 and DECEMBER 31, 1999
(Amounts in millions)
2000 1999
================================================================================= ============ =============
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 268 $ 214
Receivables, net 1,336 774
Inventories 530 503
Prepaid expenses and other 165 197
------------ -------------
Total current assets 2,299 1,688
LONG-TERM RECEIVABLES, net 2,113 168
EQUITY INVESTMENTS 1,400 1,754
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation, depletion and amortization of $6,828
at September 30, 2000 and $7,675 at December 31, 1999 13,483 10,029
OTHER ASSETS 479 486
------------ -------------
$ 19,774 $ 14,125
================================================================================= ============ =============
The accompanying notes are an integral part of these financial statements.
2
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2000 and DECEMBER 31, 1999
(Amounts in millions)
2000 1999
================================================================================= ============= ============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease liabilities $ 205 $ 5
Notes payable 18 29
Accounts payable 1,200 812
Accrued liabilities 1,130 953
Domestic and foreign income taxes 103 168
------------- ------------
Total current liabilities 2,656 1,967
------------- ------------
LONG-TERM DEBT, net of current maturities and unamortized discount 3,814 4,368
------------- ------------
NON-RECOURSE DEBT 2,080 --
------------- ------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred and other domestic and foreign income taxes 1,342 995
Obligation under natural gas delivery commitment 315 411
Other 2,300 2,123
------------- ------------
3,957 3,529
------------- ------------
MINORITY INTEREST 2,272 252
------------- ------------
OCCIDENTAL OBLIGATED MANDATORILY REDEEMABLE
TRUST PREFERRED SECURITIES OF A SUBSIDIARY
TRUST HOLDING SOLELY SUBORDINATED NOTES OF
OCCIDENTAL 473 486
------------- ------------
STOCKHOLDERS' EQUITY
Common stock, at par value 74 73
Additional paid-in capital 3,727 3,787
Retained earnings (deficit) 766 (286)
Accumulated other comprehensive income (45) (51)
------------- ------------
4,522 3,523
------------- ------------
$ 19,774 $ 14,125
================================================================================= ============= =============
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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Amounts in millions, except per-share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
------------------------ ------------------------
2000 1999 2000 1999
================================================================= ========== =========== =========== ==========
REVENUES
Net sales
Oil and gas operations $ 2,965 $ 1,265 $ 6,614 $ 2,955
Chemical operations 840 848 2,827 2,149
---------- ----------- ----------- ----------
3,805 2,113 9,441 5,104
Interest, dividends and other income 68 32 168 118
Gains (losses) on disposition of assets, net 127 7 622 (11)
Income from equity investments 22 27 107 34
---------- ----------- ----------- ----------
4,022 2,179 10,338 5,245
---------- ----------- ----------- ----------
COSTS AND OTHER DEDUCTIONS
Cost of sales 2,769 1,600 6,666 3,967
Selling, general and administrative and other
operating expenses 262 168 707 488
Minority interest 55 16 141 36
Exploration expense 44 11 65 63
Interest and debt expense, net 140 125 387 380
---------- ----------- ----------- ----------
3,270 1,920 7,966 4,934
---------- ----------- ----------- ----------
Income before taxes 752 259 2,372 311
Provision for domestic and foreign income and
other taxes 351 133 1,136 230
---------- ----------- ----------- ----------
Income before extraordinary items and effect of changes
in accounting principles 401 126 1,236 81
Extraordinary gain (loss), net 1 -- 1 (3)
Cumulative effect of changes in accounting principles, net -- -- -- (13)
---------- ----------- ----------- ----------
NET INCOME 402 126 1,237 65
Preferred dividends -- -- -- (7)
Effect of repurchase of Trust Preferred Securities -- -- 1 --
---------- ----------- ----------- ----------
EARNINGS APPLICABLE TO COMMON STOCK $ 402 $ 126 $ 1,238 $ 58
========== =========== =========== ==========
BASIC EARNINGS PER COMMON SHARE
Income before extraordinary items and effect of changes $ 1.09 $ .35 $ 3.36 $ .22
accounting principles
Extraordinary gain (loss), net -- -- -- (.01)
Cumulative effect of changes in accounting principles, net -- -- -- (.04)
---------- ----------- ----------- ----------
Basic earnings per common share $ 1.09 $ .35 $ 3.36 $ .17
========== =========== =========== ==========
DILUTED EARNINGS PER COMMON SHARE
Income before extraordinary items and effect of changes in
accounting principles $ 1.09 $ .35 $ 3.36 $ .22
Extraordinary gain (loss), net -- -- -- (.01)
Cumulative effect of changes in accounting principles, net -- -- -- (.04)
---------- ----------- ----------- ----------
Diluted earnings per common share $ 1.09 $ .35 $ 3.36 $ .17
========== =========== =========== ==========
DIVIDENDS PER COMMON SHARE $ .25 $ .25 $ .75 $ .75
========== =========== =========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 369.2 357.6 368.7 351.3
================================================================= ========== =========== =========== ==========
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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Amounts in millions)
2000 1999
========================================================================================= ========== ==========
CASH FLOW FROM OPERATING ACTIVITIES
Income before extraordinary items and effect of changes in accounting principles $ 1,236 $ 81
Adjustments to reconcile income to net cash provided by
operating activities:
Depreciation, depletion and amortization of assets 687 598
Deferred income tax provision 371 53
Other noncash charges to income 217 12
(Gains) losses on disposition of assets, net (622) 11
Income from equity investments (107) (34)
Exploration expense 65 63
Changes in operating assets and liabilities (36) (131)
Other operating, net (113) (144)
---------- ----------
Net cash provided by operating activities 1,698 509
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (608) (383)
Purchase of businesses, net (3,702) (127)
Proceeds from sale of businesses and other assets 1,238 39
Collection of note receivable -- 1,395
Buyout of operating lease -- (17)
Other investing, net 68 96
---------- ----------
Net cash (used) provided by investing activities (3,004) 1,003
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term and non-recourse debt 2,447 792
Net payments on commercial paper and revolving credit agreements -- (2,050)
Proceeds from issuance of trust preferred securities -- 508
Repurchase of trust preferred securities (12) --
Purchases for gas sales commitment (85) --
Payments on long-term and non-recourse debt and capital lease liabilities (731) (459)
Proceeds from issuance of common stock 28 17
(Payments) proceeds of notes payable (10) 7
Cash dividends paid (276) (272)
Other financing, net (1) --
---------- ----------
Net cash provided (used) by financing activities 1,360 (1,457)
---------- ----------
Increase in cash and cash equivalents 54 55
Cash and cash equivalents--beginning of period 214 96
---------- ----------
Cash and cash equivalents--end of period $ 268 $ 151
========================================================================================= ========== ==========
The accompanying notes are an integral part of these financial statements.
5
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2000
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, 1999 (1999 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 September 30, 2000, and the
consolidated results of operations for the three and nine months then ended
and the consolidated cash flows for the nine months then ended. The results
of operations and cash flows for the periods ended September 30, 2000, 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 2000 presentation.
Reference is made to Note 1 to the consolidated financial statements in the
1999 Form 10-K for a summary of significant accounting policies.
2. Extraordinary Items
During the third quarter of 2000, Occidental repurchased some of its
outstanding public debt securities in open market transactions, with
principal balances totaling $127 million, at current market prices.
Occidental recorded an after-tax extraordinary gain of $1 million that
resulted from these purchases.
On June 1, 1999, Occidental called for redemption $68.7 million of its 11
1/8 percent senior debentures due June 1, 2019, at a redemption price of
105.563 percent of the principal amount thereof. Occidental recorded an
after-tax extraordinary loss of $3 million in the second quarter of 1999
related to the redemption.
3. Comprehensive Income
Occidental's comprehensive income is composed primarily of net income,
foreign currency translation adjustments and mark to market adjustments.
Occidental's comprehensive income was $1,243 million and $37 million for
the nine months ended September 30, 2000, and 1999, respectively, and $399
million and $125 million for the third quarter of 2000 and 1999,
respectively.
6
The following table presents Occidental's comprehensive income items (in
millions):
Periods Ended September 30
-----------------------------------------------------
Three Months Nine Months
------------------------- -------------------------
2000 1999 2000 1999
================================================== =========== ============ =========== ============
Net income $ 402 $ 126 $ 1,237 $ 65
Other comprehensive income items
Foreign currency translation adjustments (3) (1) 7 (29)
Other -- -- (1) 1
----------- ------------ ----------- ------------
Other comprehensive income, net of tax (3) (1) 6 (28)
----------- ------------ ----------- ------------
Comprehensive income $ 399 $ 125 $ 1,243 $ 37
=========== ============ =========== ============
4. Asset Acquisitions and Dispositions
Reference is made to Note 3 to the consolidated financial statements in the
1999 Form 10-K for a description of asset acquisitions and dispositions.
On August 15, 2000, Occidental completed agreements with respect to two
transactions with Apache Corporation (Apache) involving Occidental's
interests in the Continental Shelf of the Gulf of Mexico (GOM). In one
transaction, Occidental agreed to transfer a production payment interest
from its share of future gas production from these GOM interests for
approximately $280 million. In the second transaction, Occidental agreed to
sell an interest in the subsidiary that holds the GOM assets for
approximately $62 million, with an option for Apache to purchase additional
interests for $44 million over the next four years. As a result of these
transactions, and the consequent elimination of a portion of Occidental's
responsibility for abandonment liabilities, Occidental recorded an
after-tax gain of $39 million.
On May 8, 2000, Occidental completed an agreement to sell its producing
properties in Peru to Pluspetrol. In connection with this transaction,
Occidental recorded an after-tax charge of approximately $29 million in
December 1999 to write-down the properties to their fair values.
On April 24, 2000, Occidental completed the acquisition of ARCO Long Beach
Inc. (THUMS), an oil producing entity, for approximately $68 million.
On April 19, 2000, Occidental completed its acquisition of all of the
common interest in Altura Energy Ltd. (now "Occidental Permian Ltd.")
(Altura), the largest oil producer in Texas. Occidental, through its
subsidiaries, paid approximately $1.2 billion to the sellers, affiliates of
BP Amoco plc and Shell Oil Company, to acquire the common limited
partnership interest and control of the general partner which manages,
operates and controls 100 percent of the Altura assets. The partnership
borrowed approximately $2.4 billion, which has recourse only to the Altura
assets. The partnership also loaned approximately $2.0 billion to
affiliates of the sellers, evidenced by two notes, which provide credit
support to the partnership. The sellers retained a preferred limited
partnership interest of approximately $2.0 billion and are entitled to
certain distributions from the partnership. The acquisition is valued at
approximately $3.6 billion. Occidental's results of operations include the
operations of the Altura assets from the date of acquisition. Pro forma net
income for the nine months ended September 30, 2000, including historical
Altura results as if the acquisition had occurred on January 1, 2000, would
have been $1.3 billion ($3.57 earnings per share). Pro forma net income for
the three and nine months ended September 30, 1999, including historical
Altura results as if the acquisition had occurred on January 1, 1999, would
have been $152 million ($0.43 earnings per share) and $59 million ($0.17
earnings per share), respectively. Pro forma revenues would have been $10.7
billion and $5.8 billion for the nine months ended September 30, 2000, and
1999, respectively, and $2.4 billion for the three months ended September
30, 1999. The pro forma calculations were made with historical operating
results from Altura prior to ownership by Occidental and give effect to
certain adjustments, including
7
increased depreciation, depletion and amortization to reflect the value
assigned to the Altura property, plant and equipment, increased interest
expense, and income tax effects. The pro forma results are not necessarily
indicative of the results of operations that would have occurred if the
acquisition had been made at the beginning of the periods presented or that
may be obtained in the future. Also, the pro forma calculations do not
reflect anticipated cost savings, synergies, changes in realized prices or
production rates and certain other adjustments that are expected to result
from the acquisition and operation of Altura.
On April 18, 2000, Occidental completed the sale of its 29.2 percent stake
in Canadian Occidental Petroleum Ltd. (CanOxy) for gross proceeds of
approximately $1.2 billion Canadian, following approval of the sale by
CanOxy stockholders. Of Occidental's 40.2 million shares of CanOxy, 20.2
million were sold to the Ontario Teachers Pension Plan Board and 20 million
to CanOxy. These sales resulted in a net pre-tax gain of approximately $493
million. In addition, Occidental and CanOxy exchanged their respective 15
percent interests in joint businesses of approximately equal value,
resulting in Occidental owning 100 percent of an oil and gas operation in
Ecuador and CanOxy owning 100 percent of sodium chlorate operations in
Canada and Louisiana.
5. Supplemental Cash Flow Information
Cash payments during the nine months ended September 30, 2000, and 1999,
included federal, foreign and state income taxes of approximately $530
million and $65 million, respectively. Interest paid (net of interest
capitalized) totaled approximately $385 million and $336 million for the
nine months ended September 30, 2000, and 1999, 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 $237 million and $109 million at September 30, 2000 and
December 31, 1999, respectively.
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 September 30, 2000 December 31, 1999
======================== ====================== ======================
Raw materials $ 61 $ 60
Materials and supplies 136 167
Work in process 3 7
Finished goods 328 294
---------- ----------
528 528
LIFO adjustment 2 (25)
---------- ----------
Total $ 530 $ 503
========== ==========
8. Property, Plant and Equipment
Reference is made to the consolidated balance sheets and Note 1 thereto in
the 1999 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 1999 Form 10-K for a description of the Trust Preferred Securities. The
balance reflected in the accompanying consolidated condensed financial
8
statements at September 30, 2000, and December 31, 1999, is net of issue
costs and also reflects amortization of a portion of the issue costs, and
the repurchase during 2000 and 1999 of 555,760 shares and 937,436 shares
with liquidation values of $13.9 million and $23.4 million, respectively.
10. Retirement Plans and Postretirement Benefits
Reference is made to Note 14 to the consolidated financial statements in
the 1999 Form 10-K for a description of the retirement plans and
postretirement benefits of Occidental and its subsidiaries.
11. 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.
In December 1998, David Croucher and others filed an action in the Federal
District Court in Houston, Texas on behalf of persons claiming to have been
beneficiaries of the MidCon Employee Stock Ownership Plan (ESOP). The
plaintiffs allege that each of the U.S. Trust Company of California (the
ESOP Trustee) and the MidCon ESOP Administrative Committee breached its
fiduciary duty to the plaintiffs by failing to properly value the
securities held by the ESOP, and allege that Occidental actively
participated in such conduct. The plaintiffs claim that, as a result of
this alleged breach, the ESOP participants are entitled to an additional
aggregate distribution of at least $200 million and that Occidental has
been unjustly enriched and is liable for failing to make that distribution.
Based on the joint motion of the parties, in July 1999, the Court entered
an order certifying the case as a class action.
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
1999 Form 10-K for information concerning Occidental's long-term purchase
obligations for certain products and services.
12. Income Taxes
The provision for taxes based on income for the 2000 and 1999 interim
periods was computed in accordance with Interpretation No. 18 of Accounting
Principles Board Opinion No. 28 on reporting taxes for interim periods and
was based on projections of total year pretax income.
9
At December 31, 1999, Occidental had, for U.S. federal income tax return
purposes, an alternative minimum tax credit carryforward of $60 million
available to reduce future income taxes. The alternative minimum tax credit
carryforward does not expire.
13. 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 September 30, 2000, 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 September 30
-----------------------------------------------------------
Three Months Nine Months
--------------------------- ---------------------------
2000 1999 2000 1999
=========== =========== =========== ===========
Revenues $ 668 $ 646 $ 2,031 $ 1,698
Costs and expenses 646 619 1,924 1,664
----------- ----------- ----------- -----------
Net income $ 22 $ 27 $ 107 $ 34
=========== =========== =========== ===========
14. Industry Segments
The following table presents Occidental's interim industry segment
disclosures (in millions):
Oil and Gas Chemical Corporate Total
======================================== ============ ============ ============ ============
Nine months ended September 30, 2000
Net sales $ 6,614 $ 2,827 $ -- $ 9,441
============ ============ ============ ============
Pretax operating profit (loss) $ 2,084 $ 239 (c) $ 49 (a),(d) $ 2,372
Income taxes (437) (15) (684)(b),(e) (1,136)
Extraordinary gain (loss), net -- -- 1 1
------------ ------------ ------------ ------------
Net income (loss) $ 1,647 (f) $ 224 $ (634) $ 1,237
======================================== ============ ============ ============ ============
Nine months ended September 30, 1999
Net sales $ 2,955 $ 2,149 $ -- $ 5,104
============ ============ ============ ============
Pretax operating profit (loss) $ 713 $ 96 $ (498)(a) $ 311
Income taxes (202) (7) (21)(b) (230)
Extraordinary loss, net -- -- (3) (3)
Cumulative effect of changes in
accounting principles, net -- -- (13) (13)
------------ ------------ ------------ ------------
Net income (loss) $ 511 $ 89 $ (535) $ 65
======================================== ============ ============ ============ ============
(a) Includes unallocated net interest expense, administration expense and
other items.
(b) Includes unallocated income taxes.
(c) Includes pre-tax charge of $120 million related to the decision to
exit several chemical intermediate businesses.
(d) Includes pre-tax gain of approximately $493 million related to the
sale of the CanOxy investment.
(e) Includes income taxes of approximately $193 million related to the
sale of the CanOxy investment.
(f) Includes an after-tax gain of $39 million related to the partial sale
of Occidental's Gulf of Mexico assets, an after-tax gain on receipt of
a contingency payment of $41 million related to a prior year sale of a
Dutch North Sea subsidiary, and a pre-tax charge of approximately $74
million for the write-down of various oil and gas assets, real estate
and investments.
10
15. Subsequent Events
On November 1, 2000, Occidental announced it had agreed to farm out part of
its interest in its Block 15 operations in Ecuador to Alberta Energy
Company Ltd. of Calgary (AEC). AEC will earn a 40 percent interest in the
block and will assume certain capital costs through 2004. Occidental will
remain the operator of Block 15.
On November 1, 2000, Occidental announced it completed the sale of its
Durez phenolic resins and compounding businesses and assets to Sumitomo
Bakelite Co., Ltd. The net after-tax proceeds of approximately $120 million
from the sale will be applied to Occidental's debt reduction program.
Manufacturing facilities included in the sale are located in Niagara Falls,
New York; Kenton, Ohio; Fort Erie, Ontario, Canada; and Genk, Belgium.
There was no significant gain or loss on this transaction.
On October 17, 2000, Occidental entered into an agreement with BP Amoco
(BP) to obtain BP's interest in a carbon dioxide field in New Mexico and
related pipelines in exchange for Occidental's interest in the Milne Point
oil field in Alaska, together with additional cash consideration. This
transaction, which is subject to regulatory approval, is expected to be
completed in the fourth quarter.
On October 2, 2000, Olin Corporation announced that the previously
announced letter of intent among it, Occidental, and Occidental Chemical
Corporation, with respect to the possible formation of a chlor-alkali
business joint venture, expired by its own terms and was not renewed.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Occidental's net income for the first nine months of 2000 was $1.2 billion, on
net sales of $9.4 billion, compared with net income of $65 million, on net sales
of $5.1 billion, for the same period of 1999. Occidental's net income for the
third quarter of 2000 was $402 million, on net sales of $3.8 billion, compared
with net income of $126 million, on net sales of $2.1 billion, for the same
period of 1999. Basic earnings per common share were $3.36 for the first nine
months of 2000, compared with earnings per share of $.17 for the same period of
1999. Basic earnings per common share were $1.09 for the third quarter of 2000,
compared with earnings per share of $.35 for the same period of 1999.
The 2000 third quarter results included an after-tax gain of $39 million related
to the sale of an interest in certain of Occidental's Gulf of Mexico assets, an
after-tax gain on a receipt of a contingency payment of $41 million related to a
prior year sale of a Dutch North Sea subsidiary, a pre-tax charge of
approximately $74 million for the write-down of various oil and gas assets, real
estate and investments and a $1 million extraordinary after-tax gain resulting
from the early extinguishment of debt. The results for the first nine months of
2000 also included an after-tax gain of approximately $300 million related to
the sale of Occidental's 29.2 percent interest in Canadian Occidental Petroleum
Ltd. (CanOxy), an after-tax charge of approximately $80 million for the decision
to exit several of Occidental's chemical intermediate businesses and a pre-tax
insurance dividend of $11 million.
Earnings before special items were $370 million and $977 million for the three
and nine months ended September 30, 2000, respectively, compared with earnings
of $125 million and $61 million for the same periods in 1999, respectively. The
increase in earnings before special items for the three and nine months ended
September 30, 2000, compared with the same periods in 1999, reflected higher
worldwide oil, natural gas and chemical prices and overall higher production
volumes as a result of the Altura Energy Ltd. (now "Occidental Permian Ltd.")
(Altura) and ARCO Long Beach Inc. (THUMS) acquisitions, which are discussed
below under the caption Financial Condition, Liquidity and Capital Resources.
The 1999 third quarter earnings included a charge of $10 million for the
relocation of oil and gas headquarters and income of $11 million related to a
contingency payment on the sale of Occidental's interests in the Netherlands.
The 1999 results also included an after-tax extraordinary loss of $3 million
related to the early extinguishment of debt, a gain of $12 million related to
the sale of a chemical plant by an equity affiliate, a pre-tax insurance
dividend of $18 million and an after-tax charge of $13 million, reflecting the
cumulative effect of adopting accounting principles changes mandated by the
American Institute of Certified Public Accountants and the Emerging Issues Task
Force of the Financial Accounting Standards Board.
The increase in net sales for the three and nine months ended September 30,
2000, compared with the same periods in 1999, primarily reflected higher
worldwide crude oil, natural gas and chemical prices and higher domestic oil
production as a result of acquisitions, partially offset by lower international
production, and higher oil and gas trading activities.
Interest, dividends and other income for the three and nine months ended
September 30, 2000 included interest income on notes receivable from Altura
partners of $38 million and $68 million, respectively. Gains on disposition of
assets for the nine months ended September 30, 2000 included a pre-tax gain of
$493 million on the sale of the investment in CanOxy. Selling, general and
administrative and other operating expenses for the nine months ended September
30, 2000, included a pre-tax charge of $120 million to exit several chemical
intermediate businesses. Minority interest includes distributions on the Trust
Preferred Securities, the minority interest in the net income of subsidiaries
and partnerships and, for the three and nine months ended September 30, 2000,
also included a preferred distribution to the Altura partners totaling $38
million and $68 million, respectively. The provision for income taxes increased
for the three and nine months ended September 30, 2000, compared with the same
periods in 1999, primarily due to higher operating earnings and asset sales.
12
The following table sets forth the sales and earnings of each operating division
and corporate items (in millions):
Periods Ended September 30
---------------------------------------------------
Three Months Nine Months
------------------------ -----------------------
2000 1999 2000 1999
============================================================= ========== ========== ========== ==========
DIVISIONAL NET SALES
Oil and Gas $ 2,965 $ 1,265 $ 6,614 $ 2,955
Chemical 840 848 2,827 2,149
---------- ---------- ---------- ----------
NET SALES $ 3,805 $ 2,113 $ 9,441 $ 5,104
========== ========== ========== ==========
DIVISIONAL EARNINGS
Oil and Gas $ 696 $ 280 $ 1,647 $ 511
Chemical 47 44 224 89
---------- ---------- ---------- ----------
743 324 1,871 600
UNALLOCATED CORPORATE ITEMS
Interest expense, net (97) (118) (300) (357)
Income taxes, administration and other (169) (41) (668) (65)
Trust preferred distributions & other (17) (16) (50) (45)
Other (59) (23) 383 (52)
---------- ---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEMS AND EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES 401 126 1,236 81
Extraordinary gain (loss), net 1 -- 1 (3)
Cumulative effect of changes in accounting
principles, net -- -- -- (13)
---------- ---------- ---------- ----------
NET INCOME $ 402 $ 126 $ 1,237 $ 65
============================================================= ========== ========== ========== ==========
The following table sets forth the special items for each operating division and
corporate:
Periods Ended September 30
--------------------------------------------------
Three Months Nine Months
Benefit (Charge) ----------------------- -----------------------
(in millions) 2000 1999 2000 1999
============================================================= ========== ========== ========== ==========
OIL AND GAS
Gain on partial sale of Gulf of Mexico assets * $ 39 $ -- $ 39 $ --
Gain on receipt of contingency payment 41* 11 41* 11
Write-down of various assets, real estate and
investments (74) -- (74) --
Reorganization -- (10) -- (10)
- ------------------------------------------------------------- ---------- ---------- ---------- ----------
CHEMICAL
Write-down of chemical intermediate businesses $ -- $ -- $ (120) $ --
Gain on sale of chemical plant by Equistar -- -- -- 12
- ------------------------------------------------------------- ---------- ---------- ---------- ----------
CORPORATE
Gain on sale of CanOxy investment $ -- $ -- $ 493 $ --
Insurance dividend -- -- 11 18
Changes in accounting principles, net * -- -- -- (13)
Extraordinary gain (loss) on debt redemption, net * 1 -- 1 (3)
============================================================= ========== ========== ========== ==========
* These amounts are shown after-tax.
13
OIL AND GAS DIVISION
Periods Ended September 30
--------------------------------------------------
Three Months Nine Months
----------------------- -----------------------
Summary of Operating Statistics 2000 1999 2000 1999
============================================================= ========== ========== ========== ==========
NET PRODUCTION PER DAY:
CRUDE OIL AND NATURAL GAS LIQUIDS (MBL)
United States 210 71 159 73
Other Western Hemisphere 42 95 52 102
Eastern Hemisphere 124 128 124 141
NATURAL GAS (MMCF)
United States 687 673 677 664
Eastern Hemisphere 47 51 49 53
BARRELS OF OIL EQUIVALENT (MBOE) 499 414 456 436
- ------------------------------------------------------------- ---------- ---------- ---------- ----------
AVERAGE WTI PRICE $ 31.58 $ 21.73 $ 29.65 $ 17.48
AVERAGE NYMEX PRICE $ 4.24 $ 2.36 $ 3.28 $ 2.08
AVERAGE SALES PRICE:
CRUDE OIL ($/BBL)
United States $ 28.10 $ 17.67 $ 26.19 $ 14.17
Other Western Hemisphere $ 26.18 $ 15.73 $ 26.13 $ 11.62
Eastern Hemisphere $ 26.39 $ 18.42 $ 24.76 $ 13.92
NATURAL GAS ($/MCF)
United States $ 4.18 $ 2.12 $ 3.23 $ 1.94
Eastern Hemisphere $ 1.98 $ 1.11 $ 1.80 $ 1.14
============================================================= ========== ========== ========== ==========
Oil and gas earnings for the first nine months of 2000 were $1.6 billion,
compared with $511 million for the same period of 1999. Oil and gas earnings
before special items were $1.6 billion for the first nine months of 2000,
compared with $510 million for the first nine months of 1999. Oil and gas
earnings for the third quarter of 2000 were $696 million, compared with $280
million for the same period of 1999. Oil and gas earnings before special items
were $690 million for the third quarter of 2000, compared with $279 million for
the same period of 1999. The 2000 third quarter results included an after-tax
gain of $39 million related to the sale of an interest in certain of
Occidental's Gulf of Mexico assets, an after-tax gain on a receipt of a
contingency payment of $41 million related to a prior year sale of a Dutch North
Sea subsidiary, and a pre-tax charge of $74 million for the write-down of
various oil and gas assets, real estate and investments.
The increase in earnings for the three and nine months ended September 30, 2000,
compared with the same periods in 1999, reflected the impact of higher worldwide
crude oil and natural gas prices, higher overall production volumes and lower
costs. The higher production volumes were achieved despite the fact that
liftings of Colombian crude oil have been significantly reduced since June 2000
due to disruptions of the Cano Limon pipeline. Occidental presently anticipates
that it will be able to recover the proved reserves attributable to its contract
with the Colombian government in advance of the expiration of such contract,
which amount to approximately 3 percent of Occidental's proved oil and gas
reserves. The increase in revenues for the three and nine months ended September
30, 2000, compared with the same periods in 1999, reflected the impact of higher
worldwide crude oil and natural gas prices, higher domestic oil production as a
result of acquisitions, partially offset by lower international oil production,
and higher oil and gas trading activity. Approximately 48 percent and 40 percent
of oil and gas net sales were attributable to oil and gas trading activities in
the first nine months of 2000 and 1999, respectively. The results of oil and gas
trading activity were not significant.
14
Occidental's net price realization as a percentage of benchmark West Texas
Intermediate (WTI) prices have significantly improved. The asset restructuring
over the last three years has included selling properties with lower net price
realizations and adding properties with higher net price realizations. In the
third quarter of 2000, Occidental's United States net oil price realization was
about 90 percent of WTI prices compared to about 80 percent of WTI prices for
the same period in 1999. The third quarter 2000 United States net natural gas
price realization was 99 percent of New York Mercantile Exchange (NYMEX) prices
compared to 90 percent for the same period in 1999. Oil and gas prices are
sensitive to complex factors, which are outside the control of Occidental;
therefore, we are unable to predict with certainty the direction, magnitude or
impact of future trends in sales prices of oil and gas.
CHEMICAL DIVISION
Periods Ended September 30
--------------------------------------------------
Three Months Nine Months
----------------------- -----------------------
Summary of Operating Statistics 2000 1999 2000 1999
============================================================= ========== ========== ========== ==========
MAJOR PRODUCT VOLUMES (M TONS)
Chlorine 690 819 2,294 2,347
Caustic 825 847 2,470 2,390
Ethylene Dichloride 128 254 674 768
PVC Resins 413 505 1,350 1,444
MAJOR PRODUCT PRICE INDEX (BASE 1987-1990 = 1.0)
Chlorine 1.72 0.85 1.60 0.73
Caustic 0.59 0.54 0.66 0.68
Ethylene Dichloride 1.22 1.07 1.57 0.79
PVC Resins 0.99 0.73 0.99 0.64
============================================================= ========== ========== ========== ==========
Chemical earnings for the first nine months of 2000 were $224 million, compared
with $89 million for the same period of 1999. Chemical earnings before special
items were $344 million for the first nine months of 2000, compared with $77
million for the first nine months of 1999. Chemical earnings for the third
quarter of 2000 were $47 million, compared with $44 million for the same period
of 1999. The results for the first nine months of 2000 include a $120 million
pre-tax charge resulting from the decision to exit several chemical intermediate
businesses. The 1999 nine month results included a second quarter gain of $12
million related to the sale of a chemical plant by an equity affiliate.
The increase in earnings before special items for the nine months of 2000,
compared with the same period in 1999, is due to higher prices for polyvinyl
chloride resins (PVC), ethylene dichloride, vinyl chloride monomer and chlorine.
Partially offsetting these increases were higher raw material and feedstock
costs. The increase in earnings for the three months of 2000, compared to the
same period in 1999, is due to higher prices for PVC and chlorine mostly offset
by higher raw material and feedstock costs.
CORPORATE AND OTHER
Divisional earnings include charges and credits in lieu of U.S. federal income
taxes. In the first nine months of 2000 and 1999, divisional earnings were
(reduced) or benefited by $(27) million and $44 million, respectively, from
(charges) and credits allocated. This included (charges) and credits of $(39)
million and $12 million at oil and gas and chemical, respectively, in the first
nine months of 2000 and $32 million and $12 million at oil and gas and chemical,
respectively, for the first nine months of 1999. The charges in 2000 relate to
the previously discussed sale of an interest in the subsidiary that owned the
Gulf of Mexico shelf assets and to the receipt of contingency payments related
to a prior year sale of a Dutch North Sea subsidiary. The higher 1999 amounts
related to the asset transactions with UNOCAL which are discussed below under
the caption Financial Condition, Liquidity and Capital Resources.
15
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 was $1.7 billion for the
first nine months of 2000, compared with net cash provided of $509 million for
the same period of 1999. The increase in the 2000 amount is primarily attributed
to higher net income before special items.
Occidental's net cash used by investing activities was $3.0 billion for the
first nine months of 2000, compared with net cash provided by $1.0 billion for
the same period of 1999. 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, the transfer of a production payment interest from
Occidental's share of gas production from its Gulf of Mexico shelf assets
totaling $280 million, of which $273 million was received to date, and the sale
of an interest in the subsidiary that holds certain of the Gulf of Mexico assets
for approximately $62 million. The 1999 amount included the proceeds from the
$1.4 billion note receivable received in connection with the sale of MidCon,
Occidental's natural gas pipeline subsidiary. The 1999 amount also reflected net
cash used of $113 million in connection with the formation of a PVC resin
partnership. Capital expenditures for the first nine months of 2000 were $608
million, including $518 million in oil and gas and $84 million in chemical.
Capital expenditures were $383 million for the first nine months of 1999,
including $306 million in oil and gas and $74 million in chemical.
Financing activities provided net cash of $1.4 billion in the first nine months
of 2000, compared with cash used of $1.5 billion for the same period of 1999.
The 2000 amount mainly reflects proceeds of $2.4 billion from non-recourse debt,
debt payments of $731 million and cash dividends paid of $276 million. The 1999
amount reflected the use of the proceeds from the $1.4 billion note receivable
and $508 million of net proceeds from the issuance of the Trust Preferred
Securities to repay outstanding debt and for the payment of dividends of $272
million.
On November 1, 2000, Occidental announced it had agreed to farm out part of its
interest in its Block 15 operations in Ecuador to Alberta Energy Company Ltd. of
Calgary (AEC). AEC will earn a 40 percent interest in the block and will assume
certain capital costs through 2004. Occidental will remain the operator of Block
15.
On November 1, 2000, Occidental announced it completed the sale of its Durez
phenolic resins and compounding businesses and assets to Sumitomo Bakelite Co.,
Ltd. The net after-tax proceeds of approximately $120 million from the sale will
be applied to Occidental's debt reduction program. Manufacturing facilities
included in the sale are located in Niagara Falls, New York; Kenton, Ohio; Fort
Erie, Ontario, Canada; and Genk, Belgium. There was no significant gain or loss
on this transaction.
16
On October 17, 2000, Occidental entered into an agreement with BP Amoco (BP) to
obtain BP's interest in a carbon dioxide field in New Mexico and related
pipelines in exchange for Occidental's interest in the Milne Point oil field in
Alaska, together with additional cash consideration. This transaction, which is
subject to regulatory approval, is expected to be completed in the fourth
quarter.
On October 2, 2000, Olin Corporation announced that the previously announced
letter of intent among it, Occidental, and Occidental Chemical Corporation, with
respect to the possible formation of a chlor-alkali business joint venture,
expired by its own terms and was not renewed.
On August 15, 2000, Occidental completed agreements with respect to two
transactions with Apache Corporation (Apache) involving Occidental's interests
in the Continental Shelf of the Gulf of Mexico (GOM). In one transaction,
Occidental agreed to transfer a production payment interest from its share of
future gas production from these GOM interests for approximately $280 million.
In the second transaction, Occidental agreed to sell an interest in the
subsidiary that holds the GOM assets for approximately $62 million, with an
option for Apache to purchase additional interests for $44 million over the next
four years. As a result of these transactions, and the consequent elimination of
a portion of Occidental's responsibility for abandonment liabilities, Occidental
recorded an after-tax gain of $39 million.
On May 8, 2000, Occidental completed an agreement to sell its producing
properties in Peru to Pluspetrol. In connection with this transaction,
Occidental recorded an after-tax charge of approximately $29 million in December
1999 to write-down the properties to their fair values.
On April 24, 2000, Occidental completed the acquisition of THUMS, an oil
producing entity, for approximately $68 million. The acquisition adds
approximately 95 million barrels of net oil reserves and approximately 25,000
barrels per day of net oil production to Occidental's growing California
operations.
On April 19, 2000, Occidental completed its acquisition of all of the common
interest in Altura, the largest oil producer in Texas. Occidental, through its
subsidiaries, paid approximately $1.2 billion to the sellers, affiliates of BP
Amoco plc and Shell Oil Company, to acquire the common limited partnership
interest and control of the general partner which manages, operates and controls
100 percent of the Altura assets. The partnership borrowed approximately $2.4
billion, which has recourse only to the Altura assets. The partnership also
loaned approximately $2.0 billion to affiliates of the sellers, evidenced by two
notes, which provide credit support to the partnership. The sellers retained a
preferred limited partnership interest of approximately $2.0 billion and are
entitled to certain distributions from the partnership. As a result of the
acquisition, which is valued at approximately $3.6 billion, Occidental's
worldwide oil and gas production is expected to increase in 2000 by
approximately 135,000 barrels per day of oil equivalent, or 9 percent, to an
average of approximately 465,000 barrels of oil equivalent per day over the
entire year versus 425,000 barrels per day in 1999. Proved reserves at Altura
were 850 million barrels of oil equivalent at December 31, 1999. This
acquisition will bring Occidental's proved reserves to approximately 2.2 billion
barrels of oil equivalent.
On April 18, 2000, Occidental completed the sale of its 29.2 percent stake in
CanOxy for gross proceeds of approximately $1.2 billion Canadian, following
approval of the sale by CanOxy stockholders. Of Occidental's 40.2 million shares
of CanOxy, 20.2 million were sold to the Ontario Teachers Pension Plan Board and
20 million to CanOxy. In addition, Occidental and CanOxy exchanged their
respective 15 percent interests in joint businesses of approximately equal
value, resulting in Occidental owning 100 percent of an oil and gas operation in
Ecuador and CanOxy owning 100 percent of sodium chlorate operations in Canada
and Louisiana. After-tax proceeds from the CanOxy disposition together with tax
benefits from the disposition of the Peru producing properties totaled
approximately $700 million and were applied to the acquisition of Altura and
THUMS.
In December 1999, Occidental and EOG Resources, Inc. (EOG) exchanged certain oil
and gas assets. Occidental received producing properties and exploration acreage
in its expanding California asset base, as well as producing properties in the
western Gulf of Mexico near existing operations in exchange for oil and gas
production and reserves in east Texas. Occidental also farmed out Oklahoma
panhandle properties to EOG and retained a carried interest.
17
In the third quarter of 1999, pursuant to a series of transactions, Occidental
indirectly acquired the remaining ownership of INDSPEC Chemical Corporation
(INDSPEC) through the issuance of approximately 3.2 million shares of Occidental
common stock at an estimated value of approximately $68 million and the
assumption of approximately $80 million of bank debt. As a result of the
transactions, Occidental owns 100 percent of the stock of INDSPEC.
In the third quarter of 1999, Occidental acquired Unocal International
Corporation's (UNOCAL) oil and gas interests in Yemen and UNOCAL acquired
Occidental's properties in Bangladesh.
Effective April 30, 1999, Occidental and The Geon Company (now "PolyOne
Corporation") (Geon) formed two partnerships. Occidental has a 76 percent
interest in the PVC commodity resin partnership, OxyVinyls, LP (OxyVinyls),
which is the larger of the partnerships, and a 10 percent interest in a PVC
powder compounding partnership. OxyVinyls also has entered into long-term
agreements to supply PVC resin to Geon and VCM to Occidental and Geon. In
addition, as part of the transaction, Occidental sold its pellet compounding
plant in Pasadena, Texas and its vinyl film assets in Burlington, New Jersey to
Geon.
During the third quarter of 2000, Occidental repurchased some of its outstanding
public debt securities in open market transactions, with principal balances
totaling $127 million, at current market prices. Occidental recorded an
after-tax extraordinary gain of $1 million that resulted from these purchases.
On June 1, 2000, Occidental redeemed all of its outstanding 11-1/8 percent
senior debentures due June 1, 2019, at a redemption price of 100 percent of the
principal amount thereof. The outstanding aggregate principal amount of the
debentures, which were issued on May 15, 1989, was $75 million.
On June 30, 1999, Occidental established a program under which Occidental may
offer, from time to time, up to $1 billion aggregate initial offering price of
its Medium-Term Senior Notes, Series C and its Medium-Term Subordinated Notes,
Series A.
On June 1, 1999, Occidental called for redemption $68.7 million of its 11-1/8
percent senior debentures due June 1, 2019, at a redemption price of 105.563
percent of the principal amount thereof. Occidental recorded an after-tax
extraordinary loss of $3 million in the second quarter of 1999 related to the
redemption.
In February 1999, Occidental issued $450 million of 7.65 percent senior notes
due 2006 and $350 million of 8.45 percent senior notes due 2029 for net proceeds
of approximately $792 million.
In January 1999, a subsidiary of Occidental issued $525 million of 8.16 percent
Trust Preferred Securities due in 2039, for net proceeds of $508 million. The
net proceeds were used to repay commercial paper. The Trust Preferred Securities
balances reflected in the consolidated financial statements at September 30,
2000 and December 31, 1999 are net of issue costs and also reflect amortization
of a portion of the issue costs, and the repurchase during 2000 and 1999 of
555,760 shares and 937,436 shares, respectively, with liquidation values of
$13.9 million and $23.4 million, respectively.
Occidental expects to have sufficient cash in 2000 for its operating needs,
capital expenditure requirements, dividend payments and debt repayments.
Occidental currently expects to spend, in total, approximately $900 million on
its 2000 capital spending program, of which approximately $750 million has been
allocated to the oil and gas division and approximately $150 million has been
allocated to the chemical division. Available but unused lines of committed bank
credit totaled approximately $2.1 billion at September 30, 2000 and December 31,
1999.
Occidental had a target of reducing total debt by $2.0 billion by the end of
2000. In April, total debt, which includes the Trust Preferred Securities and
the obligation under natural gas delivery commitment, but excludes the initial
$2.4 billion of non-recourse debt, reached a pro forma level of $6.6 billion,
mainly resulting from $1.2 billion of short-term borrowings to finance the cash
cost of the Altura acquisition. Since April, Occidental has reduced total debt
by approximately $2.1 billion, with about $1.0 billion generated from asset
sales and $1.1 billion from internal cash flow. Included in the debt reduction
is a $320 million reduction in the non-recourse debt related to
18
Altura. Even though Occidental has exceeded its debt reduction target,
Occidental expects to continue to reduce its debt level in the last quarter of
the year through internal cash flow and asset sales proceeds.
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 costs with
other financially sound companies.
As of September 30, 2000, Occidental had been notified by the Environmental
Protection Agency (EPA) or equivalent state agencies or otherwise had become
aware that it had been identified as being involved at 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 10 sites and has yet to determine involvement in 20
sites. With respect to the remaining 61 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 53 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 53 sites include 11 sites as to which present information
indicates that it is probable that Occidental's aggregate exposure is
immaterial. In determining the reserves, Occidental uses the most current
information available, including similar past experiences, available technology,
regulations in effect, the timing of remediation and cost-sharing arrangements.
For the remaining 8 of the 61 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."
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 and cash flows. Factors that could cause results to differ materially
include, but are not limited to: global commodity pricing fluctuations for oil,
gas and chemicals; competitive pricing pressures; higher than expected costs
including feedstocks; the supply/demand considerations for Occidental's
products; any general economic recession domestically or internationally;
regulatory uncertainties; and not successfully completing 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.
19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the period ended September 30, 2000 there were no material changes in the
information provided under Item 305 of Regulation S-K included under the caption
"Derivative Activities" as part of Occidental's Management's Discussion and
Analysis section of Occidental's 1999 Annual Report on Form 10-K.
20
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GENERAL
There is incorporated by reference herein the information regarding legal
proceedings in Item 3 of Part I of Occidental's 1999 Annual Report on Form 10-K,
Item 3 of Part II of Occidental's Quarterly Report on Form 10-Q for the
quarterly periods ended March 31, 2000 and June 30, 2000 and Note 11 to the
consolidated condensed financial statements in Part I hereof.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement regarding the computation of earnings per share
for the three and nine months ended September 30, 2000 and
1999
12 Statement regarding the computation of total enterprise
ratios of earnings to fixed charges for the nine months
ended September 30, 2000 and 1999 and the five years ended
December 31, 1999
27 Financial data schedule for the nine-month period ended
September 30, 2000 (included only in the copy of this report
filed electronically with the Securities and Exchange
Commission)
(b) Reports on Form 8-K
During the quarter ended September 30, 2000, Occidental filed the
following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated June 28, 2000 (date of
earliest event reported), filed on July 13, 2000, for the
purpose of reporting, under Item 5, the signing of a letter
of intent with Olin Corporation to form a partnership.
2. Current Report on Form 8-K dated July 19, 2000 (date of
earliest event reported), filed on July 20, 2000, for the
purpose of reporting, under Item 5, Occidental's results of
operations for the quarter ended June 30, 2000 and
Occidental's agreement to monetize its Gulf of Mexico
assets.
From September 30, 2000 to the date hereof, Occidental filed the
following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated October 18, 2000 (date of
earliest event reported), filed on October 18, 2000, for the
purpose of reporting, under Item 5, Occidental's results of
operations for the quarter ended September 30, 2000 and
under Item 9, text and financial schedules from Occidental's
third quarter conference call.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OCCIDENTAL PETROLEUM CORPORATION
DATE: November 13, 2000 S. P. Dominick, Jr.
----------------------------------------
S. P. Dominick, Jr., Vice President and
Controller (Chief Accounting and Duly
Authorized Officer)
22
EXHIBIT INDEX
EXHIBITS
- --------
11 Statement regarding the computation of earnings per share for the
three and nine months ended September 30, 2000 and 1999
12 Statement regarding the computation of total enterprise ratios of
earnings to fixed charges for the nine months ended September 30, 2000
and 1999 and the five years ended December 31, 1999
27 Financial data schedule for the nine-month period ended September 30,
2000 (included only in the copy of this report filed electronically
with the Securities and Exchange Commission)
EXHIBIT 11
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Amounts in millions, except per-share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- ---------------------------
2000 1999 2000 1999
- ------------------------------------------------------- ------------ ------------ ------------ ------------
BASIC EARNINGS PER SHARE
Income before extraordinary items and effect of
changes in accounting principles $ 401 $ 126 $ 1,236 $ 81
Effect of repurchase of Trust Preferred Securities -- -- 1 --
Preferred stock dividends -- -- -- (7)
------------ ------------ ------------ ------------
Earnings before extraordinary items and effect of
changes in accounting principles applicable
to common stock 401 126 1,237 74
Extraordinary gain (loss), net 1 -- 1 (3)
Cumulative effect of changes in
accounting principles, net -- -- -- (13)
------------ ------------ ------------ ------------
Earnings applicable to common stock $ 402 $ 126 $ 1,238 $ 58
============ ============ ============ ============
Weighted average common shares outstanding 369.2 357.6 368.7 351.3
============ ============ ============ ============
Basic earnings per share
Income before extraordinary items and effect of $ 1.09 $ .35 $ 3.36 $ .22
changes in accounting principles
Extraordinary gain (loss), net -- -- -- (.01)
Cumulative effect of changes in
accounting principles, net -- -- -- (.04)
------------ ------------ ------------ ------------
Basic earnings per common share $ 1.09 $ .35 $ 3.36 $ .17
============ ============ ============ ============
DILUTED EARNINGS PER SHARE
Earnings before extraordinary items and effect of
changes in accounting principles applicable
to common stock $ 401 $ 126 $ 1,237 $ 74
Dividends applicable to dilutive preferred stock -- -- -- 7
------------ ------------ ------------ ------------
401 126 1,237 81
Extraordinary gain (loss), net 1 -- 1 (3)
Cumulative effect of changes in
accounting principles, net -- -- -- (13)
------------ ------------ ------------ ------------
Earnings applicable to common stock $ 402 $ 126 $ 1,238 $ 65
============ ============ ============ ============
Weighted average common shares outstanding 369.2 357.6 368.7 351.3
Dilutive effect of exercise of options outstanding .3 .1 .2 .1
------------ ------------ ------------ ------------
369.5 357.7 368.9 351.4
============ ============ ============ ============
Diluted earnings per share
Income before extraordinary items and effect of $ 1.09 $ .35 $ 3.36 $ .22
changes in accounting principles
Extraordinary gain (loss), net -- -- -- (.01)
Cumulative effect of changes in
accounting principles, net -- -- -- (.04)
------------ ------------ ------------ ------------
Diluted earnings per common share $ 1.09 $ .35 $ 3.36 $ .17
======================================================= ============ ============ ============ ============
EXHIBIT 11 (CONTINUED)
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(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 Nine Months Ended
September 30 September 30
------------------------------------------- -------------------------------------------
2000 1999 2000 1999
-------------------- -------------------- -------------------- --------------------
STOCK OPTIONS
Number of shares 5.6 4.6 5.6 5.0
Price range per share $22.000 -- $29.438 $22.000 -- $29.625 $21.250 -- $29.438 $19.875 -- $29.625
Expiration range 4/28/03 -- 11/10/09 1/14/00 -- 7/8/08 4/28/03 -- 11/10/09 1/14/00 -- 7/8/08
CONVERTIBLE PREFERRED
STOCK $3.00
Number of shares -- -- -- --
Dividends paid -- -- -- 7.2
- --------------------------- -------------------- -------------------- -------------------- --------------------
EXHIBIT 12
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF TOTAL ENTERPRISE RATIOS OF EARNINGS TO FIXED CHARGES
(Amounts in millions, except ratios)
Nine Months Ended
September 30 Year Ended December 31
-------------------- -----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
- ---------------------------------------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations(a) $ 1,373 $ 156 $ 699 $ 400 $ 245 $ 486 $ 325
--------- --------- --------- --------- --------- --------- ---------
Add:
Provision (credit) for taxes on
income (other than foreign
and gas taxes) 698 53 306 204 47 99 155
Interest and debt expense(b) 404 391 515 576 446 492 591
Portion of lease rentals
representative of the interest
factor 5 25 31 36 39 38 43
--------- --------- --------- --------- --------- --------- ---------
1,107 469 852 816 532 629 789
--------- --------- --------- --------- --------- --------- ---------
Earnings before fixed charges $ 2,480 $ 625 $ 1,551 $ 1,216 $ 777 $ 1,115 $ 1,114
========= ========= ========= ========= ========= ========= =========
Fixed charges
Interest and debt expense
including capitalized
interest(b) $ 404 $ 398 $ 522 $ 594 $ 462 $ 499 $ 595
Portion of lease rentals
representative of the interest
factor 5 25 31 36 39 38 43
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges $ 409 $ 423 $ 553 $ 630 $ 501 $ 537 $ 638
========= ========= ========= ========= ========= ========= =========
Ratio of earnings to fixed charges 6.06 1.48 2.80 1.93 1.55 2.08 1.75
- ---------------------------------------- ========= ========= ========= ========= ========= ========= =========
(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.