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, 1999
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, 1999
--------------------------- ---------------------------------
Common stock $.20 par value 367,577,893 shares
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets --
September 30, 1999 and December 31, 1998 2
Consolidated Condensed Statements of Operations --
Three and nine months ended September 30, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows --
Nine months ended September 30, 1999 and 1998 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 19
PART II OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(Amounts in millions)
1999 1998
================================================================================= ============ ============
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 151 $ 96
Receivables, net 674 531
Inventories 498 500
Prepaid expenses, note receivable and other 168 1,668
------------ ------------
Total current assets 1,491 2,795
LONG-TERM RECEIVABLES, net 149 121
EQUITY INVESTMENTS 1,780 1,959
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation, depletion and amortization of $7,496
at September 30, 1999 and $6,774 at December 31, 1998 10,228 9,905
OTHER ASSETS 487 472
------------ ------------
$ 14,135 $ 15,252
================================================================================= ============ ============
The accompanying notes are an integral part of these financial statements.
2
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1999 and December 31, 1998
(Amounts in millions)
1999 1998
================================================================================= ============ ============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease liabilities $ 5 $ 1,400
Notes payable 27 30
Accounts payable 619 613
Accrued liabilities 884 865
Domestic and foreign income taxes 42 23
------------ ------------
Total current liabilities 1,577 2,931
------------ ------------
LONG-TERM DEBT, net of current maturities and unamortized discount 5,144 5,367
------------ ------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred and other domestic and foreign income taxes 967 825
Obligation under natural gas delivery commitment 435 503
Other 2,042 2,258
------------ ------------
3,444 3,586
------------ ------------
MINORITY EQUITY IN SUBSIDIARIES AND PARTNERSHIPS 245 5
------------ ------------
OCCIDENTAL OBLIGATED MANDATORILY REDEEMABLE
TRUST PREFERRED SECURITIES OF A SUBSIDIARY
TRUST HOLDING SOLELY SUBORDINATED NOTES OF
OCCIDENTAL 509 --
------------ ------------
STOCKHOLDERS' EQUITY
Nonredeemable preferred stock, stated at liquidation value -- 243
Common stock, at par value 73 69
Additional paid-in capital 3,869 3,814
Retained earnings (deficit) (669) (734)
Accumulated other comprehensive income (57) (29)
------------ ------------
3,216 3,363
------------ ------------
$ 14,135 $ 15,252
================================================================================= ============ ============
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, 1999 AND 1998
(Amounts in millions, except per-share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ----------------------
1999 1998 1999 1998
=============================================================== ========== ========== ========== ==========
REVENUES
Net sales
Oil and gas operations $ 1,265 $ 1,030 $ 2,955 $ 2,509
Chemical operations 848 631 2,149 2,395
---------- ---------- ---------- ----------
2,113 1,661 5,104 4,904
Interest, dividends and other income 32 39 118 189
Gains (losses) on disposition of assets, net 7 133 (11) 544
Income from equity investments 27 2 34 10
---------- ---------- ---------- ----------
2,179 1,835 5,245 5,647
---------- ---------- ---------- ----------
COSTS AND OTHER DEDUCTIONS
Cost of sales 1,600 1,373 3,967 3,838
Selling, general and administrative and other
operating expenses 168 181 488 572
Minority interest 16 -- 36 --
Exploration expense 11 27 63 79
Interest and debt expense, net 125 136 380 412
---------- ---------- ---------- ----------
1,920 1,717 4,934 4,901
---------- ---------- ---------- ----------
Income from continuing operations before taxes 259 118 311 746
Provision for domestic and foreign income and
other taxes 133 80 230 383
---------- ---------- ---------- ----------
Income from continuing operations 126 38 81 363
Discontinued operations, net -- -- -- 38
Extraordinary loss, net -- -- (3) --
Cumulative effect of changes in accounting principles, net -- -- (13) --
---------- ---------- ---------- ----------
NET INCOME 126 38 65 401
Preferred dividends -- (4) (7) (13)
---------- ---------- ---------- ----------
EARNINGS APPLICABLE TO COMMON STOCK $ 126 $ 34 $ 58 $ 388
========== ========== ========== ==========
BASIC EARNINGS PER COMMON SHARE
Income from continuing operations $ .35 $ .10 $ .22 $ 1.00
Discontinued operations, net -- -- -- .11
Extraordinary loss, net -- -- (.01) --
Cumulative effect of changes in accounting principles, net -- -- (.04) --
---------- ---------- ---------- ----------
Basic earnings per common share $ .35 $ .10 $ .17 $ 1.11
========== =========== ========== ==========
DILUTED EARNINGS PER COMMON SHARE
Income from continuing operations $ .35 $ .10 $ .22 $ .99
Discontinued operations, net -- -- -- .10
Extraordinary loss, net -- -- (.01) --
Cumulative effect of changes in accounting principles, net -- -- (.04) --
---------- ---------- ---------- ----------
Diluted earnings per common share $ .35 $ .10 $ .17 $ 1.09
========== =========== ========== ==========
DIVIDENDS PER COMMON SHARE $ .25 $ .25 $ .75 $ .75
========== =========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 357.6 350.0 351.3 351.2
=============================================================== ========== =========== ========== ==========
The accompanying notes are an integral part of these financial statements.
4
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Amounts in millions)
1999 1998
========================================================================================= =========== ===========
CASH FLOW FROM OPERATING ACTIVITIES
Net income from continuing operations $ 81 $ 363
Adjustments to reconcile income to net cash provided (used) by
operating activities:
Depreciation, depletion and amortization of assets 598 653
Deferred income tax provision 53 319
Other noncash charges to income 12 41
(Gains) losses on disposition of assets, net 11 (544)
Income from equity investments (34) (10)
Exploration expense 63 79
Changes in operating assets and liabilities (131) (596)
Other operating, net (144) (227)
----------- -----------
509 78
Operating cash flow from discontinued operations -- (244)
----------- -----------
Net cash provided (used) by operating activities 509 (166)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (383) (840)
Sale of businesses and disposal of property, plant and equipment, net 39 3,326
Collection of note receivable 1,395 --
Purchase of businesses, net (127) (3,528)
Buyout of operating leases (17) --
Other investing, net 96 48
----------- -----------
1,003 (994)
Investing cash flow from discontinued operations -- (5)
----------- -----------
Net cash provided (used) by investing activities 1,003 (999)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term debt 792 913
Net proceeds from (payments on) commercial paper and revolving credit agreements (2,050) 1,775
Proceeds from issuance of trust preferred securities 508 --
Payments on long-term debt and capital lease liabilities (459) (313)
Proceeds from issuance of common stock 17 22
Repurchase of common stock -- (937)
Proceeds (payments) of notes payable 7 (5)
Cash dividends paid (272) (296)
Other financing, net -- 11
----------- -----------
Net cash provided (used) by financing activities (1,457) 1,170
----------- -----------
Increase in cash and cash equivalents 55 5
Cash and cash equivalents--beginning of period 96 113
----------- -----------
Cash and cash equivalents--end of period $ 151 $ 118
========================================================================================= =========== ===========
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, 1999
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, 1998 (1998 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, 1999 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, 1999 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 1999 presentation.
Reference is made to Note 1 to the consolidated financial statements in the
1998 Form 10-K for a summary of significant accounting policies.
2. Extraordinary Loss and Changes in Accounting Principles
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.
Effective January 1, 1999, Occidental adopted the provisions of Statement
of Position 98-5--"Reporting on the Costs of Start-Up Activities" (SOP
98-5), which requires that costs of start-up activities, including
organizational costs, be expensed as incurred. The initial application of
the statement resulted in a charge to income for costs of previously
capitalized start-up activities that have not yet been fully amortized. The
initial adoption of SOP 98-5 resulted in a first quarter noncash after-tax
charge of $15 million, net of $8 million in taxes, which has been recorded
as a cumulative effect of a change in accounting principle.
Effective January 1, 1999, Occidental adopted the provisions of Emerging
Issues Task Force (EITF) issue No. 98-10--"Accounting for Contracts
Involved in Energy Trading and Risk Management Activities," which
establishes accounting and reporting standards for certain energy trading
contracts. EITF No. 98-10 requires that energy trading contracts must be
marked-to-market with gains and losses included in earnings and separately
disclosed in the financial statements or footnotes thereto. The initial
adoption of EITF No. 98-10 resulted in a first quarter noncash after-tax
benefit of $2 million, recorded as a cumulative effect of a change in
accounting principle.
6
3. Comprehensive Income
Occidental's comprehensive income is composed primarily of net income,
foreign currency translation adjustments and minimum pension liability
adjustments. Occidental's comprehensive income was $37 million and $383
million for the nine months ended September 30, 1999 and 1998,
respectively, and $124 million and $27 million for the third quarter of
1999 and 1998, respectively.
The following table presents Occidental's comprehensive income items (in
millions):
Periods Ended September 30
---------------------------------------------------
Three Months Nine Months
------------------------ ------------------------
1999 1998 1999 1998
=================================================== =========== =========== =========== ===========
Net income $ 126 $ 38 $ 65 $ 401
Other comprehensive income items
Foreign currency translation adjustments (2) (8) (29) (13)
Minimum pension liability adjustments -- (1) -- --
Other -- (2) 1 (5)
----------- ----------- ----------- -----------
Other comprehensive income, net of tax (2) (11) (28) (18)
----------- ----------- ----------- -----------
Comprehensive income $ 124 $ 27 $ 37 $ 383
=========== =========== =========== ===========
4. Asset Acquisitions and Dispositions
As previously disclosed, in April 1996, Occidental acquired a 64 percent
interest in INDSPEC Holding Corporation (INDSPEC), a leading manufacturer
of resorcinol, a bonding agent principally used in tires, with other flame
retardant applications. In the third quarter of 1999, pursuant to a series
of transactions, Occidental indirectly acquired the minority ownership of
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 gas interests in Bangladesh. Although the transactions closed
early in the third quarter of 1999, the second quarter included the results
of the transaction which, after tax credits, did not have a significant
impact on earnings.
Effective April 30, 1999, Occidental and The Geon Company (Geon) formed two
partnerships. Occidental has a 76 percent controlling interest in a
polyvinyl chloride (PVC) resin partnership, which is the larger of the
partnerships, and a 10 percent interest in a PVC powder compounding
partnership. The PVC resin partnership has also entered into long-term
agreements to supply PVC resin to Geon and vinyl chloride monomer (VCM) to
both 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. As part of the
transaction, Geon realized approximately $104 million through the retention
of working capital and the distribution of cash from the PVC resin
partnership and the PVC resin partnership undertook approximately $180
million in operating lease obligations of Geon for certain plant
facilities. Occidental did not record a significant gain or loss on the
transaction. Minority equity in subsidiaries and partnerships at September
30, 1999 includes Geon's minority interest in the PVC resin partnership.
In May 1998, Occidental contributed its ethylene, propylene, ethylene oxide
(EO), ethylene glycol and EO derivatives businesses to a petrochemicals and
polymers partnership called Equistar Chemicals, LP (Equistar), in return
for a 29.5 percent equity interest in the partnership, receipt of
approximately $420 million in cash and
7
the assumption by Equistar of approximately $205 million of Occidental
capital lease liabilities. Occidental did not record a gain or loss on the
transaction.
In February 1998, Occidental acquired the U.S. government's approximate 78
percent interest in the Elk Hills Naval Petroleum Reserve oil and gas
fields for approximately $3.5 billion.
In the first, second and third quarters of 1998, Occidental sold certain
nonstrategic oil and gas properties for aggregate net proceeds of
approximately $1.1 billion. These sales resulted in net pretax gains of
approximately $532 million, of which $137 million was recorded in the third
quarter of 1998.
In January 1998, Occidental completed the sale of MidCon, its natural gas
transmission and marketing business. In the fourth quarter of 1997,
Occidental announced its intention to sell MidCon and classified MidCon and
its subsidiaries as a discontinued operation.
5. Supplemental Cash Flow Information
Cash payments during the nine months ended September 30, 1999 and 1998
included federal, foreign and state income taxes of approximately $65
million and $198 million, respectively. Interest paid (net of interest
capitalized) totaled approximately $336 million and $358 million for the
nine months ended September 30, 1999 and 1998, 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 $109 million and $58 million at September 30, 1999 and
December 31, 1998, 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, 1999 December 31, 1998
======================== ====================== =====================
Raw materials $ 56 $ 38
Materials and supplies 175 184
Work in process 8 5
Finished goods 249 278
-------- --------
488 505
LIFO adjustment 10 (5)
======== ========
Total $ 498 $ 500
======== ========
8. Property, Plant and Equipment
Reference is made to the consolidated balance sheets and Note 1 thereto in
the 1998 Form 10-K for a description of investments in property, plant and
equipment.
8
9. Trust Preferred Securities
In January 1999, Oxy Capital Trust I, a wholly-owned subsidiary of
Occidental, issued 21,000,000 shares of 8.16 percent Trust Originated
Preferred Securities (Preferred Securities) to the public and 649,485
shares of Trust Originated Common Securities (Common Securities) to
Occidental. The proceeds of such issuances were invested by Oxy Capital
Trust I in $541.2 million aggregate principal amount of Occidental's 8.16
percent Subordinated Deferrable Interest Notes due 2039 (Trust Subordinated
Notes). The Trust Subordinated Notes represent the sole assets of Oxy
Capital Trust I. The Trust Subordinated Notes are unsecured obligations of
Occidental and are junior in right of payment to all present and future
senior indebtedness of Occidental and are also effectively subordinate to
certain indebtedness of Occidental's consolidated subsidiaries.
Occidental has guaranteed, on a subordinated basis, distributions and other
payments due on the Preferred Securities (the Guarantee). The Guarantee,
when taken together with Occidental's obligations under the Trust
Subordinated Notes and the indenture pursuant to which the Trust
Subordinated Notes were issued and Occidental's obligations under the
Amended and Restated Declaration of Trust governing Oxy Capital Trust I,
provides a full and unconditional guarantee of amounts due on the Preferred
Securities.
The Trust Subordinated Notes and the related Oxy Capital Trust I investment
in the Trust Subordinated Notes have been eliminated in consolidation and
the Preferred Securities are reported as Occidental Obligated Mandatorily
Redeemable Trust Preferred Securities of a Subsidiary Trust Holding Solely
Subordinated Notes of Occidental in the accompanying consolidated condensed
financial statements. Distributions on the Preferred Securities are
reported under the caption minority interest, in the statements of
operations. Total net proceeds to Occidental were $508 million. The balance
reflected in the accompanying consolidated condensed financial statements
at September 30, 1999 is net of issue costs and totals $509 million which
reflects amortization of a portion of the issue costs.
10. Retirement Plans and Postretirement Benefits
Reference is made to Note 14 to the consolidated financial statements in
the 1998 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
9
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 10 to the consolidated financial statements in
the 1998 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 1999 and 1998 interim
periods was computed in accordance with Interpretation No. 18 of APB
Opinion No. 28 on reporting taxes for interim periods and was based on
projections of total year pretax income.
At December 31, 1998, Occidental had, for U.S. federal income tax return
purposes, an alternative minimum tax credit carryforward of $85 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, 1999, Occidental's
equity investments consisted primarily of a 29.5 percent interest in
Equistar acquired in May 1998, an investment of approximately 29 percent in
the common shares of Canadian Occidental Petroleum Ltd. 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
--------------------------- ---------------------------
1999 1998 1999 1998
=========== =========== =========== ===========
Revenues $ 646 $ 522 $ 1,698 $ 1,128
Costs and expenses 619 520 1,664 1,118
=========== =========== =========== ===========
Net income $ 27 $ 2 $ 34 $ 10
=========== =========== =========== ===========
10
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, 1999
Net sales $ 2,955 $ 2,149 $ -- $ 5,104
=============== =============== =============== ===============
Pretax operating profit (loss) $ 709 $ 85 $ (483)(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) $ 507 $ 78 $ (520) $ 65
===================================== =============== =============== =============== ===============
Nine months ended September 30, 1998
Net sales $ 2,509 $ 2,395 $ -- $ 4,904
=============== =============== =============== ===============
Pretax operating profit (loss) $ 890 (c) $ 278 (d) $ (422)(a) $ 746
Income taxes (122) 2 (263)(b) (383)
Discontinued operations, net -- -- 38 38
--------------- --------------- --------------- ---------------
Net income (loss) $ 768 $ 280 $ (647) $ 401
===================================== =============== =============== =============== ===============
(a) Includes unallocated net interest expense, administration expense and other
items.
(b) Includes unallocated income taxes.
(c) Includes net pretax gains of approximately $532 million related to the sale
of certain nonstrategic assets and other charges of $42 million.
(d) Includes a $30 million pretax charge for reorganization and other costs.
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 1999 was $65 million, on
net sales of $5.1 billion, compared with net income of $401 million, on net
sales of $4.9 billion, for the same period of 1998. Occidental's net income for
the third quarter of 1999 was $126 million, on net sales of $2.1 billion,
compared with net income of $38 million, on net sales of $1.7 billion, for the
same period of 1998. Basic earnings per common share were $.17 for the first
nine months of 1999, compared with earnings per share of $1.11 for the same
period of 1998. Basic earnings per common share were $.35 for the third quarter
of 1999, compared with earnings per share of $.10 for the same period of 1998.
The 1999 third quarter earnings included a charge of $10 million for the
recently announced closing of the oil and gas offices in Bakersfield, California
and income of $11 million related to a contingent payment on the 1998 sale of
Occidental's interests in the Netherlands. The 1999 results also included a
second quarter gain of $12 million related to the sale of a chemical plant by an
equity affiliate and an after-tax extraordinary loss of $3 million related to
the early extinguishment of debt in the second quarter. Results before special
items were earnings of $125 million and $61 million for the three and nine
months ended September 30, 1999, respectively, compared with earnings of $3
million and $139 million for the same periods in 1998, respectively. The
increase in earnings before special items for the third quarter of 1999,
compared with the same period in 1998, primarily reflected higher worldwide
crude oil prices and lower operating and exploration costs offset, in part, by
lower chemical earnings due to higher raw material costs and the impact of lower
caustic soda prices.
The decrease in earnings before special items for the nine months ended
September 30, 1999, compared with the same period in 1998, was primarily due to
lower chemical earnings, mainly as a result of lower chlorine and caustic soda
prices, offset in part, by higher oil and gas earnings which reflected higher
worldwide crude oil prices. The 1998 earnings for the first nine months included
net pretax gains of approximately $532 million from the sale of certain
nonstrategic oil and gas properties, of which $137 million was recorded in the
third quarter. The 1998 earnings also included $30 million for reorganization
and other charges in the chemical division in the second quarter and an
after-tax benefit of $38 million to reflect the closing of the sale of MidCon
Corp. (MidCon), the natural gas transmission and marketing subsidiary, and the
finalization of the discontinued operations reserve in the first quarter.
The increase in net sales for the three months ended September 30, 1999,
compared with the same period in 1998, primarily reflected higher worldwide
crude oil prices in the oil and gas division and revenues related to a new
polyvinyl chloride (PVC) resin partnership partially offset by lower prices for
caustic soda in the chemical division. The increase in net sales for the nine
months ended September 30, 1999, compared with the same period in 1998,
primarily reflected higher worldwide crude oil prices in the oil and gas
division, and the inclusion of revenues related to the PVC resin partnership,
partially offset by lower prices for chlorine and caustic soda and the absence
of revenues related to the petrochemical assets contributed to Equistar
Chemicals, LP (Equistar) petrochemicals and polymers partnership in May 1998 in
the chemical division.
Interest, dividends and other income for the three and nine months ended
September 30, 1998 included interest earned on a $1.4 billion note receivable
(the $1.4 billion note receivable). This note was received in exchange for a
note previously issued to Occidental by the MidCon Corp. ESOP Trust. Gains on
disposition of assets in 1998, included the sales of certain nonstrategic oil
and gas properties. The loss on disposition of assets for the nine months ended
September 30, 1999 included the effects of the acquisition by Occidental of
Unocal International Corporation's (Unocal) oil and gas interests in Yemen and
Unocal's acquisition of Occidental's gas interests in Bangladesh which, after
tax credits, did not have a significant impact on earnings. The impact was
recorded in the second quarter and the transactions closed early in the third
quarter of 1999. The increase in income from equity investments for the three
and nine months ended September 30, 1999, compared with the same periods in 1998
reflected the impact of higher worldwide crude oil prices and improved export
prices for vinyl chloride monomer (VCM). Income from equity investments in 1999
also included the second quarter gain of $12 million related to the sale of a
chemical plant by Equistar. Selling, general and administrative and other
operating expenses decreased for the three and nine months ended September 30,
1999,
12
compared with the same periods in 1998, reflecting ongoing cost reduction
programs. Minority interest includes $30 million of distributions on the $525
million of 8.16 percent Trust Preferred Securities (Trust Preferred Securities)
issued in January 1999 and the minority interest in the net income of
subsidiaries and partnerships.
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
------------------------ ------------------------
1999 1998 1999 1998
========================================================== ========== ========== ========== ==========
DIVISIONAL NET SALES
Oil and Gas $ 1,265 $ 1,030 $ 2,955 $ 2,509
Chemical 848 631 2,149 2,395
========== ========== ========== ==========
NET SALES $ 2,113 $ 1,661 $ 5,104 $ 4,904
========== ========== ========== ==========
DIVISIONAL EARNINGS
Oil and Gas $ 279 $ 156 $ 507 $ 768
Chemical 40 62 78 280
---------- ---------- ---------- ----------
319 218 585 1,048
UNALLOCATED CORPORATE ITEMS
Interest expense, net (118) (106) (357) (336)
Income taxes, administration and other (75) (74) (147) (349)
---------- ---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 126 38 81 363
Discontinued operations, net -- -- -- 38
Extraordinary loss, net -- -- (3) --
Cumulative effect of changes in accounting
principles, net -- -- (13) --
========== ========== ========== ==========
NET INCOME (LOSS) $ 126 $ 38 $ 65 $ 401
========================================================== ========== ========== ========== ==========
OIL AND GAS DIVISION
Oil and gas earnings for the first nine months of 1999 were $507 million,
compared with $768 million for the same period of 1998. Oil and gas earnings
before special items were $506 million for the first nine months of 1999,
compared with $278 million for the first nine months of 1998. Oil and gas
earnings for the third quarter of 1999 were $279 million, compared with $156
million for the same period of 1998. Oil and gas earnings before special items
were $278 million for the third quarter of 1999, compared with $61 million for
the third quarter of 1998. The increase in earnings before special items for the
three months ended September 30, 1999, compared with the same period in 1998,
reflected the impact of higher worldwide crude oil and natural gas prices and
lower operating and exploration costs. The increase in earnings before special
items for the nine months ended September 30, 1999, compared with the same
period in 1998, reflected the impact of higher worldwide crude oil prices and
lower operating and exploration costs.
The 1999 third quarter earnings included a charge of $10 million for the
recently announced closing of the oil and gas offices in Bakersfield, California
and income of $11 million related to a contingent payment on the 1998 sale of
Occidental's interests in the Netherlands. The first nine months of 1998
earnings included pretax gains of approximately $532 million related to the sale
of certain nonstrategic assets, of which $137 million was recorded in the third
quarter. The increase in revenues for the three and nine months ended September
30, 1999, compared with the same periods in 1998, reflected the impact of higher
worldwide crude oil prices.
13
Approximately 40 percent of oil and gas net sales were attributed to oil and gas
trading activity in both the first nine months of 1999 and 1998. The results of
oil and gas trading were not significant. Oil and gas prices are sensitive to
complex factors, which are outside the control of Occidental. Accordingly,
Occidental is unable to predict with certainty the direction, magnitude or
impact of future trends in sales prices for oil and gas.
CHEMICAL DIVISION
Chemical earnings for the first nine months of 1999 were $78 million, compared
with $280 million for the same period of 1998. The 1999 results included a
second quarter gain of $12 million related to the sale of a chemical plant by an
equity affiliate. Chemical earnings before special items were $66 million for
the first nine months of 1999, compared with $310 million for the first nine
months of 1998. Chemical earnings for the third quarter of 1999 were $40
million, compared with $62 million for the same period of 1998.
The 1998 earnings reflected a $30 million pretax charge in the second quarter
for reorganization and other costs. The decrease in earnings before special
items in both periods primarily reflected the impact of lower prices for
chlorine and caustic soda. The increase in sales for three months ended
September 30, 1999, compared with the same period in 1998 reflected the
inclusion of revenues related to the PVC resin partnership offset, in part by
lower prices for caustic soda. The decrease in sales for nine months ended
September 30, 1999, compared with the same period in 1998 reflected the absence
of revenues related to the petrochemical assets contributed to Equistar and
lower prices for chlorine and caustic soda partially offset by revenues related
to the PVC resin partnership. Most of Occidental's chemical products are
commodity in nature, the prices of which are sensitive to a number of complex
factors; accordingly, Occidental is unable to accurately forecast the trend of
sales prices for its commodity chemical products. However, during the third
quarter of 1999, significant posted price increases were announced for chlorine,
caustic soda and PVC. Due to competitive conditions and contract provisions,
earnings may not reflect the full impact of these increases until the first
quarter of 2000.
CORPORATE AND OTHER
Divisional earnings include credits in lieu of U.S. federal income taxes. In the
first nine months of 1999 and 1998, divisional earnings benefited by $44 million
and $28 million, respectively, from credits allocated. This included credits of
$32 million and $12 million at oil and gas and chemical, respectively, in the
first nine months of 1999 and $8 million and $20 million at oil and gas and
chemical, respectively, for the first nine months of 1998. The higher 1999
amounts related to the transactions with Unocal.
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.
14
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 $509 million for the first nine months of 1999, compared with net
cash provided of $78 million for the same period of 1998. Changes in operating
assets and liabilities reflected lower net working capital usage for the first
nine months of 1999, compared with the same period in 1998. Other operating
expenses in 1999 reflected lower payments for other operating uses such as
litigation and environmental costs. Included in total cash flow from operating
activities in 1998 was cash used by discontinued operations of $244 million
which included the effect of $250 million of receivables repurchased in
connection with the sale of MidCon.
Occidental's net cash provided by investing activities was $1.0 billion for the
first nine months of 1999, compared with net cash used of $999 million for the
same period of 1998. The 1999 amount included the proceeds from the $1.4 billion
note receivable. The 1999 amount also reflected net cash used of $113 million in
connection with the formation of a PVC resin partnership. The 1998 amount
reflected cash used of $3.5 billion for the purchase of the Elk Hills Field and
also reflected proceeds of $3.3 billion, primarily from the sale of MidCon and
certain nonstrategic oil and gas properties, as well as disposals of property,
plant and equipment. Capital expenditures for the first nine months of 1999 were
$383 million, including $306 million in oil and gas and $74 million in chemical.
Capital expenditures were $840 million for the first nine months of 1998,
including $595 million in oil and gas and $244 million in chemical.
Financing activities used net cash of $1.4 billion in the first nine months of
1999, compared with cash provided of $1.2 billion for the same period of 1998.
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. The 1998 amount reflected net cash provided of $2.4 billion
primarily from proceeds from borrowings to fund a portion of the acquisition of
the Elk Hills Field in February 1998. The 1998 amount also included cash used of
$937 million for the repurchase of 35.1 million shares of Occidental common
stock and $296 million for the payment of dividends.
Effective April 30, 1999, Occidental and The Geon Company (Geon) formed two
partnerships. Occidental has a 76 percent controlling interest in a PVC resin
partnership which is the larger of the partnerships and a 10 percent interest in
a PVC powder compounding partnership. The PVC resin partnership has also 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. As part of the transaction, Geon realized approximately $104
million through the retention of working capital and the distribution of cash
from the PVC resin partnership and the PVC resin partnership undertook
approximately $180 million in operating lease obligations for certain Geon plant
facilities. Occidental did not record a significant gain or loss on the
transaction.
15
As previously disclosed, in April 1996, Occidental acquired a 64 percent
interest in INDSPEC Holding Corporation (INDSPEC), a leading manufacturer of
resorcinol, a bonding agent principally used in tires, with other flame
retardant applications. In the third quarter of 1999, pursuant to a series of
transactions, Occidental indirectly acquired the minority ownership of 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 May 1998, Occidental contributed its ethylene, propylene, ethylene oxide
(EO), ethylene glycol and EO derivatives businesses to the Equistar partnership,
in return for a 29.5 percent equity interest in the partnership, receipt of
approximately $420 million in cash and the assumption by Equistar of
approximately $205 million of Occidental capital lease liabilities. Occidental
did not record a gain or loss on the transaction.
In January 1999, a subsidiary of Occidental issued $525 million of 8.16 percent
Preferred Securities due in 2039, for net proceeds of $508 million. The net
proceeds were used to repay commercial paper. 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. The net proceeds were primarily used to repay all outstanding
commercial paper at that time and for general corporate purposes.
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.
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.
Occidental expects to have sufficient cash in 1999 for its operating needs,
capital expenditure requirements, dividend payments and debt repayments.
Occidental currently expects to spend, in total, $595 million on its 1999
capital spending program, of which approximately $475 million has been allocated
to oil and gas and approximately $120 million has been allocated to chemical.
Available but unused lines of committed bank credit totaled approximately $2.0
billion at September 30, 1999, compared with $1.5 billion at December 31, 1998.
The balance in prepaid expenses, note receivable and other at December 31, 1998
includes the $1.4 billion note receivable that was collected in January 1999.
The higher balance in receivables at September 30, 1999, compared with December
31, 1998 reflected additional receivables resulting from the accounting
consolidation of the new PVC resin partnership. The lower balance in equity
investments primarily reflected the removal of the equity investment in INDSPEC
which is now fully consolidated as well as dividends received from equity
investees. The net balance in property, plant and equipment reflected the impact
of capital spending and the INDSPEC acquisition and property acquired in the
transaction with Geon, offset in part by depreciation, depletion and
amortization.
Current maturities of long-term debt and capital lease liabilities decreased
reflecting the current portion of long-term debt that was paid in the first
quarter of 1999 using the proceeds of the $1.4 billion note receivable. The
long-term balance of the obligation under the natural gas delivery commitment
decreased reflecting a portion of the obligation that is due within one year and
is shown as a current liability. Minority equity in subsidiaries and
partnerships at September 30, 1999, primarily reflects Geon's minority interest
in the net assets of the newly formed PVC resin partnership.
On August 17, 1999, Occidental announced its intention to redeem on September
16, 1999, all of the 3,131,001 outstanding shares of its $3.00 Cumulative
CXY-Indexed Convertible Preferred Stock. Prior to the redemption date the
majority of the holders of the $3.00 Cumulative CXY-Indexed Convertible
Preferred Stock converted 3,130,351 shares into approximately 9.9 million shares
of Occidental common stock. On the redemption date, the remaining shares of such
preferred stock were redeemed.
16
In 1996, a judgment of $742 million was entered in favor of Occidental's OXY USA
Inc. subsidiary against Chevron USA (Chevron) by a state district court in
Tulsa, Oklahoma. The unanimous jury verdict was for approximately $229 million
in compensatory damages for breach of a 1982 merger agreement and interest on
these damages from 1982 to the date of judgment. On March 2, 1999, the Oklahoma
Supreme Court affirmed the trial court judgment in all respects. On June 22,
1999, the Oklahoma Supreme Court denied Chevron's petition for rehearing. In
September 1999, Chevron filed a petition to the United States Supreme Court to
review the judgment. As of October 31, 1999, the total amount of the award,
including accrued interest, had increased to approximately $990 million.
In 1998 Occidental exhausted its accumulated earnings and profits for tax
purposes and a portion of its 1998 distributions to common stockholders was a
return of capital. A determination of the current earnings and profits for 1999,
if any, cannot be made until after the financial results for the year are
ascertained in January 2000. Therefore, a portion of the dividends received by
stockholders in 1999 may be a return of capital.
Effective January 1, 1999, Occidental adopted the provisions of Statement of
Position 98-5--"Reporting on the Costs of Start-Up Activities" (SOP 98-5), which
requires that costs of start-up activities, including organizational costs, be
expensed as incurred. The initial application of the statement resulted in a
charge to income for costs of previously capitalized start-up activities that
have not yet been fully amortized. The initial adoption of SOP 98-5 resulted in
a first quarter noncash after-tax charge of $15 million, net of $8 million in
taxes, which has been recorded as a cumulative effect of a change in accounting
principle.
Effective January 1, 1999, Occidental adopted the provisions of Emerging Issues
Task Force (EITF) issue No. 98-10--"Accounting for Contracts Involved in Energy
Trading and Risk Management Activities," which establishes accounting and
reporting standards for certain energy trading contracts. EITF No. 98-10
requires that energy trading contracts must be marked-to-market with gains and
losses included in earnings and separately disclosed in the financial statements
or footnotes thereto. The initial adoption of EITF No. 98-10 resulted in a first
quarter noncash after-tax benefit of $2 million, recorded as a cumulative effect
of a change in accounting principle.
YEAR 2000 COMPLIANCE
Most existing computer hardware and software use only the last two digits to
identify a year. Consequently, as the year 2000 approaches, the difference
between a year that begins with "20" instead of "19" may not be recognized.
This, as well as other date related processing issues, may cause computer-driven
hardware and software to fail or malfunction unless corrected.
Occidental's program to address Year 2000 (Y2K) issues began in 1997. In
addressing the issues Occidental has employed a five-step process consisting of:
1) conducting a company-wide inventory; 2) assessing Y2K compliance; 3)
remediating non-compliant software and hardware, particularly hardware that
employs embedded chips such as process controls; 4) testing remediated hardware
and software; and 5) certifying Y2K compliance.
Personnel from operations and from functional disciplines, as well as
information technology professionals, are involved in the process. Outside
consultants have also been retained to participate in the inventory and
assessment process. A Y2K corporate-level manager was appointed to oversee and
provide consistency to the overall process, provide support resources on a
company-wide basis and minimize duplication of efforts. In addition, a committee
of senior corporate executives provides oversight through an extensive monthly
status review of project elements. Additionally, a progress report is made to
Occidental's Board of Directors on Y2K status at each board meeting.
Inventory and assessment activities are complete. This data is continuously
updated as new information becomes available and Occidental expects this to
continue throughout the Y2K effort. Overall remediation efforts are estimated at
approximately 95 percent complete. The coincidental replacement of several major
existing systems is on schedule to be completed prior to January 1, 2000; these
efforts began before the Y2K efforts were initiated and the timing for
completion of these projects has not been accelerated as a result of Y2K issues.
17
Costs for Y2K efforts are not being accumulated separately. Much of the cost is
being accounted for as part of normal operating budgets. Overall, the costs,
including amounts incurred to date, are estimated to be approximately $35
million over approximately a two-year period. Approximately half the cost is
related to control systems while the remainder relates to information technology
software and hardware. Overall, the costs are not expected to have a significant
effect on Occidental's consolidated financial position or results of operations.
The risks associated with the Y2K issue can be substantial from the standpoint
of reliance on third parties. Communication with customers, suppliers and equity
partners to determine the extent of their Y2K efforts, including selected site
visits with several utilities and some close-linked customers, is an integral
part of the program. Occidental, like most companies, is reliant on third
parties for a wide variety of goods and services - from raw materials to utility
services. Occidental's efforts include addressing the "supply chain" issues to
minimize the potential impact of a major supplier (or customer) experiencing a
Y2K problem that would adversely affect Occidental.
Because of these company-wide efforts, Occidental believes that appropriate
actions are being taken to minimize the risk to its operations and financial
condition.
Contingency plans that address a reasonably likely worst case scenario are
approximately 90 percent complete. These plans address key systems and third
parties that present potential significant risk and analyze the strategies and
resources necessary to restore operations in the unlikely event that an
interruption does occur. The plans also outline a recovery program detailing the
necessary participants, processes and equipment needed to restore operations.
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, 1999, 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 130 Superfund or
comparable state sites. (This number does not include those sites where
Occidental has been successful in resolving its involvement.) The 130 sites
include 34 former Diamond Shamrock Chemical sites as to which Maxus Energy
Corporation has retained all liability. Of the remaining 96 sites, Occidental
has denied involvement at 10 sites and has yet to determine involvement in 19
sites. With respect to the remaining 67 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 61 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 61 sites include 13 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-
18
sharing arrangements. For the remaining 6 of the 67 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;
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the period ended September 30, 1999 there were no material changes in the
information provided under Item 305 of Regulation S-K included under the caption
"Hedging Activities" as part of Occidental's Management's Discussion and
Analysis section of Occidental's 1998 Annual Report on Form 10-K.
19
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 1998 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, 1999 and June 30, 1999 and Note 11 to the
consolidated condensed financial statements in Part I hereof.
In 1996, a judgment of $742 million was entered in favor of Occidental's OXY USA
Inc. subsidiary against Chevron USA (Chevron) by a state district court in
Tulsa, Oklahoma. The unanimous jury verdict was for approximately $229 million
in compensatory damages for breach of a 1982 merger agreement and interest on
these damages from 1982 to the date of judgment. On March 2, 1999, the Oklahoma
Supreme Court affirmed the trial court judgment in all respects. On June 22,
1999, the Oklahoma Supreme Court denied Chevron's petition for rehearing. In
September 1999, Chevron filed a petition to the United States Supreme Court to
review the judgment. As of October 31, 1999, the total amount of the award,
including accrued interest, had increased to approximately $990 million.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.23 Occidental Petroleum Corporation Deferred Compensation
Plan (as amended and restated effective as of January
1, 1999)
11 Statement regarding the computation of earnings per
share for the three and nine months ended September 30,
1999 and 1998
12 Statement regarding the computation of total enterprise
ratios of earnings to fixed charges for the nine months
ended September 30, 1999 and 1998 and the five years
ended December 31, 1998
27 Financial data schedule for the nine-month period ended
September 30, 1999 (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, 1999, Occidental filed the
following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated June 30, 1999 (date of
earliest event reported), filed on July 6, 1999, for
the purpose of reporting, under Item 5, the
commencement of a $1 billion medium-term note program
and under Item 7, certain exhibits related to the
program.
2. Current Report on Form 8-K dated July 20, 1999 (date of
earliest event reported), filed on July 21, 1999, for
the purpose of reporting, under Item 5, Occidental's
results of operations for the quarter ended June 30,
1999.
20
3. Current Report on Form 8-K dated August 17, 1999 (date
of earliest event reported), filed on August 18, 1999,
for the purpose of reporting, under Item 5,
Occidental's announcement that it intended to redeem
all of the outstanding shares of its $3.00 Cumulative
CXY-Indexed Convertible Preferred Stock.
From September 30, 1999 to the date hereof, Occidental filed the
following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated October 19, 1999 (date
of earliest event reported), filed on October 20, 1999,
for the purpose of reporting, under Item 5,
Occidental's results of operations for the quarter
ended September 30, 1999.
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 10, 1999 S. P. Dominick, Jr.
-----------------------------------------
S. P. Dominick, Jr., Vice President and
Controller (Chief Accounting and Duly
Authorized Officer)
22
EXHIBIT INDEX
EXHIBITS
- - --------
10.23 Occidental Petroleum Corporation Deferred Compensation Plan (as
amended and restated effective as of January 1, 1999)
11 Statement regarding the computation of earnings per share for the
three and nine months ended September 30, 1999 and 1998
12 Statement regarding the computation of total enterprise ratios of
earnings to fixed charges for the six months ended September 30,
1999 and 1998 and the five years ended December 31, 1998
27 Financial data schedule for the nine-month period ended September
30, 1999 (included only in the copy of this report filed
electronically with the Securities and Exchange Commission)
EXHIBIT 10.23
OCCIDENTAL PETROLEUM CORPORATION
DEFERRED COMPENSATION PLAN
(Amended and Restated Effective as of January 1, 1999)
OCCIDENTAL PETROLEUM CORPORATION
DEFERRED COMPENSATION PLAN
(Amended and Restated Effective as of January 1, 1999)
ARTICLE I
PURPOSE
The purpose of this Deferred Compensation Plan (the "Plan") is to
provide a tax-advantaged way for key management and other highly compensated
employees of Occidental Petroleum Corporation and its Affiliates to accumulate
additional income for retirement or planned savings for future needs.
ARTICLE II
DEFINITIONS AND CERTAIN PROVISIONS
Affiliate. "Affiliate" means any corporation or unincorporated entity
which is controlled by or under common control with Occidental Petroleum
Corporation.
Base Salary. "Base Salary" means a Participant's annual base salary,
excluding Bonus, all severance allowances, forms of incentive compensation, any
Savings Plan, Retirement Plan or other Company qualified plan contributions or
benefits, retainers, insurance premiums or benefits, reimbursements, and all
other payments, prior to reduction for any deferrals under this Plan or any
other plan of the Company or reductions under the Company's Savings Plan
sanctioned by Section 401(k) of the Internal Revenue Code.
Beneficiary. "Beneficiary" means the person or persons designated as
such in accordance with Article VI.
Board. "Board" means the Board of Directors of the Company.
Bonus. "Bonus" means the bonus awarded to a Participant during the
Plan Year in question prior to reduction for any deferral under this Plan or any
other plan of the Company.
Committee. "Committee" means the administrative committee appointed to
administer the Plan pursuant to Article III.
Company. "Company" means Occidental Petroleum Corporation, or any
successor thereto, and any Affiliates.
Company Management. "Company Management" means the Chairman of the
Board, President or any Executive Vice President of Occidental Petroleum
Corporation.
-2-
Declared Rate. "Declared Rate" with respect to any Plan Year means the
interest rate which will be credited on Deferral Accounts for such Plan Year.
The Declared Rate for each Plan Year commencing in 1999 and thereafter will be
equal to (A) the Moody's Long-Term Corporate Bond Index Monthly Average
Corporates as published by Moody's Investor Services, Inc. (or successor
thereto) for the month of July before the Plan Year in question plus (B) three
percent (3%). The Declared Rate will be announced on or before January 1 of the
applicable Plan Year. Notwithstanding the foregoing, the Declared Rate on
Deferral Amounts which were earned and deferred prior to 1994 (including bonuses
which were earned for 1993), together with accumulated interest thereon, will in
no event be less than eight percent (8%) for any Plan Year. Accordingly, the
Declared Rate for any Plan Year commencing in 1994 or thereafter may be
different for Deferral Amounts which were earned and deferred prior or
subsequent to January 1, 1994. The Company reserves the right to change the
Declared Rate at any time, but only on a prospective basis; provided that
Deferral Amounts which were earned and deferred prior to 1994 will continue to
be credited with interest at not less than eight percent (8%) per annum.
Deferral Account. "Deferral Account" means the account maintained on
the books of account of the Company for each Participant pursuant to Article IV.
Deferral Amount. "Deferral Amount" means an amount of a Participant's
Base Salary or Bonus which is deferred under this Plan.
Disability. "Disability" means a condition that qualifies as a
disability under the Company's Retirement Plan approved by the Committee.
Early Payment Benefit. "Early Payment Benefit" means the payment to a
Participant of part or all of his Deferral Account on an Early Payment Date
prior to Retirement pursuant to Section 5.5.
Early Payment Date. "Early Payment Date" means any date prior to
Retirement on which a Participant elects to receive an Early Payment Benefit
pursuant to Section 5.5.
Election Form. "Election Form" means an Eligible Employee's written,
irrevocable election to defer Base Salary and/or Bonus in accordance with
Article IV.
Eligible Employee. "Eligible Employee" means each key management or
other highly compensated employee of the Company who is selected by Company
Management to participate in the Plan.
Emergency Benefit. "Emergency Benefit" means the payment to a
Participant of part or all of his Deferral Account in the event that the
Participant has an unforeseeable financial emergency pursuant to Section 5.6.
-3-
Enrollment Agreement. "Enrollment Agreement" means the written
agreement entered into by the Company and an Eligible Employee pursuant to which
the Eligible Employee becomes a Participant in the Plan. In the sole discretion
of the Company, Election Forms filed by any Participant by which the Participant
makes the elections provided for by this Plan may be treated as a completed and
fully executed Enrollment Agreement for all purposes under the Plan.
Participant. "Participant" means an Eligible Employee who has filed a
completed and fully executed Enrollment Agreement with the Committee and is
participating in the Plan in accordance with the provisions of Article IV.
Plan Year. "Plan Year" means the calendar year beginning January 1 and
ending December 31.
Retirement. "Retirement" means termination of a Participant's
employment with the Company for reasons other than death after the Participant
attains age 55 and completes five (5) Years of Service.
Retirement Benefit. "Retirement Benefit" means the payment to a
Participant of the Participant's Deferral Account following Retirement pursuant
to Section 5.1.
Retirement Plan. "Retirement Plan" means the Occidental Petroleum
Corporation Retirement Plan, as amended from time to time.
Retirement Plan Restoration Account. "Retirement Plan Restoration
Account" means the account maintained on the books of account of the Company for
each affected Participant pursuant to Section 5.7.
Retirement Plan Restoration Benefit. "Retirement Plan Restoration
Benefit" means the payment to a Participant of the Participant's Retirement Plan
Restoration Account pursuant to Section 5.7.
Savings Plan. "Savings Plan" means the Occidental Petroleum
Corporation Savings Plan, as amended from time to time.
Savings Plan Restoration Account. "Savings Plan Restoration Account"
means the account maintained on the books of account of the Company to reflect
Savings Plan restoration contributions made by the Company pursuant to Section
4.5.
Service. "Service" means the period of time during which an employment
relationship exists between a Participant and the Company, including the period
of time such relationship existed prior to the time when the employee in
question became a Participant.
-4-
Termination Benefit. "Termination Benefit" means the payment to a
Participant of the Participant's Deferral Account on account of his termination
of employment other than due to Retirement, Disability or death pursuant to
Section 5.2.
Termination Event. "Termination Event" means:
(a) the dissolution or liquidation of the Company;
(b) the reorganization, merger or consolidation of the Company
with one or more corporations as a result of which the Common Stock of the
Company is exchanged for or converted into cash or property or securities
not issued by the Company, unless the reorganization, merger or
consolidation shall have been affirmatively recommended to the Company's
stockholders by a majority of the members of the Company's Board of
Directors;
(c) the acquisition of substantially all of the property or of
more than thirty-five percent (35%) of the voting power of the Company by
any person or entity;
(d) the occurrence of any circumstance having the effect that
directors who were nominated for election as directors by the Nominating
Committee of the Company's Board of Directors shall cease to constitute a
majority of the authorized number of directors of the Company;
(e) the dissemination to the stockholders of the Company of a
proxy statement seeking stockholder approval of a Termination Event of the
type described in (b) above; or
(f) the publication or dissemination of an announcement of an
action intended to result in a Termination Event of the type described in
(c) or (d) above.
Years of Service. "Years of Service" means the number of full years
credited to a Participant under the Retirement Plan for vesting purposes.
ARTICLE III
ADMINISTRATION OF THE PLAN
An administrative committee shall be appointed by the Company's Chief
Executive Officer to administer the Plan and establish, adopt, or revise such
rules and regulations as the Committee may deem necessary or advisable for the
administration of the Plan and to interpret the provisions of the Plan, and,
except as otherwise indicated herein, any such interpretations shall be
conclusive. All decisions of the Committee shall be by vote of at least two of
the Committee members and shall be final.
-5-
Members of the Committee shall be eligible to participate in the Plan while
serving as members of the Committee, but a member of the Committee shall not
vote or act upon any matter which relates solely to such member's interest in
the Plan as a Participant.
ARTICLE IV
PARTICIPATION
4.1 Election to Participate. An Eligible Employee may elect to
participate in the Plan by filing a completed and fully executed Enrollment
Agreement with the Corporate Compensation Department. An Eligible Employee may
thereafter elect to defer annual Base Salary and/or Bonus under the Plan for any
Plan Year by filing a completed and fully executed irrevocable Election Form
with the Corporate Compensation Department prior to the beginning of such Plan
Year or at such other time as the Committee may permit. Various deferral options
will be made available to Eligible Employees under the Plan, subject to such
limitations and conditions as the Committee may impose, from time to time, in
its complete and sole discretion. Unless otherwise authorized by the Committee,
a separate Election Form will be required for each Plan Year, and the
irrevocable Election Form will designate the Deferral Amounts as a fixed dollar
amount (in increments of $1,000) for Base Salary and/or (A) a fixed percentage
of bonus (in increments of 10%) or (B) 100% of the remainder of any bonus above
a specified dollar amount, as elected by the Participant. Deferrals of Base
Salary will normally be deducted ratably during the Plan Year. In its sole
discretion, the Committee may also permit amounts which an Eligible Employee has
previously elected to defer under other plans or agreements with the Company to
be transferred to this Plan and credited to his Deferral Account which is
maintained hereunder.
(a) Minimum Deferral. The minimum deferral for any Plan Year
shall be (i) Five Thousand U.S. Dollars (U.S. $5,000.00) for Base Salary
and (ii) ten percent (10%) for Bonus.
(b) Maximum Deferral. The maximum deferral for any Plan Year
shall be (i) seventy-five percent (75%) for Base Salary and (ii) one
hundred percent (100%) for Bonus.
4.2 Deferral Accounts. The Committee shall establish and maintain a
separate Deferral Account for each Participant. A Deferral Amount shall be
credited by the Company to the Participant's Deferral Account no later than the
first day of the month following the month in which the Participant's Base
Salary or Bonus would otherwise have been paid. Such Deferral Account shall be
debited by the amount of any payments made by the Company to the Participant or
the Participant's Beneficiary therefrom.
-6-
4.3 Interest. Each Deferral Account of a Participant shall be deemed
to bear interest on the balance from month-to-month in such Deferral Account at
the Declared Rate for each Plan Year, compounded monthly, from the date such
Deferral Account was established through the date of complete distribution of
the Deferral Account. Interest will be credited to each Deferral Account on a
monthly basis on the last day of each month.
4.4 Valuation of Accounts. The value of a Deferral Account as of any
date shall equal the amounts theretofore credited to such account less any
payments debited to such account plus the interest deemed to be earned on such
account in accordance with Section 4.3 through the end of the preceding month.
When payments are made from a Deferral Account for any reason, such payments
shall be deemed to be made on a proportionate or pro-rata basis from Deferral
Amounts (including accumulated interest thereon) which were earned and deferred
prior and subsequent to January 1, 1994.
4.5 Savings Plan Restoration Contribution. For each Plan Year, the
Company shall credit to the Savings Plan Restoration Account of any Participant
an amount equal to the amount by which the contribution that would otherwise
have been made by the Company to the Savings Plan for such Plan Year is reduced
by reason of the reduction in the Participant's Base Salary for such Plan Year
under this Plan. The Savings Plan restoration contribution shall be credited to
the Savings Plan Restoration Account for each Plan Year at the same time as the
Company contribution for such Plan Year is made to the Savings Plan. A
Participant's interest in any credit to his Savings Plan Restoration Account and
earnings thereon shall vest at the same rate and at the same time as would have
been the case had such contribution been made to the Savings Plan. Interest will
be credited on a Savings Plan Restoration Account at the same rate and in the
same manner as if it were a Deferral Account in accordance with Section 4.3.
Upon death, Retirement or other termination of employment, the
vested portion of the Participant's Savings Plan Restoration Account shall be
paid to the Participant (or his Beneficiary in the event of the Participant's
death) in a single lump sum during the first 90 days of the year following the
year of such event.
4.6 Statement of Accounts. The Committee shall submit to each
Participant, within 120 days after the close of each Plan Year, a statement in
such form as the Committee deems desirable setting forth the balance standing to
the credit of each Participant in each of his Deferral Accounts and his Savings
Plan Restoration Account.
-7-
ARTICLE V
BENEFITS
5.1 Retirement Benefit. Upon Retirement, the Company shall pay to the
Participant with respect to his Deferral Account an annual amount for fifteen
(15) years beginning in the year following his Retirement, the sum of which
payments shall equal (a) the value of the Deferral Account determined under
Section 4.4 as of the end of the year in which his Retirement occurs plus (b)
the interest that will accrue on the unpaid balance in such Deferral Account
during such fifteen year (15) period pursuant to Section 4.3 ("Retirement
Benefit"). For each year after the initial Retirement Benefit payment is made,
the annual Retirement Benefit payment shall be redetermined based upon the value
of the Deferral Account at that time, plus the interest that will accrue
pursuant to Section 4.3 for the remaining period of annual payments. A
Participant may instead elect in his Enrollment Agreement to have the Retirement
Benefit paid to him in annual payments for either five (5), ten (10) or twenty
(20) years or in a single lump sum payment. The amount of any such annual
payments shall be calculated in accordance with the principles stated in the
preceding sentences. Annual payments will normally be made during the first 90
days of the year.
The Committee, in its sole discretion, may permit a Participant
to change his election as to the form of payment upon written petition of the
Participant. In order to be effective, a Participant's election (or modification
or revocation of a prior election) of the form of payment of his Retirement
Benefit must be made not later than 12 months before the Participant's
Retirement, unless otherwise permitted by the Committee. Subject to the
foregoing limitation, a Participant may make such election (or revoke a prior
election and make a new election) at any time. Any election (or modification or
revocation of a prior election) which is made later than 12 months prior to the
Participant's Retirement will be considered void and shall have no force or
effect, except as otherwise determined by the Committee.
5.2 Termination Benefit. If a Participant shall cease to be an
employee of the Company for any reason other than Retirement or death, the
Company shall pay to the Participant in one lump sum, except as provided in
Section 5.5 for Early Payment Benefits, an amount (the "Termination Benefit")
equal to the value of his Deferral Account during the first 90 days of the year
following the year of termination; provided, however, at the sole discretion of
the Committee, no lump sum shall be payable and, instead, the Company shall pay
to the Participant an annual amount each year for a period not to exceed three
years beginning in the year following his termination of employment, the sum of
which payments shall equal (a) the value of the Deferral Account determined
under Section 4.4 as of the end of the year in which he terminates employment
plus (b) the interest that will accrue on the unpaid balance from month-to-month
in such Deferral
-8-
Account during such three year period at the Declared Rate, compounded monthly.
Annual payments will normally be made during the first 90 days of the year.
5.3 Disability. If a Participant shall cease to be an employee of the
Company prior to Retirement due to a Disability, no distribution shall be made
until the earliest to occur of the Participant's Retirement, death or
termination of employment, provided that any such Participant may, at any time
during the period of his Disability, petition to the Committee for an emergency
benefit pursuant to Section 5.6.
5.4 Survivor Benefits.
(a) If a Participant dies while employed with the Company prior
to becoming eligible for Retirement, the Company will pay to the
Participant's Beneficiary in one lump sum, except as provided in Section
5.5 for Early Payment Benefits, an amount equal to the value of the
Participant's Deferral Account.
(b) If a Participant dies after becoming eligible for Retirement
or after the commencement of payment of Retirement Benefits, the Company
will pay to the Participant's Beneficiary the remaining installments of the
Retirement Benefits which would have been payable to the Participant for
the balance of the payment period elected by the Participant. If payments
have not yet commenced, payments will commence in the year following the
year of the Participant's death, irrespective of when Retirement Benefit
payments would have commenced if the Participant had survived.
(c) Spouses of participants who participated in the Senior
Executive Deferred Compensation Plan may be eligible for additional
survivor benefits.
5.5 Early Payment. A Participant may elect, in such manner as the
Committee may permit in any Election Form, to receive part or all of the
Deferral Amounts covered by such Election Form in a lump sum payment or
installments ("Early Payment Benefit") commencing on a date prior to Retirement
designated in such Election Form ("Early Payment Date").
The Early Payment Date on any Election Form may be any date which is at least
two years after completion of deferral of the Deferral Amounts covered by such
Election Form. If the Participant retires, terminates employment, becomes
disabled or dies prior to commencement or completion of all Early Payment
Benefits, all such elections made by the Participant to receive Early Payment
Benefits shall continue in force. However, any such Early Payments Benefits
which have not yet commenced shall commence in the year following such event.
Annual payments will normally be made during the first 90 days of the year.
-9-
5.6 Emergency Benefit. In the event that the Committee, upon written
petition of the Participant (or his Beneficiary, in the event of the
Participant's death), determines, in its sole discretion, that the Participant
or Beneficiary has suffered an unforeseeable financial emergency, the Company
shall pay to the Participant, as soon as practicable following such
determination, such amount up to the balance of his Deferral Account which is
necessary to meet the emergency ("Emergency Benefit"). For purposes of this
Plan, an unforeseeable financial emergency is an unexpected need for cash
arising from an illness, casualty loss, divorce, sudden financial reversal, or
other such unforeseeable occurrence. Cash needs arising from foreseeable events
such as the purchase of a home or education expenses for children shall normally
not be considered to be the result of an unforeseeable financial emergency.
5.7 Retirement Plan Restoration Benefit. In addition to the other
benefits provided for in this Article V, the Company shall pay a Retirement Plan
Restoration Benefit to Participants who have elected to defer a portion of their
Base Salary in accordance with this Plan and thereby receive a reduced benefit
under the Retirement Plan. To the extent not provided under any other plan of
the Company, a credit shall be made to a Retirement Plan Restoration Account
established under this Plan for the Participant. The Committee shall determine
the methods and procedures for computation and payment of the Retirement Plan
Restoration Benefit and shall have the right to amend or revise these methods
and procedures from time to time, in its complete and sole discretion.
5.8 Immediate Payment on Termination Event. Upon petition of a
Participant within sixty (60) days after any Termination Event or such other
period as the Committee may permit, the Committee, in its sole discretion, may
pay the balance of the Participant's Deferral Account to him immediately in a
lump sum as a Termination Benefit pursuant to Section 5.2, irrespective of
whether the Participant terminates or continues employment with the Company.
5.9 Small Benefit. In the event that the Committee determines, in its
sole discretion, that the amount of any benefit is too small to make it
administratively convenient to pay such benefit over time, the Committee may pay
the benefit in a lump sum.
5.10 Lump Sum Payment With Penalty. Notwithstanding any other
provisions of the Plan, a Participant or a Beneficiary of a deceased Participant
may elect at any time to receive an immediate lump sum payment of all or part of
the vested balance of his Deferral Account, reduced by a penalty, which shall be
forfeited to the Company, equal to ten percent (10%) of the amount withdrawn
from such Deferral Account, in lieu of payments in accordance with the form
previously elected by the Participant.
-10-
Whenever a Participant receives a lump sum payment under this
Section 5.10, the Participant will be deemed to elect to revoke all current
deferral commitments under the Plan effective as of the date of the lump sum
payment. The Participant will not be permitted to participate in the next
enrollment period under the Plan and will be precluded from electing to make new
deferrals under the Plan for a minimum period of one year (or such lesser period
as the Committee may permit) following receipt of the lump sum payment.
5.11 Withholding; Unemployment Taxes. To the extent required by the
law in effect at the time payments are made, the Company shall withhold from
payments made hereunder the minimum taxes required to be withheld by the Federal
or any state or local government.
ARTICLE VI
BENEFICIARY DESIGNATION
Each Participant shall have the right, at any time, to designate any
person or persons as the Beneficiary to whom payments under this Plan shall be
made in the event of the Participant's death prior to complete distribution to
the Participant of the benefits due under the Plan. Each Beneficiary designation
shall become effective only when filed in writing with the Committee during the
Participant's lifetime on a form prescribed by the Committee. The filing of a
new Beneficiary designation form will cancel any inconsistent Beneficiary
designation previously filed.
If a Participant fails to designate a Beneficiary as provided above,
or if all designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, such benefits shall be paid
in accordance with the Participant's Beneficiary designation under the Company's
Retirement Plan, and if there is no such valid Beneficiary designation, to the
Participant's then surviving spouse, or, if none, to the Participant's estate,
until directed otherwise by the court that has jurisdiction over the assets
belonging to the Participant's probate estate.
ARTICLE VII
AMENDMENT AND TERMINATION OF PLAN
7.1 Amendment. The Board may at any time amend the Plan in whole or
in part for any reason, including but not limited to tax, accounting or other
changes, which may result in termination of the Plan for future deferrals,
provided, however, that no amendment shall be effective to decrease the benefits
under the Plan payable to any Participant which have accrued prior to the date
of such amendment. The Committee, in its
-11-
discretion, may amend the Plan if it finds that such amendment does not
significantly increase or decrease Plan benefits or costs.
7.2 Termination.
(a) Company's Right to Terminate. The Board or the Committee may
at any time terminate the Plan, if in the Board's or the Committee's
judgment, the continuance of the Plan would not be in the Company's best
interest due to tax, accounting or other effects thereof, or potential
payouts thereunder.
(b) Payments Upon Termination. Upon any termination of the Plan
under this Section 7.2, the Board or Committee shall determine the date or
dates of Plan distributions to the Participants, which date or dates shall
not be later than the date or dates on which the Participants or their
Beneficiaries would otherwise receive benefits hereunder. Deferral Amounts
shall prospectively cease to be deferred as of the date determined by the
Board or Committee.
ARTICLE VIII
MISCELLANEOUS
8.1 Unsecured General Creditor. The rights of a Participant,
Beneficiary, or their heirs, successors, and assigns, as relates to any Company
promises hereunder, shall not be secured by any specific assets of the Company,
nor shall any assets of the Company be designated as attributable or allocated
to the satisfaction of such promises.
8.2 Trust Fund. The Company shall be responsible for the payment of
all benefits provided under the Plan. At its discretion, the Company may
establish one or more trusts, with such trustees as the Board or Committee may
approve, for the purpose of providing for the payment of such benefits. Such
trust or trusts may be irrevocable, but the assets thereof shall be subject to
the claims of the Company's creditors. To the extent any benefits provided under
the Plan are actually paid from any such trust, the Company shall have no
further obligation with respect thereto, but to the extent not so paid, such
benefits shall remain the obligation of, and shall be paid by, the Company.
8.3 Nonassignability. Neither a Participant nor any other person
shall have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, hypothecate or convey in advance of actual
receipt the amounts, if any, payable hereunder, or any part thereof, or interest
therein which are, and all rights to which are, expressly declared to be
unassignable and non-transferable. No part of the
-12-
amounts payable shall, prior to actual payment, be subject to seizure or
sequestration for the payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person, nor be transferable by
operation of law in the event of a Participant's or any other person's
bankruptcy or insolvency.
8.4 Employment Not Guaranteed. Nothing contained in this Plan nor any
action taken hereunder shall be construed as a contract of employment or as
giving any Participant any right to be retained in employment with the Company.
Accordingly, subject to the terms of any written employment agreement to the
contrary, the Company shall have the right to terminate or change the terms of
employment of a Participant at any time and for any reason whatsoever, with or
without cause.
8.5 Obligations to Company. If a Participant becomes entitled to a
distribution of benefits under the Plan, and if at such time the Participant has
outstanding any debt, obligation, or other liability representing an amount
owing to the Company, then the Company may offset such amount owed to it against
the amount of benefits otherwise distributable. Such determination shall be made
by the Committee.
8.6 Gender, Singular & Plural. All pronouns and any variations
thereof shall be deemed to refer to the masculine or feminine as the identity of
the person or persons may require. As the context may require, the singular may
be read as the plural and the plural as the singular.
8.7 Captions. The captions of the articles, sections, and paragraphs
of the Plan are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
8.8 Validity. In the event any provision of this Plan is held
invalid, void, or unenforceable, the same shall not affect, in any respect
whatsoever, the validity of any other provision of this Plan.
8.9 Notice. Any notice or filing required or permitted to be given to
the Committee under the Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail, to the principal office of
the Company, directed to the attention of the Company's Executive Vice
President, Human Resources. Such notice shall be deemed given as to the date of
delivery or, if delivery is made by mail, as of the date shown on the postmark
on the receipt for registration or certification.
8.10 Applicable Law. The Plan shall be governed and construed in
accordance with the laws of the State of California.
-13-
EXHIBIT 11
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Amounts in millions, except per-share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- ----------------------------
1999 1998 1999 1998
- - ------------------------------------------------------ ------------ ------------ ------------ ------------
BASIC EARNINGS PER SHARE
Income from continuing operations $ 126.2 $ 38.4 $ 81.4 $ 362.6
Preferred stock dividends -- (4) (7.2) (12.9)
------------ ------------ ------------ ------------
Earnings from continuing operations
Applicable to common stock 126.2 34.4 74.2 349.7
Discontinued operations, net -- -- -- 38.4
Extraordinary loss, net -- -- (2.6) --
Cumulative effect of changes in
accounting principles, net -- -- (13.4) --
------------ ------------ ------------ ------------
Earnings applicable to common stock $ 126.2 $ 34.4 $ 58.2 $ 388.1
============ ============ ============ ============
Weighted average common shares outstanding 357.6 350 351.3 351.2
============ ============ ============ ============
Basic earnings per share
Income from continuing operations $ .35 $ .10 $ .22 $ 1.00
Discontinued operations, net -- -- -- .11
Extraordinary loss, net -- -- (.01) --
Cumulative effect of changes in
accounting principles, net -- -- (.04) --
------------ ------------ ------------ ------------
Basic earnings per common share $ .35 $ .10 $ .17 $ 1.11
============ ============ ============ ============
DILUTED EARNINGS PER SHARE
Earnings from continuing operations
Applicable to common stock $ 126.2 $ 34.4 $ 74.2 $ 349.7
Dividends applicable to dilutive preferred stock -- -- 7.2 12.9
------------ ------------ ------------ ------------
126.2 34.4 81.4 362.6
Discontinued operations, net -- -- -- 38.4
Extraordinary loss, net -- -- (2.6) --
Cumulative effect of changes in
accounting principles, net -- -- (13.4) --
------------ ------------ ------------ ------------
Earnings applicable to common stock $ 126.2 $ 34.4 $ 65.4 $ 401.0
============ ============ ============ ============
Weighted average common shares outstanding 357.6 350 351.3 351.2
Dilutive effect of exercise of options outstanding .1 .2 .1 .5
Dilutive effect of convertible preferred stock -- -- -- 15.2
------------ ------------ ------------ ------------
357.7 350.2 351.4 366.9
============ ============ ============ ============
Diluted earnings per share
Income from continuing operations $ .35 $ .10 $ .22 $ .99
Discontinued operations, net -- -- -- .10
Extraordinary loss, net -- -- (.01) --
Cumulative effect of changes in
accounting principles, net -- -- (.04) --
------------ ------------ ------------ ------------
Diluted earnings per common share $ .35 $ .10 $ .17 $ 1.09
====================================================== ============ ============ ============ ============
EXHIBIT 11 (CONTINUED)
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(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
---------------------------------------- ----------------------------------------
1999 1998 1999 1998
------------------- ------------------- ------------------- -------------------
STOCK OPTIONS
Number of shares 4.6 2.8 5.0 .2
Price range per share $22.000 -- $29.625 $23.125 -- $29.625 $19.875 -- $29.625 $26.000 -- $29.625
Expiration range 1/14/00 -- 7/8/08 8/20/99 -- 1/14/00 1/14/00 -- 7/8/08 8/20/99 -- 1/14/00
CONVERTIBLE PREFERRED
STOCK $3.00
Number of shares -- 5.4 -- 5.4
Dividends paid -- $4.0 $7.2 $12.9
- - ------------------------- ------------------- ------------------- ------------------- -------------------
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
--------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
- - ---------------------------------------- ---------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing
Operations(a) $ 156 $ 403 $ 400 $ 245 $ 486 $ 325 $ (236)
---------- --------- --------- --------- --------- --------- ---------
Add:
Provision (credit) for taxes on
income (other than foreign
and gas taxes) 53 206 204 47 99 155 (59)
Interest and debt expense(b) 391 424 576 446 492 591 586
Portion of lease rentals
representative of the interest
factor 25 26 36 39 38 43 50
---------- --------- --------- --------- --------- --------- ---------
469 656 816 532 629 789 577
---------- --------- --------- --------- --------- --------- ---------
Earnings before fixed charges $ 625 $ 1,059 $ 1,216 $ 777 $ 1,115 $ 1,114 $ 341
========== ========= ========= ========= ========= ========= =========
Fixed charges
Interest and debt expense
including capitalized
interest(b) $ 398 $ 438 $ 594 $ 462 $ 499 $ 595 $ 589
Portion of lease rentals
representative of the interest
factor 25 26 36 39 38 43 50
---------- --------- --------- --------- --------- --------- ---------
Total fixed charges $ 423 $ 464 $ 630 $ 501 $ 537 $ 638 $ 639
========== ========= ========= ========= ========= ========= =========
Ratio of earnings to fixed charges 1.48 2.28 1.93 1.55 2.08 1.75 n/a (c)
- - ---------------------------------------- ========== ========= ========= ========= ========= ========= =========
(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.
(c) Not computed due to less than one-to-one coverage. Earnings were inadequate
to cover fixed charges by $298 million.
5
1,000,000
9-MOS
DEC-31-1999
SEP-30-1999
151
0
470
22
498
1,491
17,724
7,496
14,135
1,577
5,181
0
0
73
3,143
14,135
5,104
5,245
3,967
3,967
63
0
380
277
230
81
0
(3)
(13)
65
.17
.17
