SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number 1-9210 --------------------- OCCIDENTAL PETROLEUM CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-4035997 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10889 WILSHIRE BOULEVARD LOS ANGELES, CALIFORNIA 90024 (Address of principal executive offices) (Zip Code) (310) 208-8800 (Registrant's telephone number, including area code) --------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at March 31, 2000 --------------------------- ----------------------------- Common stock $.20 par value 368,624,676 shares
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES CONTENTS <TABLE> <CAPTION> PAGE <S> <C> PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Balance Sheets-- March 31, 2000 and December 31, 1999 2 Consolidated Condensed Statements of Operations-- Three months ended March 31, 2000 and 1999 4 Consolidated Condensed Statements of Cash Flows-- Three months ended March 31, 2000 and 1999 5 Notes to Consolidated Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 PART II OTHER INFORMATION Item 1. Legal Proceedings 16 Item 4. Submission of Matters to a Vote of Security-Holders 16 Item 6. Exhibits and Reports on Form 8-K 17 </TABLE> 1
PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS MARCH 31, 2000 and DECEMBER 31, 1999 (Amounts in millions) <TABLE> <CAPTION> 2000 1999 ================================================================================= =========== ============ <S> <S> <C> ASSETS CURRENT ASSETS Cash and cash equivalents $ 128 $ 214 Receivables, net 745 774 Inventories 486 503 Prepaid expenses and other 188 197 ----------- ------------ Total current assets 1,547 1,688 LONG-TERM RECEIVABLES, net 183 168 EQUITY INVESTMENTS 1,794 1,754 PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated depreciation, depletion and amortization of $7,856 at March 31, 2000 and $7,675 at December 31, 1999 9,953 10,029 OTHER ASSETS 866 486 ----------- ------------ $ 14,343 $ 14,125 ================================================================================= =========== ============ </TABLE> The accompanying notes are an integral part of these financial statements. 2
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS MARCH 31, 2000 and December 31, 1999 (Amounts in millions) <TABLE> <CAPTION> 2000 1999 ================================================================================= =========== ============ <S> <C> <C> LIABILITIES AND EQUITY CURRENT LIABILITIES Current maturities of long-term debt and capital lease liabilities $ 16 $ 5 Notes payable 38 29 Accounts payable 706 812 Accrued liabilities 894 953 Domestic and foreign income taxes 192 168 ----------- ------------ Total current liabilities 1,846 1,967 ----------- ------------ LONG-TERM DEBT, net of current maturities and unamortized discount 4,513 4,368 ----------- ------------ DEFERRED CREDITS AND OTHER LIABILITIES Deferred and other domestic and foreign income taxes 1,053 995 Obligation under natural gas delivery commitment 380 411 Other 2,086 2,123 ----------- ------------ 3,519 3,529 ----------- ------------ MINORITY INTEREST 264 252 ----------- ------------ OCCIDENTAL OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF A SUBSIDIARY TRUST HOLDING SOLELY SUBORDINATED NOTES OF OCCIDENTAL 479 486 ------------ ------------- STOCKHOLDERS' EQUITY Common stock, at par value 74 73 Additional paid-in capital 3,710 3,787 Retained earnings (deficit) (15) (286) Accumulated other comprehensive income (47) (51) ----------- ------------ 3,722 3,523 ----------- ------------ $ 14,343 $ 14,125 ================================================================================= =========== ============ </TABLE> 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 MONTHS ENDED MARCH 31, 2000 AND 1999 (Amounts in millions, except per-share amounts) <TABLE> <CAPTION> Three Months Ended March 31 ---------------------------- 2000 1999 ================================================================================= =========== =========== <S> <C> <C> REVENUES Net sales Oil and gas operations $ 1,527 $ 746 Chemical operations 981 598 ----------- ----------- 2,508 1,344 Interest, dividends and other income 37 43 Gains on disposition of assets, net 4 3 Income (loss) from equity investments 33 (8) ----------- ----------- 2,582 1,382 ----------- ----------- COSTS AND OTHER DEDUCTIONS Cost of sales 1,721 1,087 Selling, general and administrative and other operating expenses 154 160 Exploration expense 6 16 Minority interest 30 9 Interest and debt expense, net 104 126 ----------- ----------- 2,015 1,398 ----------- ----------- Income (loss) before taxes 567 (16) Provision for domestic and foreign income and other taxes 296 41 ----------- ----------- Income (loss) before effect of changes in accounting principles 271 (57) Cumulative effect of changes in accounting principles, net -- (13) ----------- ----------- NET INCOME (LOSS) 271 (70) Preferred dividends -- (4) Effect of repurchase of Trust Preferred Securities 1 -- ----------- ----------- EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $ 272 $ (74) =========== =========== BASIC EARNINGS PER COMMON SHARE Income (loss) before effect of changes in accounting principles $ .74 $ (.17) Cumulative effect of changes in accounting principles, net -- (.04) ----------- ----------- Basic earnings (loss) per common share $ .74 $ (.21) =========== =========== DILUTED EARNINGS PER COMMON SHARE Income (loss) before effect of changes in accounting principles $ .74 $ (.17) Cumulative effect of changes in accounting principles, net -- (.04) ----------- ----------- Diluted earnings (loss) per common share $ .74 $ (.21) =========== =========== DIVIDENDS PER COMMON SHARE $ .25 $ .25 =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 368.1 347.8 ================================================================================= =========== =========== </TABLE> The accompanying notes are an integral part of these financial statements. 4
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (Amounts in millions) <TABLE> <CAPTION> 2000 1999 ========================================================================================= ========= ========= <S> <C> <C> CASH FLOW FROM OPERATING ACTIVITIES Net income (loss) before effect of changes in accounting principles $ 271 $ (57) Adjustments to reconcile income to net cash provided by operating activities: Depreciation, depletion and amortization of assets 185 197 Deferred income tax provision 67 23 Other noncash charges (credits) to income 19 (6) Gains on disposition of assets, net (4) (3) (Income) loss from equity investments (33) 8 Exploration expense 6 16 Changes in operating assets and liabilities (116) (62) Other operating, net (47) (41) --------- --------- Net cash provided by operating activities 348 75 --------- --------- CASH FLOW FROM INVESTING ACTIVITIES Capital expenditures (122) (132) Sale of businesses and disposal of property, plant and equipment, net 23 2 Collection of note receivable -- 1,395 Purchase of businesses, net (including deposits) (375) (13) Other investing, net (13) 47 --------- --------- Net cash provided (used) by investing activities (487) 1,299 --------- --------- CASH FLOW FROM FINANCING ACTIVITIES Proceeds from long-term debt -- 792 Net proceeds from (payments on) commercial paper and revolving credit agreements 156 (2,107) Proceeds from issuance of trust preferred securities -- 508 Repurchase of trust preferred securities (6) -- Purchases for gas delivery commitment (28) -- Payments on long-term debt and capital lease liabilities (1) (5) Proceeds from issuance of common stock 16 6 Proceeds (payments) of notes payable 9 (3) Cash dividends paid (92) (91) Other financing, net (1) 1 --------- --------- Net cash provided (used) by financing activities 53 (899) --------- --------- Increase (decrease) in cash and cash equivalents (86) 475 Cash and cash equivalents--beginning of period 214 96 --------- --------- Cash and cash equivalents--end of period $ 128 $ 571 ========================================================================================= ========= ========= </TABLE> The accompanying notes are an integral part of these financial statements. 5
OCCIDENTAL PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS March 31, 2000 1. General The accompanying unaudited consolidated condensed financial statements have been prepared by Occidental Petroleum Corporation (Occidental) pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in notes to consolidated financial statements have been condensed or omitted pursuant to such rules and regulations, but resultant disclosures are in accordance with generally accepted accounting principles as they apply to interim reporting. The consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and the notes thereto in Occidental's Annual Report on Form 10-K for the year ended December 31, 1999 (1999 Form 10-K). In the opinion of Occidental's management, the accompanying consolidated condensed financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly Occidental's consolidated financial position as of March 31, 2000, and the consolidated results of operations and cash flows for the three months then ended. The results of operations and cash flows for the period ended March 31, 2000, are not necessarily indicative of the results of operations or cash flows to be expected for the full year. Certain financial statements and notes for the prior year have been changed to conform to the 2000 presentation. Reference is made to Note 1 to the consolidated financial statements in the 1999 Form 10-K for a summary of significant accounting policies. 2. Comprehensive Income The following table presents Occidental's comprehensive income items (in millions): <TABLE> <CAPTION> Three Months Ended March 31, 2000 1999 =================================================== ========= ========= <S> <C> <C> Net income (loss) $ 271 $ (70) Other comprehensive income items Foreign currency translation adjustments 4 (8) --------- --------- Other comprehensive income, net of tax 4 (8) --------- --------- Comprehensive income (loss) $ 275 $ (78) ========= ========= </TABLE> 6
3. Asset Acquisitions and Dispositions Reference is made to Note 3 to the consolidated financial statements in the 1999 Form 10-K for a description of asset acquisitions and dispositions. In December 1999, Occidental entered into an agreement to sell its producing properties in Peru to Pluspetrol. The transaction, which was subject to governmental approval, closed on May 8, 2000. In connection with this transaction, Occidental recorded an after-tax charge of approximately $29 million in December 1999 to write-down the properties to their fair values. 4. Supplemental Cash Flow Information Cash payments during the three months ended March 31, 2000 and 1999 included federal, foreign and state income taxes of approximately $109 million and $25 million, respectively. Interest paid (net of interest capitalized) totaled approximately $96 million and $90 million for the three months ended March 31, 2000 and 1999, respectively. 5. 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 $58 million and $162 million at March 31, 2000, and December 31, 1999, respectively. 6. 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): <TABLE> <CAPTION> Balance at March 31, 2000 December 31, 1999 ======================== ==================== ===================== <S> <C> <C> Raw materials $ 80 $ 60 Materials and supplies 134 167 Work in process 8 7 Finished goods 262 294 -------- -------- 484 528 LIFO adjustment 2 (25) -------- -------- Total $ 486 $ 503 ======== ======== </TABLE> 7. Property, Plant and Equipment Reference is made to the consolidated balance sheets and Note 1 thereto in the 1999 Form 10-K for a description of investments in property, plant and equipment. 7
8. Trust Preferred Securities Reference is made to Note 12 to the consolidated financial statements in the 1999 Form 10-K for a description of the Trust Preferred Securities. The Trust Preferred Securities balances reflected in the consolidated financial statements at March 31, 2000, and December 31, 1999, are net of issue costs and also reflect amortization of a portion of the issue costs, and the repurchase during 2000 and 1999 of 298,373 shares and 937,436 shares with liquidation values of $7.5 million and $23.4 million, respectively. 9. Retirement Plans and Postretirement Benefits Reference is made to Note 14 to the consolidated financial statements in the 1999 Form 10-K for a description of the retirement plans and postretirement benefits of Occidental and its subsidiaries. 10. 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 a purported class action suit in the Federal District Court in Houston, Texas on behalf of persons claiming to have been beneficiaries of the MidCon Employee Stock Ownership Plan (ESOP). The plaintiffs allege that each of the U.S. Trust Company of California (the ESOP Trustee) and the MidCon ESOP Administrative Committee breached its fiduciary duty to the plaintiffs by failing to properly value the securities held by the ESOP, and allege that Occidental actively participated in such conduct. The plaintiffs claim that, as a result of this alleged breach, the ESOP participants are entitled to an additional aggregate distribution of at least $200 million and that Occidental has been unjustly enriched and is liable for failing to make that distribution. During the course of its operations, Occidental is subject to audit by taxing authorities for varying periods in various tax jurisdictions. Occidental has certain other commitments under contracts, guarantees and joint ventures, and certain other contingent liabilities. It is impossible at this time to determine the ultimate liabilities that Occidental and its subsidiaries may incur resulting from the foregoing lawsuits, claims and proceedings, audits, commitments, contingencies and related matters. Several of these matters may involve substantial amounts, and if these were to be ultimately resolved unfavorably to the full amount of their maximum potential exposure, an event not currently anticipated, it is possible that such event could have a material adverse effect upon Occidental's consolidated financial position or results of operations. However, in management's opinion, after taking into account reserves, it is unlikely that any of the foregoing matters will have a material adverse effect upon Occidental's consolidated financial position or results of operations. Reference is made to Note 9 to the consolidated financial statements in the 1999 Form 10-K for information concerning Occidental's long-term purchase obligations for certain products and services. 8
11. Income Taxes The provision for taxes based on income for the 2000 and 1999 interim periods was computed in accordance with Interpretation No. 18 of APB Opinion No. 28 on reporting taxes for interim periods and was based on projections of total year pretax income. At December 31, 1999, Occidental had, for U.S. federal income tax return purposes, an alternative minimum tax credit carryforward of $60 million available to reduce future income taxes. The alternative minimum tax credit carryforward does not expire. 12. 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 March 31, 2000, Occidental's equity investments consisted primarily of a 29.5 percent interest in Equistar acquired in May 1998, an investment of 29.2 percent in the common shares of Canadian Occidental Petroleum Ltd. (CanOxy) and 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): <TABLE> <CAPTION> Three Months Ended March 31, 2000 1999 ================================== =========== =========== <S> <C> <C> Revenues $ 689 $ 504 Costs and expenses 656 512 ----------- ----------- Net income (loss) $ 33 $ (8) =========== =========== </TABLE> 13. Industry Segments The following table presents Occidental's interim industry segment disclosures (in millions): <TABLE> <CAPTION> Oil and Gas Chemical Corporate Total ================================================ ============= ============= ============= ============= <S> <C> <C> <C> <C> Quarter ended March 31, 2000 Net sales $ 1,527 $ 981 $ -- $ 2,508 ============= ============= ============= ============= Pretax operating profit (loss) $ 542 $ 149 $ (124)(a) $ 567 Income taxes (148) (6) (142)(b) (296) ------------- ------------- ------------- ------------- Net income (loss) $ 394 $ 143 $ (266) $ 271 ================================================ ============= ============= ============= ============= Quarter ended March 31, 1999 Net sales $ 746 $ 598 $ -- $ 1,344 ============= ============= ============= ============= Pretax operating profit (loss) $ 113 $ 14 $ (143)(a) $ (16) Income taxes (48) (2) 9 (b) (41) Cumulative effect of changes in accounting principles, net -- -- (13) (13) ------------- ------------- ------------- ------------- Net income (loss) $ 65 $ 12 $ (147) $ (70) ================================================ ============= ============= ============= ============= </TABLE> (a) Includes unallocated net interest expense, administration expense and other items. (b) Includes unallocated income taxes. 9
14. Subsequent Events On April 18, 2000, Occidental completed the sale of its 29.2 percent stake in CanOxy for gross proceeds of approximately $1.2 billion Canadian, following approval of the sale by CanOxy stockholders. Of Occidental's 40.2 million shares of CanOxy, 20.2 million were sold to the Ontario Teachers Pension Plan Board and 20 million to CanOxy. In addition, Occidental and CanOxy exchanged their respective 15 percent interests in joint businesses of approximately equal value, resulting in Occidental owning 100 percent of an oil and gas operation in Ecuador and CanOxy owning 100 percent of a sodium chlorate operation in Canada and Louisiana. On April 19, 2000, Occidental completed its acquisition of all of the common interest in Altura, the largest oil producer in Texas. Occidental, through its subsidiaries, paid approximately $1.2 billion to the sellers, affiliates of BP Amoco plc and Shell Oil Company, to acquire the common limited partnership interest and control of the general partner which manages, operates and controls 100 percent of the Altura assets. The partnership borrowed approximately $2.4 billion, which has recourse only to the Altura assets. The partnership also loaned approximately $2.0 billion to affiliates of the sellers, evidenced by two notes, which provide credit support to the partnership. The sellers retained a preferred limited partnership interest of approximately $2.0 billion and are entitled to certain distributions from the partnership. The acquisition is valued at approximately $3.6 billion. On April 24, 2000, Occidental completed the acquisition of ARCO Long Beach Inc., owner of the Long Beach Unit's operating contractor, THUMS, for approximately $57 million. On April 25, 2000, Occidental announced that it will call for redemption on June 1, 2000, all of its outstanding 11-1/8% Senior Debentures due June 1, 2019, at a redemption price of 100% of the principal amount thereof. The outstanding aggregate principal amount is $75 million; the Debentures were issued on May 15, 1989. 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Occidental Petroleum Corporation (Occidental) reported net income for the first quarter of 2000 of $271 million, on net sales of $2.5 billion, compared with a net loss of $70 million, on net sales of $1.3 billion, for the same period of 1999. Basic earnings per common share were income of $.74 for the first quarter of 2000, compared with a loss of $.21 for the same period of 1999. Earnings before special items were $264 million for the first quarter of 2000, compared with a loss before special items of $68 million for the first quarter of 1999. The first quarter of 1999 included an after-tax charge of $13 million, reflecting the cumulative effect of adopting accounting principles changes mandated by the American Institute of Certified Public Accountants and the Emerging Issues Task Force of the Financial Accounting Standards Board. The increase in net sales in the first quarter of 2000, compared with the same period in 1999, primarily reflected higher oil and gas prices and higher prices and sales volume for most of Occidental's chemical products. Minority interest includes distributions on the Trust Originated Preferred Securities (Trust Preferred Securities) and the minority interest in the net income of subsidiaries and partnerships. The income from equity investments for the three months ended March 31, 2000 compared with losses from equity investments for the same period in 1999, was the result of higher worldwide crude oil prices and improved export prices for vinyl chloride monomer (VCM). The provision for income taxes increased to $296 million for the first quarter of 2000, compared with $41 million for the same period in 1999, primarily due to higher earnings in 2000. The following table sets forth the sales and earnings of each industry segment and corporate items (in millions): <TABLE> <CAPTION> First Quarter -------------------------- 2000 1999 ========== ========== <S> <C> <C> DIVISIONAL NET SALES Oil and gas $ 1,527 $ 746 Chemical 981 598 ---------- ---------- NET SALES $ 2,508 $ 1,344 ========== ========== DIVISIONAL EARNINGS Oil and gas $ 394 $ 65 Chemical 143 12 ---------- ---------- 537 77 UNALLOCATED CORPORATE ITEMS Interest expense, net (99) (116) Income taxes, administration and other (167) (18) ---------- ---------- INCOME (LOSS) BEFORE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 271 (57) Cumulative effect of changes in accounting principles, net -- (13) ---------- ---------- NET INCOME (LOSS) $ 271 $ (70) ========== ========== </TABLE> Oil and gas earnings for the first quarter of 2000 were $394 million, compared with $65 million for the same period of 1999. Higher worldwide crude oil and natural gas prices contributed to an increase in quarterly earnings for oil and gas. Operating and overhead costs were also lower in 2000. However, lower production volumes, mainly resulting from the pending agreement to sell producing assets in Peru, partially offset the overall improvement in earnings from the prior year. 11
Chemical earnings for the first quarter of 2000 were $143 million, compared with $12 million for the same period of 1999. The increased earnings in 2000 resulted primarily from higher prices and higher sales volume for VCM, ethylene dichloride (EDC), polyvinyl chloride (PVC) resins and chlorine. Partially offsetting these increases were higher raw material costs. Divisional earnings include credits in lieu of U.S. federal income taxes. In the first quarter of 2000 and 1999, divisional earnings benefited by $5 million and $6 million, respectively, from credits allocated. This included credits of $1 million and $4 million at oil and gas and chemical, respectively, in the first quarter of 2000 and $2 million and $4 million at oil and gas and chemical, respectively, for the first quarter of 1999. Occidental and certain of its subsidiaries have been named as defendants or as potentially responsible parties in a substantial number of lawsuits, claims and proceedings, including governmental proceedings under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and corresponding state acts. These governmental proceedings seek funding, remediation and, in some cases, compensation for alleged property damage, punitive damages and civil penalties, aggregating substantial amounts. Occidental is usually one of many companies in these proceedings, and has to date been successful in sharing response costs with other financially sound companies. Occidental has accrued reserves at the most likely cost to be incurred in those proceedings where it is probable that Occidental will incur remediation costs which can be reasonably estimated. During the course of its operations, Occidental is subject to audit by taxing authorities for varying periods in various tax jurisdictions. Occidental has certain other commitments under contracts, guarantees and joint ventures, and certain other contingent liabilities. It is impossible at this time to determine the ultimate liabilities that Occidental and its subsidiaries may incur resulting from the foregoing lawsuits, claims and proceedings, audits, commitments, contingencies and related matters. Several of these matters may involve substantial amounts, and if these were to be ultimately resolved unfavorably to the full amount of their maximum potential exposure, an event not currently anticipated, it is possible that such event could have a material adverse effect upon Occidental's consolidated financial position or results of operations. However, in management's opinion, after taking into account reserves, it is unlikely that any of the foregoing matters will have a material adverse effect upon Occidental's consolidated financial position or results of operations. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Occidental's net cash provided by operating activities was $348 million for the first quarter of 2000, compared with $75 million for the same period of 1999. The 2000 amount is primarily attributed to higher net income before special items. The improved earnings reflected the impact of higher oil and gas and chemical prices. Changes in operating assets and liabilities reflected higher net working capital usage in 2000 compared with 1999. Occidental's net cash used by investing activities was $487 million for the first quarter of 2000, compared with net cash provided of $1.299 billion for the same period of 1999. The 2000 amount included a $375 million deposit for the acquisition of the Altura Energy Ltd. Partnership (Altura) described below, which was recorded in other assets. The 1999 amount included the proceeds from a $1.4 billion note receivable received in connection with the sale of MidCon, Occidental's natural gas pipeline subsidiary. Financing activities provided net cash of $53 million in the first quarter of 2000, compared with cash used of $899 million for the same period of 1999. The 1999 amount reflected the use of the proceeds from the $1.4 billion note receivable to repay approximately $1.3 billion in debt and for the payment of dividends of $91 million. The 1999 amount also reflected net proceeds of $508 million from the issuance of the Trust Preferred Securities. On April 24, 2000, Occidental completed the acquisition of ARCO Long Beach Inc., owner of the Long Beach Unit's operating contractor, THUMS, for approximately $57 million. The acquisition adds approximately 95 million barrels of net oil reserves and approximately 27,000 barrels per day of net oil production to Occidental's growing California operations. 12
On April 19, 2000, Occidental completed its acquisition of all of the common interest in Altura, the largest oil producer in Texas. Occidental, through its subsidiaries, paid approximately $1.2 billion to the sellers, affiliates of BP Amoco plc and Shell Oil Company, to acquire the common limited partnership interest and control of the general partner which manages, operates and controls 100 percent of the Altura assets. The partnership borrowed approximately $2.4 billion, which has recourse only to the Altura assets. The partnership also loaned approximately $2.0 billion to affiliates of the sellers, evidenced by two notes, which provide credit support to the partnership. The sellers retained a preferred limited partnership interest of approximately $2.0 billion and are entitled to certain distributions from the partnership. As a result of the acquisition, which is valued at approximately $3.6 billion, Occidental's worldwide oil and gas production is expected to increase by approximately 135,000 barrels per day of oil equivalent and Occidental's worldwide production is expected to increase by 13 percent to an average of approximately 480,000 barrels of oil equivalent per day this year versus 425,000 barrels per day in 1999. Proved reserves at Altura were 850 million barrels of oil equivalent at December 31, 1999. This acquisition will bring Occidental's proved reserves to approximately 2.2 billion barrels of oil equivalent. On April 18, 2000, Occidental completed the sale of its 29.2 percent stake in Canadian Occidental Petroleum Ltd. (CanOxy) for gross proceeds of approximately $1.2 billion Canadian, following approval of the sale by CanOxy stockholders. Of Occidental's 40.2 million shares of CanOxy, 20.2 million were sold to the Ontario Teachers Pension Plan Board and 20 million to CanOxy. In addition, Occidental and CanOxy exchanged their respective 15 percent interests in joint businesses of approximately equal value, resulting in Occidental owning 100 percent of an oil and gas operation in Ecuador and CanOxy owning 100 percent of a sodium chlorate operation in Canada and Louisiana. Approximately $750 million of combined after-tax proceeds from the CanOxy disposition and the disposition of the Peru producing operations was applied to the acquisition of the Altura and THUMS properties. In December 1999, Occidental and EOG Resources, Inc. (EOG) exchanged certain oil and gas assets. Occidental received producing properties and exploration acreage in its expanding California asset base, as well as producing properties in the western Gulf of Mexico near existing operations in exchange for oil and gas production and reserves in east Texas. Occidental also farmed out Oklahoma panhandle properties to EOG and retained a carried interest. In December 1999, Occidental entered into an agreement to sell its producing properties in Peru to Pluspetrol. The transaction, which was subject to governmental approval, closed on May 8, 2000. In connection with this transaction, Occidental recorded an after-tax charge of approximately $29 million in December 1999 to write-down the properties to their fair values. In the third quarter of 1999, pursuant to a series of transactions, Occidental indirectly acquired the remaining ownership of INDSPEC Chemical Corporation (INDSPEC) through the issuance of approximately 3.2 million shares of Occidental common stock at an estimated value of approximately $68 million and the assumption of approximately $80 million of bank debt. As a result of the transactions, Occidental owns 100 percent of the stock of INDSPEC. In the third quarter of 1999, Occidental acquired Unocal International Corporation's (UNOCAL) oil and gas interests in Yemen and UNOCAL acquired Occidental's properties in Bangladesh. Effective April 30, 1999, Occidental and The Geon Company (Geon) formed two partnerships. Occidental has a 76 percent interest in the PVC commodity resin partnership, OxyVinyls, LP (OxyVinyls), which is larger of the partnerships, and a 10 percent interest in a PVC powder compounding partnership. OxyVinyls also has entered into long-term agreements to supply PVC resin to Geon and VCM to Occidental and Geon. In addition, as part of the transaction, Occidental sold its pellet compounding plant in Pasadena, Texas and its vinyl film assets in Burlington, New Jersey to Geon. On April 25, 2000, Occidental announced that it will call for redemption on June 1, 2000, all of its outstanding 11-1/8% Senior Debentures due June 1, 2019, at a redemption price of 100% of the principal amount thereof. The outstanding aggregate principal amount is $75 million; the Debentures were issued on May 15, 1989. 13
In February 1999, Occidental issued $450 million of 7.65 percent senior notes due 2006 and $350 million of 8.45 percent senior notes due 2029 for net proceeds of approximately $792 million. In January 1999, a subsidiary of Occidental issued $525 million of 8.16 percent Trust Preferred Securities due in 2039, for net proceeds of $508 million. The net proceeds were used to repay commercial paper. The Trust Preferred Securities balances reflected in the consolidated financial statements at March 31, 2000 and December 31, 1999 are net of issue costs and also reflect amortization of a portion of the issue costs, and the repurchase during 2000 and 1999 of 298,373 shares and 937,436 shares with liquidation values of $7.5 million and $23.4 million, respectively. Occidental expects to have sufficient cash in 2000 for its operating needs, capital expenditure requirements, dividend payments and debt repayments. Occidental currently expects to spend $950 million on its capital spending program in 2000. Available but unused lines of committed bank credit totaled approximately $2.0 billion at March 31, 2000, compared with $2.1 billion at December 31, 1999. Subsequent to March 31, Occidental borrowed substantial amounts to fund the Altura acquisition partially offset by proceeds from asset dispositions. YEAR 2000 COMPLIANCE The Y2K program 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. The inventory and assessment activities continued throughout the Y2K program as changes occurred. Overall remediation efforts were completed on schedule and there were no significant adverse Y2K events. Costs for Y2K efforts were not accumulated separately and much of the cost was accounted for as part of normal operations. Overall, the costs were approximately $29 million. The costs did not have a significant effect on Occidental's consolidated financial position or results of operations. Contingency plans that addressed a reasonably likely worst case scenario were put in place. These plans also addressed and analyzed the resources necessary to restore operations in the event an interruption occurred. No interruptions caused by third parties occurred. Because of these company-wide efforts, Occidental believes it took appropriate actions to minimize the risk associated with Y2K to its operations and financial condition. Occidental's operations moved into the year 2000 without interruption and the Y2K program was considered a success. 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 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 14
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 March 31, 2000, Occidental had been notified by the Environmental Protection Agency (EPA) or equivalent state agencies or otherwise had become aware that it had been identified as being involved at 125 Superfund or comparable state sites. (This number does not include those sites where Occidental has been successful in resolving its involvement). The 125 sites include 34 former Diamond Shamrock Chemical sites as to which Maxus Energy Corporation has retained all liability. Of the remaining 91 sites, Occidental has denied involvement at 10 sites and has yet to determine involvement in 20 sites. With respect to the remaining 61 of these sites, Occidental is in various stages of evaluation, and the extent of liability retained by Maxus Energy Corporation is disputed at 2 of these sites. For 54 of these sites, where environmental remediation efforts are probable and the costs can be reasonably estimated, Occidental has accrued reserves at the most likely cost to be incurred. The 54 sites include 11 sites as to which present information indicates that it is probable that Occidental's aggregate exposure is immaterial. In determining the reserves, Occidental uses the most current information available, including similar past experiences, available technology, regulations in effect and the timing of remediation and cost-sharing arrangements. For the remaining 7 of the 61 sites being evaluated, Occidental does not have sufficient information to determine a range of liability, but Occidental does have sufficient information on which to base the opinion expressed above under the caption "Results of Operations." SAFE HARBOR STATEMENT REGARDING OUTLOOK AND FORWARD-LOOKING INFORMATION Portions of this report contain forward-looking statements and involve risks and uncertainties that could significantly affect expected results of operations, liquidity and cash flows. Factors that could cause results to differ materially include, but are not limited to: global commodity pricing fluctuations; 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 There were no material changes in the information provided under Item 305 of Regulation S-X included under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations (Incorporating Item 7A) - Derivative Activities" in Occidental's 1999 Annual Report on Form 10-K for the period ended March 31, 2000. 15
PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS GENERAL There is incorporated by reference herein the information regarding legal proceedings in Note 10 to the consolidated condensed financial statements in Part I hereof. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS Occidental's 2000 Annual Meeting of Stockholders (the Annual Meeting) was held on April 28, 2000. The following actions were taken at the Annual Meeting, for which proxies were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended: 1. The eleven nominees proposed by the Board of Directors were elected as directors by the following votes: <TABLE> <CAPTION> Name For Withheld ------------------------------- ----------------------- ----------------------- <S> <C> <C> Dr. Ray R. Irani 319,272,792 6,838,953 Dr. Dale R. Laurance 319,831,619 6,280,126 Ronald W. Burkle 319,590,655 6,521,090 John S. Chalsty 318,463,798 7,647,947 Edward P. Djerejian 321,291,537 4,820,208 John E. Feick 321,388,874 4,722,871 J. Roger Hirl 319,806,221 6,305,524 Irvin W. Maloney 319,430,529 6,681,216 Rodolfo Segovia 321,338,167 4,773,578 Aziz D. Syriani 319,889,761 6,221,984 Rosemary Tomich 318,079,108 8,032,637 </TABLE> 2. A proposal to ratify the selection of Arthur Andersen LLP as Occidental's independent public accountants for 2000 was approved by a vote of 323,088,056 for versus 1,552,414 against. There were 1,471,273 abstentions and 2 broker non-votes. 3. A proposal to amend Occidental's 1996 Restricted Stock Plan for Non-Employee Directors (the Plan) to increase, among other things, the number of shares of Common Stock available for issuance under the Plan was approved by a vote of 306,833,212 for versus 16,762,430 against. There were 2,516,097 abstentions and 6 broker non-votes. 4. A stockholder proposal to maximize value by selling Occidental was defeated by a vote of 19,005,552 for versus 247,840,546 against. There were 10,226,544 abstentions and 49,039,103 broker non-votes. 5. A stockholder proposal to have prepared and distribute a risk analysis was defeated by a vote of 15,686,039 for versus 238,272,189 against. There were 23,115,714 abstentions and 49,037,803 broker non-votes. 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 4.1 Credit Agreement, dated as of April 19, 2000, among Occidental Permian Ltd., Chase Securities Inc., as Arranger, Bank of America, N.A., as Syndication Agent, Morgan Guaranty Trust Company of New York and UBS AG, as Documentation Agents, and The Chase Manhattan Bank, as Administrative Agent. 10.1 Occidental Petroleum Corporation 1996 Restricted Stock Plan for Non-Employee Directors (as amended April 28, 2000). 11 Statement regarding the computation of earnings per share for the three months ended March 31, 2000 and 1999. 12 Statement regarding the computation of total enterprise ratios of earnings to fixed charges for the three months ended March 31, 2000 and 1999 and the five years ended December 31, 1999. 27 Financial data schedule for the three month period ended March 31, 2000 (included only in the copy of this report filed electronically with the Securities and Exchange Commission). (b) Reports on Form 8-K During the quarter ended March 31, 2000, Occidental filed the following Current Reports on Form 8-K: 1. Current Report on Form 8-K dated January 25, 2000 (date of earliest event reported), filed on January 26, 2000, for the purpose of reporting, under Item 5, Occidental's results of operations for the fourth quarter and fiscal year ended December 31, 1999. 2. Current Report on Form 8-K dated March 1, 2000 (date of earliest event reported), filed on March 2, 2000, for the purpose of reporting, under Item 5, the sale of Occidental's interest in Canadian Occidental Petroleum Ltd. 3. Current Report on Form 8-K dated March 7, 2000 (date of earliest event reported), filed on March 15, 2000, for the purpose of reporting, under Items 2 and 7, the acquisition by Occidental of all the common partnership interest in Altura Energy Ltd. From March 31, 2000 to the date hereof, Occidental filed the following Current Reports on Form 8-K: 1. Current Report on Form 8-K dated April 19, 2000 (date of earliest event reported), filed on April 2, 2000, for the purpose of reporting, under Item 5, Occidental's results of operations for the first quarter ended March 31, 2000. 2. Current Report on Form 8-K dated March 15, 2000 (date of earliest event reported), filed on May 12, 2000, for the purpose of reporting, under Item 7, certain financial statements and pro forma financial information. 17
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OCCIDENTAL PETROLEUM CORPORATION DATE: May 15, 2000 S. P. Dominick, Jr. ---------------------------------------- S. P. Dominick, Jr., Vice President and Controller (Chief Accounting and Duly Authorized Officer) 18
EXHIBIT INDEX EXHIBITS - -------- 4.1 Credit Agreement, dated as of April 19, 2000, among Occidental Permian Ltd., Chase Securities Inc., as Arranger, Bank of America, N.A., as Syndication Agent, Morgan Guaranty Trust Company of New York and UBS AG, as Documentation Agents, and The Chase Manhattan Bank, as Administrative Agent. 10.1 Occidental Petroleum Corporation 1996 Restricted Stock Plan for Non-Employee Directors (as amended April 28, 2000). 11 Statement regarding the computation of earnings per share for the three months ended March 31, 2000 and 1999. 12 Statement regarding the computation of total enterprise ratios of earnings to fixed charges for the three months ended March 31, 2000 and 1999 and the five years ended December 31, 1999. 27 Financial data schedule for the three month period ended March 31, 2000 (included only in the copy of this report filed electronically with the Securities and Exchange Commission).