Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 1996, for Occidental Petroleum Corporation. The company operates primarily in three segments: Oil and Gas, Natural Gas Transmission, and Chemical operations. The filing includes unaudited consolidated financial statements and management's discussion and analysis.
Key Financial Metrics (Six Months Ended June 30, 1996)
- Revenue: Net sales and operating revenues totaled $4,979 million, compared to $5,393 million in the prior year period.
- Net Income: Reported net income was $315 million, down from $365 million in the prior year period. This includes a $30 million extraordinary loss.
- Earnings Per Share (EPS): Primary earnings applicable to common stock were $0.84 per share, compared to $1.00 in the prior year.
- Cash Flow: Net cash provided by operating activities was $746 million. Net cash used by investing activities was $500 million, and net cash used by financing activities was $653 million.
- Liquidity: Cash and cash equivalents decreased from $520 million to $113 million. Working capital was negative $108 million. Available committed bank credit totaled approximately $2.1 billion.
- Debt: Senior funded debt (net of current maturities) was $4,806 million. Current maturities of senior funded debt were $50 million.
Material Changes Versus Prior Period
- Revenue Decline: The decrease in revenue was primarily driven by reduced chemical prices (petrochemicals and PVC resins), partially offset by higher crude oil and natural gas prices.
- Segment Performance:
- Oil and Gas: Earnings increased significantly to $305 million (from $30 million in 1995) due to higher commodity prices.
- Chemical: Earnings declined to $330 million (from $661 million in 1995) due to lower profit margins and the absence of divested assets, though results included a $130 million litigation settlement benefit.
- Natural Gas Transmission: Earnings increased to $172 million (from $137 million in 1995).
- Expenses: Selling, general, and administrative expenses decreased to $457 million (from $596 million in 1995), as the prior year included a $109 million litigation settlement charge. Environmental remediation expenses increased to $88 million (from $11 million) due to a $75 million charge for additional reserves.
- Interest Expense: Decreased to $242 million (from $277 million) due to lower average debt levels following the redemption of $955 million in Senior Debentures in March 1996.
Outlook, Risks, and Unusual Items
- Unusual Items:
- Extraordinary Loss: A $30 million loss was recorded for the early retirement of high-coupon debt.
- Litigation Settlement: Interest income included $130 million from a Love Canal litigation settlement.
- Environmental Charges: A $75 million charge was recorded for additional environmental reserves.
- Subsequent Events:
- On July 1, 1996, the company redeemed $300 million of 9.625% Senior Notes.
- On July 22, 1996, a $742 million judgment was entered in favor of OXY USA against Chevron USA (subject to appeal).
- On July 30, 1996, the company announced the sale of royalty oil interests in the Congo for $215 million.
- Risks and Contingencies: The company faces substantial environmental liabilities, with involvement in 290 Superfund or comparable state sites. Management believes accrued reserves are adequate and that pending proceedings will not have a material adverse effect. Commodity prices for oil, gas, and chemicals remain volatile and unpredictable.
- Guidance: Management expects cash from operations and asset sales to be adequate for operating requirements, capital spending, and dividends, with excess cash applied to debt reduction.
Investor Verification Checklist
- Verify the status and potential appeal outcome of the $742 million judgment against Chevron USA announced in July 1996.
- Monitor the volatility of chemical commodity prices (specifically PVC and petrochemicals) which significantly impacted Q2 earnings.
- Review the adequacy of environmental reserves given the $75 million charge and involvement in 290 Superfund sites.
- Assess the impact of the $30 million extraordinary loss on the company's debt reduction strategy and future interest expenses.
- Confirm the integration and performance of the new INDSPEC Holding Corporation equity investment acquired in April 1996.