Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 1995, for Occidental Petroleum Corporation, a Delaware corporation. The company operates in three primary segments: Oil and Gas, Natural Gas Transmission, and Chemical operations. The filing includes unaudited consolidated financial statements and management's discussion and analysis (MD&A) for the three and nine months ended September 30, 1995, compared to the same periods in 1994.
Key Financial Metrics
Revenue and Profitability (Nine Months Ended Sept 30, 1995):
- Total Revenues: $8.159 billion (up from $6.798 billion in 1994).
- Net Income: $504 million (compared to a net loss of $36 million in 1994).
- Earnings Per Share (Diluted): $1.33 (compared to a loss of $0.30 in 1994).
- Operating Cash Flow: $904 million (compared to $322 million in 1994).
Balance Sheet Highlights (as of Sept 30, 1995):
- Cash and Cash Equivalents: $118 million.
- Total Assets: $17.446 billion.
- Senior Funded Debt (Long-term): $5.271 billion (down from $5.823 billion at year-end 1994).
- Working Capital: $127 million (up from $57 million at year-end 1994).
- Available Credit Lines: Approximately $2.6 billion.
Material Changes vs. Prior Period
The company reported a significant turnaround from a net loss in the first nine months of 1994 to a net income of $504 million in 1995. Key drivers included:
- Chemical Segment: Earnings surged to $913 million (from $223 million in 1994) due to improved profit margins in caustic soda and petrochemicals, and a $40 million gain from the sale of a PVC facility.
- Oil and Gas Segment: Earnings increased to $76 million (from $69 million in 1994), driven by higher worldwide crude oil production and prices, partially offset by lower domestic natural gas prices.
- Asset Dispositions: Combined cash proceeds from asset sales (including HDPE business, PVC facilities, and Canadian oil/gas assets) exceeded $550 million.
- Debt Reduction: Net cash used in financing activities was $894 million, primarily to reduce long-term debt by $630 million and pay dividends of $303 million.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary and Outlook:
- Management expects cash from operations and asset sales to be adequate for operating requirements, capital spending, and dividends for the remainder of 1995.
- Excess cash is being applied to debt reduction.
- Oil and gas prices remain sensitive to complex factors outside the company's control, making future price trends uncertain.
Unusual Items and Charges:
- Litigation Settlement: 1995 results were negatively impacted by pretax charges of $109 million for litigation settlements, including a $275 million settlement with the U.S. Department of Energy (DOE) regarding crude oil tier trades (paid in installments).
- Reorganization Charge: In October 1995, the company announced a consolidation of worldwide oil and gas operations, expecting a charge against fourth-quarter earnings. The amount is undetermined but not expected to be materially adverse.
Risks and Contingencies:
- Environmental Liabilities: The company is involved in 283 Superfund or comparable state sites. Reserves have been accrued for 110 sites where costs are probable and estimable. Management believes reserves are adequate, though resolution of specific matters could impact results in any given period.
- Regulatory: Natural Gas Pipeline Company of America faces contract expirations and rate case reviews by the FERC, with some contracts renewed at reduced levels and prices.
Investor Verification Checklist
- Verify the impact of the $109 million litigation settlement on the reported net income.
- Monitor the fourth-quarter reorganization charge related to the oil and gas division consolidation.
- Review the status of the $275 million DOE settlement payments and interest accruals.
- Assess the sustainability of chemical margins given the commodity nature of products and recent price softening in PVC and petrochemicals.
- Confirm the closing of the agricultural chemicals business sale ($286 million) and the INDSPEC Chemical Corporation acquisition.