Hess 2008 Annual Report Download - page 52

The Corporation has net operating loss carryforwards or credit carryforwards in several jurisdictions,
including the United States, and has recorded deferred tax assets for those losses and credits. Additionally, the
Corporation has deferred tax assets due to temporary differences between the book basis and tax basis of certain
assets and liabilities. Regular assessments are made as to the likelihood of those deferred tax assets being realized. If
it is more likely than not that some or all of the deferred tax assets will not be realized, a valuation allowance is
recorded to reduce the deferred tax assets to the amount that is expected to be realized. In evaluating realizability of
deferred tax assets, the Corporation refers to the reversal periods for temporary differences, available carryforward
periods for net operating losses and credit carryforwards, estimates of future taxable income, the availability of tax
planning strategies, the existence of appreciated assets and other factors. Estimates of future taxable income are
based on assumptions of oil and gas reserves and selling prices that are consistent with the Corporation’s internal
business forecasts. The Corporation does not provide for deferred U.S. income taxes applicable to undistributed
earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations.
Retirement Plans: The Corporation has funded non-contributory defined benefit pension plans and an
unfunded supplemental pension plan. In accordance with FAS 158, Employer’s Accounting For Defined Benefit
Pension and Other Postretirement Plans (FAS 158), the Corporation recognizes on the balance sheet the net change
in the funded status of the projected benefit obligation for these plans.
The determination of the obligations and expenses related to these plans are based on several actuarial
assumptions, the most significant of which relate to the discount rate for measuring the present value of future plan
obligations; expected long-term rates of return on plan assets; and rate of future increases in compensation levels.
These assumptions represent estimates made by the Corporation, some of which can be affected by external factors.
For example, the discount rate used to estimate the Corporation’s projected benefit obligation is based on a portfolio
of high-quality, fixed-income debt instruments with maturities that approximate the expected payment of plan
obligations, while the expected return on plan assets is developed from the expected future returns for each asset
category, weighted by the target allocation of pension assets to that asset category. Changes in these assumptions
can have a material impact on the amounts reported in the Corporation’s financial statements.
Changes in Accounting Policies
As discussed on page 35, the Corporation adopted FAS 157 effective January 1, 2008. The impact of adopting
FAS 157 was not material to the Corporation’s results of operations. Upon adoption, the Corporation recorded a
reduction in the net deferred hedge losses reflected in accumulated other comprehensive income, which increased
stockholders’ equity by $193 million, after income taxes.
Effective December 31, 2008, the Corporation applied the provisions of Emerging Issues Task Force 08-5,
Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement (EITF 08-5).
Upon adoption, the Corporation revalued certain derivative liabilities collateralized by letters of credit to reflect the
Corporation’s credit rating rather than the credit rating of the issuing bank. The adoption resulted in an increase in
sales and other operating revenues of approximately $13 million and an increase in other comprehensive income of
approximately $78 million, with a corresponding decrease in derivative liabilities recorded within accounts
payable.
Recently Issued Accounting Standard
In December 2007, the FASB issued FAS 160, Noncontrolling Interests in Consolidated Financial Statements-
an amendment of ARB No. 51 (FAS 160). FAS 160 changes the accounting for and reporting of noncontrolling
interests in a subsidiary. The Corporation will adopt the provisions of FAS 160 effective January 1, 2009 and
estimates that adoption will result in a decrease in other long term liabilities and an increase in stockholders’ equity
of approximately $85 million.
Environment, Health and Safety
The Corporation has implemented a values-based, socially-responsible strategy focused on improving
environment, health and safety performance and making a positive impact on communities. The strategy is
supported by the Corporation’s environment, health, safety and social responsibility (EHS & SR) policies and by
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