Hess 2008 Annual Report Download - page 69

planning strategies, the existence of appreciated assets, the available carryforward periods for net operating losses
and other factors. 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 expected to be realized.
The Corporation adopted the provisions of FASB Interpretation 48, Accounting for Uncertainty in Income
Taxes, (FIN 48) on January 1, 2007. The impact of adoption was not material to the Corporation’s financial position,
results of operations or cash flows. A deferred tax asset of $28 million related to an acquired net operating loss
carryforward was recorded in accordance with FIN 48 and goodwill was reduced. In addition, effective with its
adoption of FIN 48, the Corporation recognizes the financial statement effect of a tax position only when
management believes that it is more likely than not, that based on the technical merits, the position will be sustained
upon examination. 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. The Corporation classifies
interest and penalties associated with uncertain tax positions as income tax expense.
Foreign Currency Translation: The U.S. dollar is the functional currency (primary currency in which
business is conducted) for most foreign operations. Adjustments resulting from translating monetary assets and
liabilities that are denominated in a non-functional currency into the functional currency are recorded in other
income. For operations that do not use the U.S. dollar as the functional currency, adjustments resulting from
translating foreign currency assets and liabilities into U.S. dollars are recorded in a separate component of
stockholders’ equity titled accumulated other comprehensive income (loss).
Fair Value Measurements: The Corporation adopted the provisions of FAS 157, Fair Value Measurements
(FAS 157), effective January 1, 2008. FAS 157 establishes a hierarchy for the inputs used to measure fair value
based on the source of the input, which generally range from quoted prices for identical instruments in a principal
trading market (Level 1) to estimates determined using related market data (Level 3). Multiple inputs may be used to
measure fair value, however, the level of fair value for each financial asset or liability is based on the lowest
significant input level within this fair value hierarchy. See Note 15, “Fair Value Measurements”, for more details on
the methods and assumptions used to determine the fair values of the financial assets and liabilities.
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 accumulated other
comprehensive income of approximately $78 million, with a corresponding decrease in derivative liabilities
recorded within accounts payable.
Retirement Plans: Effective December 31, 2006, the Corporation adopted FAS 158, Employer’s Accounting
For Defined Benefit Pension and Other Postretirement Plans, which required the recognition of the underfunded
status of defined benefit postretirement plans on the balance sheet. For the Corporation’s pension plans, the
underfunded status is measured as the difference between the fair value of plan assets and the projected benefit
obligation. For the Corporation’s postretirement medical plan, the underfunded status represents the difference
between the fair value of plan assets and the accumulated postretirement benefit obligation. The Corporation
recognizes the net changes in the funded status of these plans in the year in which such changes occur.
Recently Issued Accounting Standard: In December 2007, the FASB issued FAS 160, Noncontrolling
Interests in Consolidated Financial Statements — an amendment of ARB 51 (FAS 160). FAS 160 changes the
accounting for and reporting of noncontrolling interests in a subsidiary. The Corporation will adopt the provisions
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HESS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)