Occidental Petroleum 2001 Annual Report Download - page 49

petrochemicals and specialty products.
RISKS AND UNCERTAINTIES
The process of preparing consolidated financial statements in conformity
with generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the consolidated financial statements. Accordingly, upon
settlement, actual results may differ from estimated amounts, generally not by
material amounts. Management believes that these estimates and assumptions
provide a reasonable basis for the fair presentation of Occidental's financial
position and results of operations.
Included in the accompanying balance sheet is net property, plant and
equipment at a carrying value of approximately $12.9 billion as of December 31,
2001. The carrying value is based on Occidental's plans and intentions to
continue to operate, maintain, develop and, where it is economically desirable,
to expand its businesses. If future economic conditions result in changes in
management's plans or intentions, the carrying values of the affected assets
will be reviewed again and any appropriate adjustments made.
Included in the accompanying consolidated balance sheet are deferred tax
assets of $768 million as of December 31, 2001, the noncurrent portion of which
is netted against deferred income tax liabilities. Realization of these assets
is dependent upon Occidental generating sufficient future taxable income.
Occidental expects to realize the recorded deferred tax assets through future
operating income and reversal of taxable temporary differences.
The accompanying consolidated balance sheet includes assets of
approximately $2.0 billion as of December 31, 2001, relating to Occidental's
operations in countries outside North America. Some of these countries may be
considered politically and economically unstable. These assets and the related
operations are subject to the risk of actions by governmental authorities and
insurgent groups. Occidental attempts to conduct its financial affairs so as to
mitigate its exposure against such risks and would expect to receive
compensation in the event of nationalization.
Since Occidental's major products are commodities, significant changes in
the prices of oil and gas and chemical products could have a significant impact
on Occidental's results of operations for any particular year.
FOREIGN CURRENCY TRANSLATION
The functional currency applicable to all Occidental's foreign oil and gas
operations is the U.S. dollar since cash flows are denominated principally in
U.S. dollars. Occidental's chemical operations in Brazil use the Real as the
functional currency. Brazil devalued the Real in January 1999. The devaluation
had an unfavorable pre-tax income effect in 1999 on Occidental of approximately
$13 million. The effect of exchange-rate changes on transactions denominated in
nonfunctional currencies generated a gain of less than $1 million in both 2001
and 2000 and a loss of $11 million in 1999.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid money-market mutual funds and
bank deposits with initial maturities of three months or less. Cash equivalents
totaled approximately $139 million and $46 million at December 31, 2001 and
2000, respectively.
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TRADE RECEIVABLES
Occidental has an agreement in place to sell, under a revolving sale
program, an undivided interest in a designated pool of trade receivables. This
program is used by Occidental as a low-cost source of working capital funding.
The amount of proceeds, which totaled $360 million outstanding in each of 2001
and 2000, that Occidental has received on the sale of the undivided interest and
the related accounts receivable that have been sold, are not included in the
debt and trade receivables accounts, respectively, on Occidental's consolidated
balance sheets. Fees and expenses under this program are included in selling,
general and administrative and other operating expense. Under the program,
receivables must meet certain criteria. The program terminates upon certain
events, including Occidental's senior debt rating falling below investment
grade. In such an event, the amount of proceeds outstanding at that time would
have to be funded through other means, which could result in an increase in debt