Occidental Petroleum 2001 Annual Report Download - page 59

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had no effect on net income. All prior-year balances have been adjusted to
reflect this accounting change. The transportation costs that have been removed
as deductions from revenues and included in cost of sales on Occidental's
"Statements of Operations" totaled $245 million in 2000 and $210 million in
1999.
1999
The 1999 results included pre-tax charges of $159 million for the
write-down to realizable value of certain chemical assets, $28 million for
write-downs by Equistar and $9 million for various oil and gas assets.
Effective January 1, 1999, Occidental adopted the provisions of American
Institute of Certified Public Accountants Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities", which requires that costs of
start-up activities, including organizational costs, be expensed as incurred.
The initial application of the statement resulted in a charge to income for
costs of previously capitalized start-up activities that have not yet been fully
amortized. The initial adoption of SOP 98-5 resulted in a first quarter noncash
after-tax charge of $15 million, net of $8 million in taxes, which has been
recorded as a cumulative effect of a change in accounting principle.
Effective January 1, 1999, Occidental adopted the provisions of EITF Issue
No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk
Management Activities", which establishes accounting and reporting standards for
certain energy trading contracts. EITF Issue No. 98-10 requires that energy
trading contracts must be marked-to-market with gains and losses included in
earnings and separately disclosed in the financial statements or footnotes
thereto. The initial adoption of EITF Issue No. 98-10 resulted in a first
quarter noncash after-tax benefit of $2 million, recorded as a cumulative effect
of a change in accounting principle.
In June 1999, Occidental redeemed $68.7 million of its 11.125 percent
senior debentures due June 1, 2019 and recorded an after-tax extraordinary loss
of $3 million in the second quarter of 1999 related to the redemption.
In December 1999, OXY USA settled its long-standing litigation with Chevron
U.S.A. Inc. (Chevron) for a cash payment of $775 million from Chevron. The
related pre-tax income of $775 million is reported as interest, dividends and
other income in the accompanying consolidated statements of operations.
Occidental then repurchased for cash, $240 million principal amount of its
10.125 percent senior notes due November 15, 2001, and $138 million principal
amount of its 11.125 percent senior notes due August 1, 2010 and redeemed all of
OXY USA's $274 million principal amount of 7 percent debentures due 2011 for a
total of $722 million, including premium, expenses and accrued interest.
Occidental recorded an after-tax extraordinary loss of $104 million in the
fourth quarter of 1999 related to the transactions. The 1999 total year results
included a net extraordinary loss of $107 million, which resulted from the early
extinguishment of high-cost debt.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes the Staff's views in applying generally
accepted accounting principles to revenue recognition in the financial
statements. The bulletin was effective in the fourth quarter of 2000. Occidental
was in compliance with these standards; accordingly, the adoption of SAB No. 101
did not have an impact on its consolidated financial statements.
48
NOTE 5 INVENTORIES
--------------------------------------------------------------------------------
Inventories of approximately $214 million and $268 million were valued
under the LIFO method at December 31, 2001 and 2000, respectively. Inventories
consisted of the following (in millions):
Balance at December 31, 2001 2000
================================================================================ ======== ========
Raw materials $ 62 $ 68
Materials and supplies 123 125
Work in process 2 3
Finished goods 268 343
-------- --------