Occidental Petroleum 2002 Annual Report Download - page 37

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The following table shows derivative financial instruments included in the
consolidated balance sheets:
Balance at December 31, (in millions) 2002 2001
================================================== ======== ========
Derivative financial instrument assets (a)
Current $ 164 $ 116
Non-current 157 120
-------- --------
$ 321 $ 236
================================================== ======== ========
Derivative financial instrument liabilities (a)
Current $ 115 $ 102
Non-current 23 119
-------- --------
$ 138 $ 221
================================================== ======== ========
(a) Amounts include energy-trading contracts.
As a result of fair-value swaps, the amount of interest expense recorded in
the income statement is lower by approximately $45 million and $7 million for
the years ended December 31, 2002 and 2001, respectively.
The following table summarizes after-tax derivative activity recorded in
OCI:
For the years ended December 31 (in millions) 2002 2001
==================================================== ======== ========
Beginning Balance $ (20) $ --
Cumulative effect of change in accounting principle -- (27)
(Losses) gains from changes in current cash flow
hedges (14) 11
Amount reclassified to income 8 (4)
-------- --------
Ending Balance $ (26) $ (20)
==================================================== ======== ========
During the years ended December 31, 2002 and 2001, an $8 million after-tax
loss and a $4 million after-tax gain, respectively, were reclassified from OCI
into earnings, resulting from the expiration of cash-flow hedges when the hedged
transactions closed. During the years ended December 31, 2002 and 2001, a net
unrealized after-tax loss of $14 million and a net unrealized after-tax gain of
$11 million, respectively, were recorded to OCI relating to changes in current
cash-flow hedges. During the next twelve months, Occidental expects that $3
million of net derivative after-tax losses included in OCI, based on their
valuation at December 31, 2002, will be reclassified into earnings when the
hedged transactions close. Hedge ineffectiveness did not have a significant
impact on earnings for the years ended December 31, 2002 and 2001.
ACCOUNTING FOR ENERGY-TRADING ACTIVITIES
In the third quarter of 2002, Occidental adopted certain provisions of
Emerging Issues Task Force (EITF) Issue No. 02-3, "Issues involved in Accounting
for Contracts under Issue No. 98-10." These provisions prescribe significant
changes in how revenue from energy trading is recorded. Occidental has two major
types of oil and gas revenues: (1) Revenues from its equity production; and (2)
revenues from the sale of oil and gas produced by other companies, but purchased
and resold by Occidental, referred to as revenue from trading activities. Both