Occidental Petroleum 2002 Annual Report Download - page 38

and resold by Occidental, referred to as revenue from trading activities. Both
types of sales involve physical deliveries and had been historically recorded on
a gross basis in accordance with generally accepted accounting principles. With
the adoption of EITF Issue No. 02-3, Occidental now reflects the revenue from
trading activities on a net basis. There were no changes in gross margins, net
income, cash flow or earnings per share for any period as a result of adopting
this requirement. However, net sales and cost of sales were reduced by equal and
offsetting amounts to reflect the adoption of this requirement. Occidental has
not engaged in any of the round-trip trading activities that were the focus of
the FERC's energy-industry investigation activity in 2002. For the years ended
December 31, 2002, 2001 and 2000, net sales and cost of sales were reduced from
amounts previously reported by approximately $2.2 billion (representing amounts
for the first two quarters of 2002), $5.8 billion and $4.9 billion,
respectively, to conform to the current presentation.
Since 1999, Occidental has accounted for certain energy-trading contracts
in accordance with EITF Issue No. 98-10, "Accounting for Contracts Involved in
Energy Trading and Risk Management Activities." EITF Issue No. 98-10 required
that all energy-trading contracts must be marked to fair value with gains and
losses included in earnings, whether the contracts were derivatives or not. In
October 2002, the EITF rescinded EITF Issue No. 98-10 thus precluding
mark-to-market accounting for all energy-trading contracts that are not
derivatives and fair value accounting for inventories purchased from third
parties. Also, the rescission requires derivative gains and losses to be
presented net on the income statement, whether or not they are physically
settled, if the derivative instruments are held for trading purposes. Occidental
will adopt this accounting change in the first quarter of 2003 and expects to
record a cumulative effect of a change in accounting principles charge of
approximately $19 million, after tax. Starting January 1, 2003, Occidental no
longer records energy-trading contracts that are not derivatives on a
mark-to-market basis.
TAXES
Deferred tax liabilities were $868 million at December 31, 2002, net of
deferred tax assets of $733 million. The current portion of the deferred tax
assets of $114 million is included in prepaid expenses and other. The net
deferred tax assets are expected to be realized through future operating income
and reversal of taxable temporary differences.
25
LAWSUITS, CLAIMS, COMMITMENTS, CONTINGENCIES AND RELATED MATTERS
Occidental Petroleum Corporation (OPC) and certain of its subsidiaries have
been named in a substantial number of lawsuits, claims and other legal
proceedings. These actions seek, among other things, compensation for alleged
personal injury, breach of contract, property damage, punitive damages, civil
penalties or other losses; or injunctive or declaratory relief. OPC and certain
of its subsidiaries also have been named in proceedings under the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA) and similar
federal, state and local environmental laws. These environmental proceedings
seek funding or performance of remediation and, in some cases, compensation for
alleged property damage, punitive damages and civil penalties; however,
Occidental is usually one of many companies in these proceedings and has to date
been successful in sharing response costs with other financially-sound
companies. With respect to all such lawsuits, claims and proceedings, including
environmental proceedings, Occidental accrues reserves when it is probable a
liability has been incurred and the amount of loss can be reasonably estimated.
During the course of its operations, Occidental is subject to audit by tax
authorities for varying periods in various federal, state, local and foreign tax
jurisdictions. Taxable years prior to 1996 are closed for U.S. federal income
tax purposes. Taxable years 1996 through 2000 are in various stages of audit by
the Internal Revenue Service. Disputes arise during the course of such audits as
to facts and matters of law.
At December 31, 2002, commitments for major capital expenditures during
2003 and thereafter were approximately $158 million.
Occidental has entered into agreements providing for future payments to
secure terminal and pipeline capacity, drilling services, electrical power,