Occidental Petroleum 2002 Annual Report Download - page 46

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an additional pre-tax remediation expense of $39 million.
OTHER LOSS CONTINGENCIES
Occidental is involved with numerous lawsuits, claims, proceedings and
audits in the normal course of its operations. Occidental records a loss
contingency for these matters when it is probable that an asset has been
impaired or a liability has been incurred and the amount of the loss can be
reasonably estimated. In addition, Occidental discloses, in aggregate, its
exposure to loss in excess of the amount recorded on the balance sheet for these
matters if it is reasonably possible that an additional material loss may be
incurred. In order to assess its loss contingencies, Occidental reviews its loss
contingencies on an on-going basis so that they are adequately reserved on the
balance sheet.
These reserves are based on judgments made by management with respect to
the likely outcome of these matters and are adjusted as appropriate.
Management's judgments could change based on new information, changes in laws or
regulations, changes in management's plans or intentions, the outcome of legal
proceedings, settlements or other factors.
30
ADDITIONAL ACCOUNTING CHANGES
Listed below are additional changes in accounting principles applicable to
Occidental.
FIN NO. 46
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." FIN No. 46 requires a company to consolidate a variable
interest entity if it is designated as the primary beneficiary of that entity
even if the company does not have a majority of voting interests. A variable
interest entity is generally defined as an entity where its equity is unable to
finance its activities or where the owners of the entity lack the risk and
rewards of ownership. The provisions of this statement apply at inception for
any entity created after January 31, 2003. For an entity created before February
1, 2003, the provisions of this Interpretation must be applied at the beginning
of the first interim or annual period beginning after June 15, 2003. Occidental
will adopt the provisions of FIN No. 46 in the third quarter of 2003 for
existing entities that are within the scope of this interpretation. The
statement also has disclosure requirements, some of which are required to be
disclosed for financial statements issued after January 31, 2003. On a
preliminary basis, Occidental believes that its OxyMar investment and its
LaPorte, Texas VCM plant lease will be consolidated under the provisions of this
statement. (See further discussion in "Additional Considerations Regarding
Funding and Liquidity" in the MD&A).
FIN NO. 45
In January 2003, the FASB issued FIN No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN No. 45 requires a company to recognize a liability
for the obligations it has undertaken in issuing a guarantee. This liability
would be recorded at the inception of a guarantee and would be measured at fair
value. The measurement provisions of this statement apply prospectively to
guarantees issued or modified after December 31, 2002. The disclosure provisions
of the statement apply to financial statements for periods ending after December
15, 2002. (See further discussion in "Lawsuits, Claims, Commitments,
Contingencies and Related Matters" in the MD&A). Occidental will adopt the
measurement provisions of this statement in the first quarter of 2003. The
adoption of the statement is not expected to have a material effect on the
financial statements when adopted.
SFAS NO. 148
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 permits two additional
transition methods for companies that elect to adopt the fair-value-based method
of accounting for stock-based employee compensation. The statement also expands