Occidental Petroleum 2002 Annual Report Download - page 48

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adoption is also expected to increase net property, plant and equipment by $59
million, increase asset retirement obligation by $150 million and decrease
deferred tax liabilities by $33 million. In addition, Occidental will record a
pre-tax charge to income of approximately $17 million a year to reflect the
accretion of the liability and higher depreciation expense beginning in 2003.
SFAS NO. 142
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting and reporting requirements for
acquired goodwill and intangible assets. The provisions of this statement must
be applied starting with fiscal years beginning after December 15, 2001. At
December 31, 2001, the balance sheet included approximately $108 million of
goodwill and intangible assets with annual amortization expense of approximately
$6 million recorded in each of the years' income statements for the three-year
period ended December 31, 2001. As a result, elimination of goodwill
amortization would not have had a material impact on net income or earnings per
share of any of the years presented and, as a result, the transitional
disclosures of adjusted net income excluding goodwill amortization described by
SFAS No. 142 have not been presented. Upon implementation of SFAS No. 142 in the
first quarter of 2002, three separate specialty chemical businesses were
identified as separate reporting units and tested for goodwill impairment. All
three of these businesses are components of the chemical segment and were the
only reporting units having any goodwill on the balance sheet. The fair value of
each of the three reporting units was determined through third party appraisals.
The appraisals determined fair value to be the price that the assets could be
sold for in a current transaction between willing parties. As a result of the
impairment testing, Occidental recorded a "cumulative effect of changes in
accounting principles" after-tax reduction in net income of approximately $95
million due to the impairment of all the goodwill attributed to these reporting
units. Occidental now has no remaining goodwill on its financial statements.
SFAS NO. 141
In June 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS
No. 141 establishes new standards for accounting and reporting business
combinations including eliminating the pooling method of accounting. The
standard applies to all business combinations initiated after June 30, 2001.
Occidental implemented the provisions of SFAS No. 141, which had no impact on
the financial statements.
SFAS NO. 133
On January 1, 2001, Occidental adopted SFAS No. 133, as amended. These
statements established accounting and reporting standards for derivative
instruments and hedging activities and required an entity to recognize all
derivatives in the statement of financial position and measure those instruments
at fair value. Changes in the derivative instrument's fair value must be
recognized in earnings unless specific hedge accounting criteria are met.
Adoption of these new accounting standards resulted in cumulative after-tax
reductions in net income of approximately $24 million and OCI of approximately
$27 million in the first quarter of 2001. The adoption also increased total
assets by $588 million and total liabilities by $639 million as of January 1,
2001.
EITF ISSUE NO. 00-10
In the fourth quarter of 2000, Occidental adopted the provisions of EITF
Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs", which
establishes accounting and reporting standards for the treatment of shipping and
handling costs. Among its provisions, EITF Issue No. 00-10 requires that
transportation costs that had been accounted for as deductions from revenues
should now be recorded as an expense. The implementation of EITF Issue No. 00-10
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.
SFAS NO. 140
In the fourth quarter of 2000, Occidental adopted the disclosure provisions
of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities - a Replacement of FASB Statement No. 125", which