Occidental Petroleum 2002 Annual Report Download - page 65

billion ($4.47 earnings per share). Pro-forma revenues would have been $9.8
billion for the year ended December 31, 2000. The pro-forma calculations were
made with historical operating results from Altura prior to ownership by
Occidental and give effect to certain adjustments, including increased
depreciation, depletion and amortization to reflect the value assigned to the
Altura property, plant and equipment, increased interest expense, and income tax
effects. The pro-forma results are not necessarily indicative of the results of
operations that would have occurred if the acquisition had been made at the
beginning of the periods presented or that may be obtained in the future. Also,
the pro-forma calculations do not reflect anticipated cost savings, synergies,
changes in realized prices or production rates and certain other adjustments
that are expected to result from the acquisition and operation of Altura.
On April 18, 2000, Occidental completed the sale of its 29.2-percent stake
in CanadianOxy for gross proceeds of approximately $1.2 billion Canadian. This
sale resulted in a net pre-tax gain of approximately $493 million. In addition,
Occidental and CanadianOxy exchanged their respective 15-percent interests in
joint businesses of approximately equal value, resulting in Occidental owning
100 percent of an oil and gas operation in Ecuador and CanadianOxy owning 100
percent of sodium chlorate operations in Canada and Louisiana.
NOTE 4 ASSET WRITE-DOWNS AND ACCOUNTING CHANGES
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ASSET WRITE-DOWNS
The 2002 results included pre-tax chemical asset write-downs of $25 million
for a polyvinyl chloride (PVC) dispersion resin plant and $17 million for
production assets at a chlor-alkali facility. The fair value of these assets,
which are classified as held for use, was determined by internal valuation
methodologies. The write-downs were the result of continued depressed market
conditions and regulatory requirements.
The 2000 results included pre-tax charges of $120 million for the
write-down of the chemical intermediate businesses to net realizable value, $53
million for the write-down of various oil and gas assets and investments and $15
million for the write-down of various chemical assets.
The write-down of the chemical intermediate businesses was based on
management's decision to exit this business through a sale or shutdown. The
write-down was for costs associated with plant shutdown, employee severance,
pension and retiree medical costs, inventory write-downs, decommissioning
equipment, loss contract obligations and PP&E write-downs. The fair value of
these assets, which were classified as held for sale, was determined by
estimated sales proceeds from interested third party buyers.
In July 2000, Occidental received an investment bankers' report for Premcor
(formerly Clark) that reviewed public market options if Premcor were to decide
to make an initial public offering of its common stock. Occidental accounts for
its investment in Premcor on the cost method of accounting. Based on the study,
Occidental believed its investment was impaired on an other-than-temporary
basis. Occidental assumed the mid point of the range in the study, of
approximately $60 million, to be a reasonable estimate of the implied fair value
of its Premcor investment. Therefore, to reflect the impairment in value of its
investment, Occidental recorded a writedown in the third quarter of 2000 of $35
million.
ACCOUNTING CHANGES
FIN NO. 46
In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation (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