Occidental Petroleum 2002 Annual Report Download - page 66

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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 Notes 7 and 14).
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 Note 9). 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.
48
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
the disclosure requirements for stock-based compensation. The provisions of this
statement apply to financial statements for fiscal years ending after December
15, 2002. The statement is not expected to have a material impact on the
financial statements when adopted.
EITF ISSUE NO. 02-3
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 prescribed 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
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