Occidental Petroleum 2002 Annual Report Download - page 84

Download and view the complete annual report

Please find page 84 of the 2002 Occidental Petroleum annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 149

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149

---------- ---------- ---------- ----------
Benefit obligation -- end of year $ 357 $ 337 $ 515 $ 465
============================================================ ========== ========== ========== ==========
The following table sets forth the reconciliation of the beginning and
ending balances of the fair value of plan assets for Occidental's defined
benefit pension plans (in millions):
Pension Benefits
------------------------
2002 2001
============================================================ ========== ==========
CHANGES IN PLAN ASSETS:
Fair value of plan assets -- beginning of year $ 255 $ 254
Actual return on plan assets (1) 14
Foreign currency exchange rate changes (3) (1)
Employer contribution 23 8
Benefits paid (21) (20)
Divestitures (2) --
---------- ----------
Fair value of plan assets -- end of year $ 251 $ 255
============================================================ ========== ==========
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for defined benefit pension plans with accumulated benefit
obligation in excess of plan assets were $231 million, $211 million, and $124
million respectively, as of December 31, 2002 and $212 million, $193 million and
$123 million, respectively, as of December 31, 2001.
For domestic pension plans, the weighted average discount rate used in
determining the benefit obligation was 6.65 percent and 7 percent, respectively
as of December 31, 2002 and 2001. Occidental bases the discount rate on the
average yield provided by the Moody's Aa Corporate Bond Index. The weighted
average rate of increase in future compensation levels used in determining the
benefit obligations was approximately 4.0 percent in 2002, and 4.5 percent in
2001. These compensation increase assumptions are consistent with Occidental's
past and anticipated future compensation increases for employees participating
in retirement plans that determine benefits using compensation. The expected
long-term rate of return on assets was 8.0 percent in 2002 and 9.0 percent in
2001. This assumption is based on Occidental's expected return on plan assets
with a targeted mix of approximately 60 percent in equities and 40 percent in
fixed income securities.
For pension plans outside of the United States, the assumptions used in
determining the benefit obligation vary by country. The discount rates used in
determining the benefit obligation range from a low of 4 percent to a high of 13
percent as of December 31, 2002 and a low of 4 percent to a high of 25 percent
as of December 31, 2001. Occidental bases its discount rate for foreign pension
plans on rates indicative of government and or investment grade corporate debt
in the applicable country. The average rate of increase in future compensation
levels ranged from a low of 3 percent to a high of 9 percent in 2002 and from a
low of 3 percent to a high of 19 percent in 2001 dependent on local economic
conditions and salary budgets. The expected long-term rates of return on plan
assets were 5.5 percent in excess of local inflation in both 2002 and 2001.
The postretirement benefit obligation was determined by application of the
terms of medical and dental benefits and life insurance coverage, including the
effect of established maximums on covered costs, together with relevant
actuarial assumptions and health care cost trend rates projected at a Consumer
Price Index (CPI) increase of 3.0 percent as of December 31, 2002 and 2001,
(beginning in 1993, participants other than certain union employees pay for all
medical cost increases in excess of increases in the CPI). For certain union
employees, the health care cost trend rates were projected at annual rates
ranging ratably from 11 percent in 2002 to 6.0 percent through the year 2007 and
level thereafter. A 1-percent increase or a 1-percent decrease in these assumed
health care cost trend rates would result in an increase of $16 million or a
reduction of $15 million, respectively, in the postretirement benefit obligation
as of December 31, 2002, and an increase or reduction of $1 million, in interest