Occidental Petroleum 2003 Annual Report Download - page 39

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there was no effect on the 2002 presentation. The effects of the statement on
prior years include the reclassification of an extraordinary loss to net income
from continuing operations of $8 million ($0.02 per share) in 2001. There was no
effect on net income or basic earnings per common share upon adoption.
SFAS NO. 143
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. Under SFAS No. 143, companies
are required to recognize the fair value of a liability for an asset retirement
obligation in the period in which the liability is incurred if there is a legal
obligation to dismantle the asset and reclaim or remediate the property at the
end of the useful life. Occidental adopted SFAS No. 143 in the first quarter of
2003. The initial adoption resulted in an after-tax charge of $50 million, which
was recorded as a cumulative effect of a change in accounting principles. The
adoption increased net property, plant and equipment by $73 million, increased
asset retirement obligations by $151 million and decreased deferred tax
liabilities by $28 million. The pro-forma asset retirement obligation, if the
adoption of this statement had occurred on January 1, 2002, would have been $131
million at January 1, 2002 and $151 million at December 31, 2002.
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 are
applied to companies 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. 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.
SFAS NO. 133
On January 1, 2001, Occidental adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended. This statement
established accounting and reporting standards for derivative instruments and
hedging activities and required an entity to recognize derivatives on the
balance sheet 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 this new accounting
standard resulted in cumulative after-tax reductions in net income of
approximately $24 million and Other Comprehensive Income (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.
27
INTANGIBLE ASSETS
The EITF currently is deliberating on EITF No. 03-O, "Whether Mineral
Rights Are Tangible or Intangible Assets" and EITF No. 03-S "Application of FASB