Occidental Petroleum 2003 Annual Report Download - page 44
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Several of Occidental's foreign operations are located in countries whose
currencies generally depreciate against the U.S. dollar. Typically, effective
currency forward markets do not exist for these countries. Therefore, Occidental
attempts to manage its exposure primarily by balancing monetary assets and
liabilities and maintaining cash positions only at levels necessary for
operating purposes. Generally, international crude oil sales are denominated in
U.S. dollars. Additionally, all of Occidental's oil and gas foreign entities
have the U.S. dollar as the functional currency. However, in one foreign
chemical subsidiary where the local currency is the functional currency,
Occidental has exposure on U.S. dollar-denominated debt that is not material. At
December 31, 2003 and 2002, Occidental had not entered into any foreign currency
derivative instruments. The effect of exchange-rate transactions in foreign
currencies is included in periodic income.
DERIVATIVE AND FAIR VALUE DISCLOSURES
The following table shows derivative financial instruments included in the
consolidated balance sheets:
Balance at December 31, (in millions) 2003 2002
=============================================== ======== ========
Derivative financial instrument assets (a)
Current $ 138 $ 164
Non-current 118 157
-------- --------
$ 256 $ 321
======== ========
Derivative financial instrument liabilities (a)
Current $ 85 $ 115
Non-current 23 23
-------- --------
$ 108 $ 138
=============================================== ======== ========
(a) Amounts include energy-trading contracts.
As a result of fair-value hedges, the amount of interest expense recorded
in the income statement was lower by approximately $58 million and $45 million
for the years ended December 31, 2003 and 2002, respectively.
The following table summarizes after-tax derivative activity recorded in
OCI:
For the years ended December 31, (in millions) 2003 2002
================================================= ======== ========
Beginning Balance $ (26) $ (20)
Losses from changes in current cash flow hedges (17) (14)
Amount reclassified to income 19 8
-------- --------
Ending Balance $ (24) $ (26)
================================================= ======== ========
During the next twelve months, Occidental expects that approximately $3
million of net derivative after-tax losses included in OCI, based on their
valuation at December 31, 2003, will be reclassified into earnings when the
hedged transactions close. Hedge ineffectiveness did not have a significant
impact on earnings for the years ended December 31, 2003 and 2002.
SELECTED CASH-FLOW INFORMATION