Occidental Petroleum 2003 Annual Report Download - page 51

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and Subsidiaries
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Occidental
Petroleum Corporation, entities where it owns a majority voting interest,
variable-interest entities (VIE) where it is the primary beneficiary and its
undivided interests in oil and gas exploration and production ventures. In these
Notes, the term "Occidental" or "the company" refers to Occidental Petroleum
Corporation and/or one or more entities where it owns a majority voting
interest. The company's proportionate share of oil and gas exploration and
production ventures, where it has a direct working interest, is accounted for by
reporting its proportionate share of assets, liabilities, revenues and costs
within the relevant lines on the balance sheets, income statements and cash flow
statements.
In addition, certain financial statements, notes and supplementary data for
prior years have been changed to conform to the 2003 presentation.
INVESTMENTS IN UNCONSOLIDATED ENTITIES
Investments in unconsolidated entities include both equity method
investments and available-for-sale investments. Amounts representing
Occidental's percentage interest in the underlying net assets of affiliates
(excluding undivided interests in oil and gas exploration and production
ventures) in which it does not have a majority voting interest but as to which
it exercises significant influence, are accounted for under the equity method.
The company reviews equity method investments for impairment whenever events or
changes in circumstances indicate that an other-than-temporary decline in value
has occurred. The amount of impairment, if any, is based on quoted market
prices, where available, or other valuation techniques, including discounted
cash flows.
Investments in which Occidental does not exercise significant influence are
accounted for as available-for-sale investments in accordance with Statements of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under SFAS No. 115,
available-for-sale investments are carried at fair value, based on quoted market
prices, with unrealized gains and losses reported in Other Comprehensive Income
(OCI), net of taxes, until such investment is sold or collected. In disposal,
the accumulated unrealized gain or loss included in OCI is transferred to
income.
REVENUE RECOGNITION
For oil and gas, title passes to the customer when product is shipped.
Revenue is recognized when title has passed to the customer. Prices are either
fixed or based on a market index. For marketing and trading activities, revenue
is recognized on settled transactions upon completion of contract terms, and for
physical deliveries, upon title transfer. For unsettled transactions, contracts
that meet specified accounting criteria are marked to market (see "Accounting
Changes" in Note 4).
Revenue from chemical product sales is recognized when the product is
shipped and title has passed to the customer. Prices are fixed at the time of
shipment. Customer incentive programs provide for payments or credits to be made
to customers based on the volume of product purchased over a defined period.
Total customer incentive payments over a given period are estimated and recorded
as a reduction to revenue ratably over the contract period. Such estimates are
evaluated and revised as warranted.
NATURE OF OPERATIONS
Occidental is a multinational organization whose principal business
segments are oil and gas and chemical. The oil and gas segment explores for,
develops, produces and markets crude oil and natural gas. The chemical segment
manufactures and markets basic chemicals, vinyls and performance chemicals.
RISKS AND UNCERTAINTIES
The process of preparing consolidated financial statements in conformity
with generally accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues and