Occidental Petroleum 2003 Annual Report Download - page 52

expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the consolidated financial statements. Accordingly, upon
settlement, actual results may differ from estimated amounts, generally not by
material amounts. Management believes that these estimates and assumptions
provide a reasonable basis for the fair presentation of Occidental's financial
position and results of operations.
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Included in the accompanying consolidated balance sheet are deferred tax
assets of $839 million as of December 31, 2003, the noncurrent portion of which
is netted against deferred income tax liabilities. Realization of these assets
is dependent upon Occidental generating sufficient future taxable income.
Occidental expects to realize the recorded deferred tax assets through future
operating income and reversal of taxable temporary differences.
The accompanying consolidated balance sheet includes assets of
approximately $3.3 billion as of December 31, 2003, relating to Occidental's
operations in countries outside North America. Some of these countries may be
considered politically and economically unstable. These assets and the related
operations are subject to the risk of actions by governmental authorities and
insurgent groups. Occidental attempts to conduct its financial affairs so as to
mitigate its exposure against such risks and would expect to receive
compensation in the event of nationalization.
Since Occidental's major products are commodities, significant changes in
the prices of oil and gas and chemical products may have a significant impact on
Occidental's results of operations for any particular year.
Also, see "Property, Plant and Equipment" below.
FOREIGN CURRENCY TRANSACTIONS
The functional currency applicable to all of Occidental's foreign oil and
gas operations is the U.S. dollar since cash flows are denominated principally
in U.S. dollars. Occidental's chemical operations in Brazil use the Real as the
functional currency. The effect of exchange-rate changes on transactions
denominated in nonfunctional currencies generated a gain(loss) of $0 in 2003,
$(26) million in 2002 and $1 million in 2001. The 2002 amount related to the
writedown and sale of Occidental's calendering operations in Rio de Janeiro,
Brazil.
CASH AND CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid investments that are readily
convertible to cash. Cash equivalents totaled approximately $661 million and
$116 million at December 31, 2003 and 2002, respectively.
TRADE RECEIVABLES
Occidental has an agreement in place to sell, under a revolving sale
program, an undivided interest in a designated pool of non-interest bearing
trade receivables. This program is used by Occidental as a low-cost source of
working capital funding. The balance of receivables sold at December 31, 2003
and 2002 was $360 million. This amount is not included in the debt and related
trade receivables accounts, respectively, on Occidental's consolidated balance
sheets. Receivables must meet certain criteria to qualify for the program.
Under this program, Occidental serves as the collection agent with respect
to the receivables sold. An interest in new receivables is sold as collections
are made from customers. Fees and expenses under this program are included in
selling, general and administrative and other operating expenses. During the
years ended December 31, 2003, 2002 and 2001, the cost of this program amounted
to approximately 1.5 percent, 2.1 percent and 4.5 percent, respectively, of the
weighted average amount of the receivables sold in each year. The fair value of
any retained interests in the receivables sold is not material. The buyers of
the receivables are protected against significant risk of loss on their purchase
of receivables. Occidental provides for allowances for any doubtful receivables
based on its periodic evaluation of such receivables. The provisions for such
receivables were not material in the years ended December 31, 2003, 2002 and
2001.
The program can terminate upon the occurrence of certain events, which