Occidental Petroleum 2003 Annual Report Download - page 64

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.
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
Statement No. 142, Goodwill and Other Intangible Assets, to Oil and Gas
Companies." These proposed statements will determine whether contract-based oil
and gas mineral rights are classified as tangible or intangible assets based on
the EITF's interpretation of SFAS No. 141 and SFAS No. 142. Historically,
Occidental has classified all of its contract-based mineral rights within
property, plant and equipment and has generally not identified these amounts
separately. If the EITF determines that these mineral rights should be presented
as intangible assets, Occidental would have to reclassify its contract-based oil
and gas mineral rights acquired after June 30, 2001 to intangible assets and
make additional disclosures in accordance with SFAS No. 142. If Occidental
adopted this change, approximately $492 million and $226 million of the
property, plant and equipment balance would be reclassified to intangible assets
at December 31, 2003 and 2002, respectively. These amounts, which are net of
accumulated depreciation, depletion and amortization, include approximately $475
million and $210 million of mineral rights related to proved properties at
December 31, 2003 and 2002, respectively. Occidental has been amortizing these
amounts under the unit-of-production method and would continue to amortize the
mineral rights under this method. Based on its understanding of the scope of the
EITF deliberations, Occidental believes the adoption of this potential decision
would have no material effect on its results of operations.
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NOTE 5 INVENTORIES
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Inventories of approximately $171 million and $190 million were valued
under the LIFO method at December 31, 2003 and 2002, respectively. Inventories
consisted of the following:
Balance at December 31, (in millions) 2003 2002
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Raw materials $ 46 $ 54
Materials and supplies 143 125
Finished goods 342 319
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531 498
LIFO reserve (21) (7)
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TOTAL $ 510 $ 491
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