Occidental Petroleum 2006 Annual Report Download - page 39

Other Loss Contingencies
Occidental is involved with numerous lawsuits, claims, proceedings and audits in the normal course of its operations. Occidental records a loss
contingency for these matters when it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can
be reasonably estimated. In addition, Occidental discloses, in aggregate, its exposure to loss in excess of the amount recorded on the balance
sheet for these matters if it is reasonably possible that an additional material loss may be incurred. Occidental reviews its loss contingencies on an
ongoing basis so that they are adequately reserved on the balance sheet.
These reserves are based on judgments made by management with respect to the likely outcome of these matters and are adjusted as
appropriate. Management’s judgments could change based on new information, changes in laws or regulations, changes in management’s plans
or intentions, the outcome of legal proceedings, settlements or other factors.
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Listed below are significant changes in accounting principles.
SFAS No. 158
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an
amendment of FASB Statements No. 87, 88, 106, and 132(R).” This statement requires an employer to recognize the overfunded or underfunded
amounts of its defined benefit pension and postretirement plans as an asset or liability and recognize changes in the funded status of these plans
in the year in which the changes occur through other comprehensive income (OCI), if they are not recognized in the income statement. The
statement also requires a company to use the date of its fiscal year-end to measure the plans. The recognition and disclosure provisions of SFAS
No. 158 are effective for fiscal years ending after December 15, 2006. The requirement to use the fiscal year-end as the measurement date is
effective for fiscal years ending after December 15, 2008. Occidental adopted this statement on December 31, 2006, and recorded an additional
liability of $233 million and a reduction of accumulated OCI, deferred tax liabilities, other assets and minority interest of $168 million, $104 million,
$42 million and $3 million, respectively.
SAB 108
In September 2006, the SEC issued Staff Accounting Bulletin (SAB) 108, “Financial Statements – Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 requires quantification of the impact of all prior
year misstatements from both an income statement and a balance sheet perspective to determine if the misstatements are material. SAB 108 is
effective for financial statements issued for fiscal years ending after November 15, 2006. Occidental adopted SAB 108 effective December 31, 2006
and there was no material effect on the financial statements upon adoption.
FIN 48
In June 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.” This
interpretation specifies that benefits from tax positions should be recognized in the financial statements only when it is more-likely-than-not that
the tax position will be sustained upon examination by the appropriate taxing authority having full knowledge of all relevant information. A tax
position meeting the more-likely-than-not recognition threshold should be measured at the largest amount of benefit for which the likelihood of
realization upon ultimate settlement exceeds 50 percent. It also requires additional disclosures related to these tax positions. FIN 48 is effective for
fiscal years beginning after December 15, 2006. Occidental will adopt FIN 48 in the first quarter of 2007 and expects there will not be a material
effect on the financial statements upon adoption.
SFAS No. 157
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement establishes a framework for measuring fair
value and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007. Occidental is currently assessing the effect of SFAS No. 157 on its financial statements.
FSP AUG AIR-1
In September 2006, the FASB issued FASB Staff Position (FSP) AUG AIR-1, “Accounting for Planned Major Maintenance Activities.” This FSP
prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial
reporting periods. FSP AUG AIR-1 is effective for the first fiscal year beginning after December 15, 2006. Occidental will adopt FSP AUG AIR-1 in
the first quarter of 2007 and expects there will not be a material effect on the financial statements upon adoption.
EITF Issue No. 06-4
In September 2006, the Emerging Issues Task Force (EITF) finalized the provisions of EITF Issue No. 06-4, “Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements”. This EITF Issue provides accounting
guidance for endorsement split-dollar life insurance arrangements and require employers to recognize liability for future benefits in accordance
with SFAS 106 or Accounting Principles Board (APB) Opinion No. 12. The recognition and disclosure provisions of EITF Issue No. 06-4 are effective
for fiscal years ending after December 15, 2007. Occidental is currently assessing the effect of this EITF Issue on its financial statements.
EITF Issue No. 06-5
In September 2006, the EITF finalized the provisions of EITF Issue No. 06-5, “Accounting for Purchase of Life Insurance-Determining the
Amount That Could Be Realized in Accordance with FASB Technical bulletin No. 85-4.” This EITF Issue provides accounting guidance for
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