Occidental Petroleum 2008 Annual Report Download - page 30

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Worldwide Effective Tax Rate
The following table sets forth the calculation of the worldwide effective tax rate for income from continuing operations:
In millions 2008 2007 2006
EARNINGS
Oil and Gas (a) $10,651 $7,957 $6,676
Chemical 669 601 906
Midstream, Marketing and Other 520 367 201
Unallocated Corporate Items (372) (340) (227)
Pre-tax income (a) 11,468 8,585 7,556
Income tax expense
Federal and State 2,188 1,558 1,625
Foreign (a) 2,441 1,949 1,729
Total 4,629 3,507 3,354
Income from continuing operations $6,839 $5,078 $4,202
Worldwide effective tax rate 40% 41% 44%
(a) Revenues, oil and gas pre-tax income and income tax expense include income taxes owed by Occidental but
paid by governmental entities on its behalf of $2.1 billion, $1.3 billion and $1.1 billion for the years ended
December 31, 2008, 2007 and 2006, respectively.
Occidental’s 2008 worldwide tax rate was 40 percent, which is comparable to 2007.
Occidental’s 2007 worldwide effective tax rate was 41 percent. The decrease in the income tax rate in 2007, compared to 2006,
resulted from lower taxes on the 2007 sale of certain properties.
CONSOLIDATED RESULTS OF OPERATIONS
The changes in the following components of Occidental's results of operations are discussed below:
Selected Revenue and Other Income Items
In millions 2008 2007 2006
Net sales $24,217 $18,784 $17,175
Interest, dividends and other income $236 $355 $381
Gains on disposition of assets, net $27 $874 $118
The increase in net sales in 2008, compared to 2007, reflects higher average oil and natural gas prices and higher oil and gas
volumes, including increased volumes from the Dolphin Project, offset by lower volumes from PSCs and the new Libya contract.
The increase in net sales in 2007, compared to 2006, reflects higher crude oil prices and increased oil and gas volumes, including
production from the start-up of the Dolphin Project in the third quarter of 2007.
Interest, dividends and other income in 2007 and 2006 included gains related to litigation settlements of $112 million and $108
million, respectively.
Gains on disposition of assets, net in 2007, includes a $326 million gain from the sale of 21 million shares of Lyondell, a $412
million gain from the sale of Occidental’s interest in a Russian joint venture and a gain of $103 million from the sale of exploration properties
in West Africa.
Gains on disposition of assets, net in 2006, includes a gain of $90 million from the sale of 10 million shares of Lyondell stock.
Selected Expense Items
In millions 2008 2007 2006
Cost of sales (a) $7,423 $6,454 $6,009
Selling, general and administrative and other operating
expenses $1,257 $1,320 $1,145
Depreciation, depletion and amortization $2,710 $2,379 $2,008
Taxes other than on income $588 $414 $394
Exploration expense $327 $364 $296
Interest and debt expense, net $129 $339 $291
(a) Excludes depreciation, depletion and amortization of $2,664 million in 2008, $2,338 million in 2007 and $1,978
million in 2006.
Cost of sales increased in 2008, compared to 2007, due to higher oil and natural gas volumes, as well as higher maintenance,
workover, field operating and feedstock costs.
Cost of sales increased in 2007, compared to 2006, due to higher oil and natural gas production and maintenance costs and higher
chemicals feedstock costs.
Selling, general and administrative and other operating expenses decreased in 2008, compared to 2007, due to a decrease in equity
compensation expense and foreign exchange gains of $91 million, which were partially offset by rig contract termination charges of $58
million.
Selling, general and administrative and other operating expenses increased in 2007, compared to 2006, due to 2007 severance
charges and higher stock-based and incentive compensation expense. The increase in stock-based and incentive compensation expense in
2007, compared to 2006, resulted from a 58-percent increase in Occidental's stock price and higher net income, which increased the
performance measures used to value certain of the existing stock-based awards, partially offset by a decrease in the value of awards granted