Occidental Petroleum 2008 Annual Report Download - page 69

The following is a reconciliation, stated as a percentage of pre-tax income, of the United States statutory federal income tax rate to
Occidental’s effective tax rate on income from continuing operations:
For the years ended December 31, 2008 2007 2006
United States federal statutory tax rate 35% 35% 35%
Operations outside the United States 6 6 8
State taxes, net of federal benefit 1 1 1
Other (2) (1) —
Tax rate provided by Occidental 40% 41% 44%
The tax effects of temporary differences resulting in deferred income taxes at December 31, 2008 and 2007 were as follows:
2008 2007
Tax effects of temporary differences (in millions)
Deferred
Tax
Assets
Deferred
Tax
Liabilities
Deferred
Tax
Assets
Deferred
Tax
Liabilities
Property, plant and equipment differences $16 $3,646 $180 $3,541
Environmental reserves 177 — 186 —
Postretirement benefit accruals 296 — 243 —
Deferred compensation and benefits 240 — 259 —
Asset retirement obligations 159 — 136 —
Derivatives 64 — 218 —
Foreign tax credit carryforward 423 — 242 —
State income taxes 85 — 71 —
All other 409 205 459 251
Subtotal 1,869 3,851 1,994 3,792
Valuation allowance (478) — (296) —
Total deferred taxes $1,391 $3,851 $1,698 $3,792
Included in total deferred tax assets was a current portion aggregating $200 million and $230 million as of December 31, 2008 and
2007, respectively, that was reported in prepaid expenses and other. Total deferred tax assets were $1.4 billion and $1.7 billion as of
December 31, 2008 and 2007, respectively, the noncurrent portion of which is netted against deferred tax liabilities.
Occidental has, as of December 31, 2008, foreign tax credit carryforwards of $423 million, which expire in varying amounts through
2018 and various state operating loss carryforwards, which have varying carryforward periods through 2025. Occidental establishes a
valuation allowance against net operating losses and other deferred tax assets to the extent it believes future benefit from these assets will
not be realized in the statutory carryforward periods. Substantially all of Occidental's valuation allowance is provided for foreign and state tax
credit carryforwards.
A deferred tax liability has not been recognized for temporary differences related to unremitted earnings of certain consolidated foreign
subsidiaries aggregating approximately $4.8 billion at December 31, 2008, as it is Occidental’s intention, generally, to reinvest such
earnings permanently. If the earnings of these foreign subsidiaries were not indefinitely reinvested, an additional deferred tax liability of
approximately $60 million would be required, assuming utilization of available foreign tax credits.
The discontinued operations include an income tax charge of $29 million in 2008, a charge of $141 million in 2007 and a benefit of
$92 million in 2006.
Additional paid-in capital was credited $77 million in 2008, $43 million in 2007 and $140 million in 2006 for an excess tax benefit
from the exercise of certain stock-based compensation awards.
Occidental adopted FASB Interpretation No. 48 effective January 1, 2007. As of December 31, 2008, Occidental had liabilities for
unrecognized tax benefits of approximately $62 million included in deferred credits and other liabilities – other, all of which, if subsequently
recognized, would have affected Occidental’s effective tax rate.
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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: