Hess 2000 Annual Report Download - page 37

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35
3. Accounting Changes
The Corporation adopted FAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, on January
1, 2001. This statement requires that the Corporation rec-
ognize all derivatives on the balance sheet at fair value.
For derivatives that hedge changes in the fair value of
assets, liabilities or firm commitments, the gains or losses
are recognized in earnings together with the offsetting
losses or gains on the hedged items. For derivatives that
hedge cash flows of forecasted transactions, the gains or
losses are recognized in other comprehensive income
until the hedged items are recognized in income. For
derivatives that are not hedges, the change in fair value
must be recognized in income. The Corporation estimates
that the transition adjustment resulting from applying the
new rules will be a cumulative after-tax increase in other
comprehensive income of approximately $100 million.
The after-tax effect on net income is not expected to be
material. The transition adjustment will be recognized in
the first quarter of 2001. The accounting change will also
affect assets and liabilities recorded on the Corporation’s
balance sheet.
On January 1, 1999, the Corporation adopted the last-in,
first-out (LIFO) inventory method for valuing its refining
and marketing inventories. The change to LIFO decreased
net income by $97 million for the year ended December
31, 1999 ($1.08 per share basic and diluted).
4. Inventories
Inventories at December 31 are as follows:
Millions of dollars 2000 1999
Crude oil and other charge stocks $103 $67
Refined and other finished products 502 393
Less: LIFO adjustment (281) (149)
324 311
Materials and supplies 77 62
Total $ 401 $ 373
5. Refining Joint Venture
In 1998, the Corporation formed HOVENSA L.L.C., a 50%
joint venture with Petroleos de Venezuela, S.A. (PDVSA).
HOVENSA owns and operates the Virgin Islands refinery,
previously wholly-owned by the Corporation.
The Corporation’s investment in the joint venture is
accounted for using the equity method. Summarized
financial information for HOVENSA as of December 31,
2000, 1999 and 1998 and for the years 2000 and 1999 and
two months of 1998 since inception follows:
Millions of dollars 2000 1999 1998
Summarized Balance Sheet Information
At December 31
Current assets $ 523 $ 433 $ 352
Net fixed assets 1,595 1,328 1,344
Other assets 37 27 28
Current liabilities (425) (282) (134)
Long-term debt (131) (150) (250)
Deferred liabilities
and credits (22) (26) (28)
Partners’ equity $ 1,577 $ 1,330 $1,312
Summarized Income Statement Information
For the periods ended December 31
Total revenues $ 5,243 $ 3,082 $ 345
Costs and expenses (4,996) (3,064) (376)(b)
Net income (loss)(a) $ 247 $ 18 $ (31)
(a) The Corporation’s share of HOVENSA’s income was $121 million
in 2000 and $7 million in 1999 and its share of the 1998 loss was
$16 million.
(b) 1998 results include an inventory writedown of $32 million, which
reduced costs of products sold in 1999.