Hess 2002 Annual Report Download - page 34

Environmental Expenditures: The Corporation capitalizes
environmental expenditures that increase the life or efficiency of
property or that reduce or prevent environmental contamination. The
Corporation accrues for environmental expenses resulting from
existing conditions related to past operations when the future costs
are probable and reasonably estimable.
Employee Stock Options and Nonvested Common Stock Awards:
The Corporation uses the intrinsic value method to account for
employee stock options. Because the exercise prices of employee
stock options equal or exceed the market price of the stock on the
date of grant, the Corporation does not recognize compensation
expense. The Corporation records compensation expense for non-
vested common stock awards ratably over the vesting period. The
following pro forma financial information presents the effect on
net income and earnings per share as if the Corporation used the fair
value method.
Millions of dollars, except per share data 2002 2001 2000
Net income (loss) $ (218) $ 914 $1,023
Add stock-based employee
compensation expense included
in net income, net of taxes 584
Less total stock-based employee
compensation expense determined
using the fair value method, net
of taxes (19) (22) (21)
Pro forma net income (loss) $ (232) $ 900 $1,006
Net income (loss) per share as reported
Basic $(2.48) $10.38 $11.48
Diluted (2.48) 10.25 11.38
Pro forma net income (loss) per share
Basic $(2.63) $10.23 $11.29
Diluted (2.63) 10.10 11.19
Foreign Currency Translation: The U.S. dollar is the functional cur-
rency (primary currency in which business is conducted) for most
foreign operations. For these operations, adjustments resulting from
translating foreign currency assets and liabilities into U.S. dollars
are recorded in income. For operations that use the local currency
as the functional currency, adjustments resulting from translating
foreign functional currency assets and liabilities into U.S. dollars are
recorded in a separate component of stockholders’ equity entitled
accumulated other comprehensive income. Gains or losses resulting
from transactions in other than the functional currency are reflected
in net income.
Retirement of Property, Plant and Equipment: Costs of property, plant
and equipment retired or otherwise disposed of, less accumulated
reserves, are reflected in non-operating income.
Impairment of Long-Lived Assets: The Corporation reviews long-
lived assets, including oil and gas properties at a field level, for
impairment whenever events or changes in circumstances indicate
that the carrying amounts may not be recovered. If the carrying
amounts are not expected to be recovered by undiscounted future
cash flows, the assets are impaired and an impairment loss is
recorded. The amount of impairment is based on the estimated fair
value of the assets determined by discounting anticipated future net
cash flows. In the case of oil and gas fields, the net present value of
future cash flows is based on management’s best estimate of future
prices, which is determined with reference to recent historical prices
and published forward prices, applied to projected production vol-
umes of individual fields and discounted at a rate commensurate
with the risks involved. The projected production volumes represent
reserves, including probable reserves, expected to be produced
based on a stipulated amount of capital expenditures. The produc-
tion volumes, prices and timing of production are consistent with
internal projections and other externally reported information. Oil
and gas prices used for determining asset impairments will generally
differ from those used at year-end in the standardized measure of
discounted future net cash flows.
Impairment of Equity Investees: The Corporation reviews equity
method investments for impairment whenever events or changes in
circumstances indicate that an other than temporary decline in value
has occurred. The amount of the impairment is based on quoted
market prices, where available, or other valuation techniques,
including discounted cash flows.
Impairment of Goodwill: In accordance with FAS No. 142, Goodwill
and Other Intangible Assets, goodwill cannot be amortized; however,
it must be tested annually for impairment. This impairment test is
calculated at the reporting unit level, which is the exploration and
production segment for the Corporation’s goodwill. The Corporation
identifies potential impairments by comparing the fair value of the
reporting unit to its book value, including goodwill. If the fair value
of the reporting unit exceeds the carrying amount, goodwill is not
impaired. If the carrying value exceeds the fair value, the Corporation
calculates the possible impairment loss by comparing the implied fair
value of goodwill with the carrying amount. If the implied goodwill is
less than the carrying amount, a write-down is recorded.
Maintenance and Repairs: The estimated costs of major
maintenance, including turnarounds at the Port Reading refining
facility, are accrued. Other expenditures for maintenance and repairs
are charged against income as incurred. Renewals and improve-
ments are treated as additions to property, plant and equipment,
and items replaced are treated as retirements.
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