Occidental Petroleum 2008 Annual Report Download - page 42

Occidental believes that it will not be required to assume a share of liability of such other potentially responsible parties in an amount that
would have a material effect on Occidental’s consolidated financial position, liquidity or results of operations.
Most cost-sharing arrangements with other parties fall into one of the following three categories: (1) environmental proceedings that
result in a negotiated or prescribed allocation of remediation costs among Occidental and other alleged potentially responsible parties; (2) oil
and gas ventures in which each participant pays its proportionate share of remediation costs reflecting its working interest; or (3) contractual
arrangements, typically relating to purchases and sales of properties, in which the parties to the transaction agree to methods of allocating
remediation costs.
In all three of these categories, Occidental records reserves at its expected net cost of remedial activities.
In addition to the costs of investigations and cleanup measures, which often take in excess of ten years at CERCLA NPL sites,
Occidental’s reserves include management’s estimates of the costs to operate and maintain remedial systems. If remedial systems are
modified over time in response to significant changes in site-specific data, laws, regulations, technologies or engineering estimates,
Occidental reviews and adjusts its reserves accordingly.
If Occidental adjusts the environmental reserve balance based on the factors described above, the amount of the increase or decrease
would be recognized in earnings. For example, if the reserve balance were reduced by 10 percent, Occidental would record a pre-tax gain of
$44 million. If the reserve balance were increased by 10 percent, Occidental would record an additional remediation expense of $44 million.
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.
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 and the outcome of legal proceedings, settlements or other factors. See "Lawsuits, Claims,
Commitments and Related Matters" for additional information.
SIGNIFICANT ACCOUNTING CHANGES
Listed below are significant changes in accounting principles.
Future Accounting Changes
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In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 141(R), "Business Combinations." This statement provides new accounting guidance and disclosure requirements for business
combinations and is effective for business combinations which occur starting with the first fiscal year beginning on or after December 15,
2008.
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In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements." This statement
provides new accounting guidance and disclosure and presentation requirements for noncontrolling interests in an entity. SFAS No. 160 is
effective for the first fiscal year beginning on or after December 15, 2008. Occidental does not expect the effect of this statement on its
financial statements to be material.
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In March 2008, the FASB issued SFAS No. 161, which provides new disclosure requirements for an entity’s derivative and hedging
activities. SFAS No. 161 is effective for periods beginning after November 15, 2008. Occidental does not expect the effect of this statement on
its financial statements to be material.
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In June 2008, the FASB issued FASB Staff Position (FSP) Emerging Issues Task Force (EITF) Issue No. 03-6-1. This FSP concluded
that instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, should be included
in the earnings allocations in computing basic earnings per share under the two-class method. This FSP is effective for financial statements
issued for fiscal years beginning after December 15, 2008 with prior period retrospective application. Occidental does not expect the effect of
this FSP on its financial statements to be material.
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In December 2008, the FASB issued FSP SFAS No. 132(R)-1. This FSP requires companies to enhance disclosures related to the
assets held in defined benefit plans and other post-retirement benefits. Occidental will be required to provide greater detail as to the categories
of plan assets as well as the level within the fair value hierarchy discussed in SFAS No. 157, in which the plan assets fall. This FSP is
effective for financial statements issued for fiscal years ending after December 15, 2009. Occidental does not expect the effect of this FSP on
its financial statements to be material.
Recently Adopted Accounting Changes
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In February 2007, the FASB issued SFAS No. 159, which allows companies to measure individually selected financial instruments at
fair value. SFAS No. 159 is effective for financial statements issued for periods beginning after November 15, 2007. Since Occidental did not
elect the fair value option on any qualifying financial instruments at any time during 2008, this statement has had no impact on Occidental’s
financial statements.