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Financial and Operating Results

Notes to Consolidated Financial Statements

 

Note 2 — Changes in Accounting Principles

Effective April 1, 2006, we implemented EITF Issue No. 04-13, “Accounting for Purchases and Sales of Inventory with the Same Counterparty.” Issue No. 04-13 requires purchases and sales of inventory with the same counterparty and entered into “in contemplation” of one another to be combined and reported net (i.e., on the same income statement line). Exceptions to this are exchanges of finished goods for raw materials or work-in-progress within the same line of business, which are only reported net if the transaction lacks economic substance. The implementation of Issue No. 04-13 did not have a material impact on net income.

The table below shows the pro forma sales and other operating revenues, and purchased crude oil, natural gas and products had Issue No. 04-13 been effective for all the periods prior to April 1, 2006.

 

For information on our adoption of Financial Accounting Standards Board (FASB) Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations — an interpretation of FASB Statement No. 143,” and related disclosures, see Note 14 — Asset Retirement Obligations and Accrued Environmental Costs.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R).” This Statement requires an employer that sponsors one or more single-employer defined benefit plans to:

  • Recognize the funded status of the benefit in its statement of financial position.
  • Recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period, but are not recognized as components of net periodic benefit cost.
  • Measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end statement of financial position.
  • Disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and the transition asset or obligation.

 

The provisions of this Statement are effective December 31, 2006, except for the requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year end, which is effective December 31, 2008. For information on the impact of the adoption of this new Statement, see Note 23 — Employee Benefit Plans.

In June 2006, the FASB ratified EITF Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That is, Gross versus Net Presentation).” Issue No. 06-3 requires disclosure of either the gross or net method of presentation for taxes assessed by a governmental authority resulting from specific revenue-producing transactions between a customer and a seller. For any such taxes reported on a gross basis, the entity must also disclose the amount of the tax reported in revenue in the interim and annual financial statements. We adopted the Issue effective December 31, 2006. See Note 1 — Accounting Policies for additional information.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment,” (SFAS No. 123(R)), which superseded APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and replaced SFAS No. 123, “Accounting for Stock-Based Compensation,” that we adopted effective January 1, 2003. SFAS No. 123(R) prescribes the accounting for a wide range of share-based compensation arrangements, including options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans, and generally requires the fair value of share-based awards to be expensed. Our adoption of the provisions of this Statement on January 1, 2006, using the modified-prospective transition method, did not have a material impact on our financial statements. For more information on our adoption of SFAS No. 123(R) and its effect on net income, see Note 1 — Accounting Policies and the section on stock-based compensation plans in Note 23 — Employee Benefit Plans.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” This Statement clarifies how items, such as abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) should be recognized as current-period charges. In addition, the Statement requires the allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. We adopted this Statement effective January 1, 2006. The adoption did not have a material impact on our financial statements.

In January 2004 and May 2004, the FASB issued FASB Staff Position (FSP) FAS 106-1, superseded by FSP FAS 106-2, regarding accounting and disclosure requirements related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. We adopted this guidance effective July 1, 2004. See Note 23 — Employee Benefit Plans, for additional information.