Chevron 2004 Annual Report Download - page 61
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Please find page 61 of the 2004 Chevron annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report. CHEVRONTEXACO CORPORATION 2004 ANNUAL REPORT 59
income.”Theseactivitiesarereportedunder“Operatingactivi-
ties”intheConsolidatedStatementofCashFlows.
InterestRates Thecompanyentersintointerestrateswapsas
partofitsoverallstrategytomanagetheinterestrateriskon
itsdebt.Underthetermsoftheswaps,netcashsettlementsare
basedonthedifferencebetweenfixed-rateandfloating-rate
interestamountscalculatedbyreferencetoagreednotional
principalamounts.Interestrateswapsrelatedtoaportionofthe
company’sfixed-ratedebtareaccountedforasfairvaluehedges,
whereasinterestrateswapsrelatedtoaportionofthecompany’s
floating-ratedebtarerecordedatfairvalueonthebalancesheet
withresultinggainsandlossesreflectedinincome.
During2004,fournewswapsrelatingtoaportionofthe
company’sfixed-ratedebtwereinitiated.Atyear-end2004,the
interestrateswapsoutstandingrelatedtofixed-ratedebt,and
theirweightedaveragematuritywasapproximatelythreeyears.
Fairvaluesoftheinterestrateswapsarereportedonthe
ConsolidatedBalanceSheetas“Accountsandnotesreceivable”
or“Accountspayable,”withgainsandlossesreporteddirectlyin
incomeaspartof“Interestanddebtexpense.”Theseactivities
arereportedunder“Operatingactivities”intheConsolidated
StatementofCashFlows.
FairValue Fairvaluesarederivedeitherfromquotedmarket
pricesor,ifnotavailable,thepresentvalueoftheexpected
cashflows.Thefairvaluesreflectthecashthatwouldhavebeen
receivedorpaidiftheinstrumentsweresettledatyear-end.
Long-termdebtof$5,815and$7,229hadestimatedfair
valuesof$6,444and$7,709atDecember31,2004and2003,
respectively.
Forinterestrateswaps,thenotionalprincipalamounts
of$1,665and$665hadestimatedfairvaluesof$36and$65at
December31,2004and2003,respectively.
ThecompanyholdscashequivalentsandU.S.dollarmar-
ketablesecuritiesindomesticandoffshoreportfolios.Eurodollar
bonds,floating-ratenotes,timedepositsandcommercialpaper
aretheprimaryinstrumentsheld.Cashequivalentsandmarket-
ablesecuritieshadfairvaluesof$8,789and$3,803atDecember
31,2004and2003,respectively.Ofthesebalances,$7,338and
$2,803attherespectiveyear-endswereclassifiedascashequiva-
lentsthathadaveragematuritiesunder90days.Theremainder,
classifiedasmarketablesecurities,hadaveragematuritiesof
approximately2.3years.
Forthefinancialandderivativeinstrumentsdiscussed
above,therewasnotamaterialchangeinmarketriskfromthat
presentedin2003.
ConcentrationsofCreditRisk Thecompany’sfinancialinstru-
mentsthatareexposedtoconcentrationsofcreditriskconsist
primarilyofitscashequivalents,marketablesecurities,deriva-
tivefinancialinstrumentsandtradereceivables.Thecompany’s
short-terminvestmentsareplacedwithawidearrayoffinancial
institutionswithhighcreditratings.Thisdiversifiedinvestment
policylimitsthecompany’sexposurebothtocreditriskandto
concentrationsofcreditrisk.Similarstandardsofdiversityand
creditworthinessareappliedtothecompany’scounterpartiesin
derivativeinstruments.
Thetradereceivablebalances,reflectingthecompany’sdiver-
sifiedsourcesofrevenue,aredispersedamongthecompany’s
broadcustomerbaseworldwide.Asaconsequence,concentrations
ofcreditriskarelimited.Thecompanyroutinelyassessesthe
financialstrengthofitscustomers.Whenthefinancialstrength
160millionsharesthatwerereservedforissuanceunderthe
ChevronTexacoCorporationLong-TermIncentivePlan(LTIP),as
amendedandrestated,whichwasapprovedbythestockholdersin
2004.Inaddition,approximately622,000sharesremainavailable
forissuancefromthe800,000sharesofthecompany’scommon
stockthatwerereservedforawardsundertheChevronTexaco
CorporationNon-EmployeeDirectors’EquityCompensation
andDeferralPlan(Non-EmployeeDirectors’Plan),whichwas
approvedbystockholdersin2003.RefertoNote3onpage57fora
discussionofthecompany’scommonstocksplit.
CommodityDerivativeInstruments ChevronTexacoisexposed
tomarketrisksrelatedtopricevolatilityofcrudeoil,refined
products,electricity,naturalgasandrefineryfeedstock.
Thecompanyusesfinancialderivativecommodityinstru-
mentstomanagethisexposureonasmallportionofitsactivity,
including:firmcommitmentsandanticipatedtransactionsfor
thepurchaseorsaleofcrudeoil;feedstockpurchasesforcom-
panyrefineries;crudeoilandrefinedproductsinventories;and
fixed-pricecontractstosellnaturalgasandnaturalgasliquids.
Thecompanyalsousesfinancialderivativecommodityinstru-
mentsforlimitedtradingpurposes.
ThecompanymaintainsapolicyofrequiringthatanInter-
nationalSwapsandDerivativesAssociationAgreementgovern
derivativecontractswithcertaincounterpartiestomitigatecredit
risk.Dependingonthenatureofthederivativetransaction,
bilateralcollateralarrangementsmayalsoberequired.When
thecompanyisengagedinmorethanoneoutstandingderivative
transactionwiththesamecounterpartyandalsohasalegally
enforceablenettingagreementwiththatcounterparty,the“net”
marked-to-marketexposurerepresentsthenettingofthepositive
andnegativeexposureswiththatcounterpartyandareasonable
measureofthecompany’screditrisk.Itisthecompany’spolicy
touseothernettingagreementswithcertaincounterpartieswith
whichitconductssignificanttransactions.
Thefairvaluesoftheoutstandingcontractsarereportedon
theConsolidatedBalanceSheetas“Accountsandnotesreceivable,”
“Accountspayable,”“Long-termreceivables–net,”and“Deferred
creditsandothernoncurrentobligations.”Gainsandlosseson
thecompany’sriskmanagementactivitiesarereportedaseither
“Salesandotheroperatingrevenues”or“Purchasedcrudeoiland
products,”whereastradinggainsandlossesarereportedas“Other
income.”Theseactivitiesarereportedunder“Operatingactivities”
intheConsolidatedStatementofCashFlows.
ForeignCurrency Thecompanyentersintoforwardexchange
contracts,generallywithtermsof180daysorless,tomanage
someofitsforeigncurrencyexposures.Theseexposuresinclude
revenueandanticipatedpurchasetransactions,includingforeign
currencycapitalexpendituresandleasecommitments,forecasted
tooccurwithin180days.Theforwardexchangecontractsare
recordedatfairvalueonthebalancesheetwithresultinggains
andlossesreflectedinincome.
Thefairvaluesoftheoutstandingcontractsarereportedon
theConsolidatedBalanceSheetas“Accountsandnotesreceivable”
or“Accountspayable,”withgainsandlossesreportedas“Other
STOCKHOLDERS’ EQUITY – Continued