Chevron 2004 Annual Report Download - page 28

26 CHEVRONTEXACO CORPORATION 2004 ANNUAL REPORT

Millions฀of฀dollars,฀except฀per-share฀amounts  2003 2002
Net Income   $ 7,230 $ 1,132
Per Share Amounts:*
Net Income – Basic  $ 3.48 $ 0.53
– Diluted  $ 3.48 $ 0.53
Dividends  $ 1.43 $ 1.40
Sales and Other
Operating Revenues  $ 119,575 $ 98,340
Return on:
Average Capital Employed  15.7% 3.2%
Average Stockholders’ Equity  21.3% 3.5%
* 2003 and 2002 restated to reflect a two-for-one stock split effected as a
100 percent stock dividend in 2004.

Millions฀of฀dollars  2003 2002

Upstream – Exploration and Production
United States   $ 3,160 $ 1,703
International   3,199 2,823
Total Exploration and Production   6,359 4,526
Downstream – Refining, Marketing
and Transportation
United States   482 (398)
International   685 31
Total Refining, Marketing
and Transportation   1,167 (367)
Chemicals   69 86
All Other   (213) (3,143)
Income From Continuing Operations  $ 7,382 $ 1,102
Income From Discontinued
Operations – Upstream   44 30

   $ 7,426 $ 1,132
Cumulative Effect of Changes in
Accounting Principles   (196) –
Net Income*  $ 7,230 $ 1,132
*Includes Foreign Currency Effects:   $ (404) $ (43)
In฀2003,฀net฀income฀included฀charges฀of฀$200฀million฀for฀the฀
cumulative฀effect฀of฀changes฀in฀accounting฀principles,฀related฀to฀
the฀adoption฀of฀Financial฀Accounting฀Standards฀Board฀(FASB)฀
Statement฀No.฀143฀(FAS฀143),฀“Accounting฀for฀Asset฀Retirement฀
Obligations.”฀Refer฀to฀Note฀25฀of฀the฀Consolidated฀Financial฀
Statements฀on฀page฀77฀for฀additional฀discussion.
Net฀income฀in฀each฀period฀presented฀included฀amounts฀for฀
matters฀that฀management฀characterized฀as฀“special฀items,”฀as฀
described฀in฀the฀table฀that฀follows.฀These฀amounts,฀because฀of฀
their฀nature฀and฀significance,฀are฀identified฀separately฀to฀help฀
explain฀the฀changes฀in฀net฀income฀and฀segment฀income฀between฀
periods฀and฀to฀help฀distinguish฀the฀underlying฀trends฀for฀the฀
company’s฀core฀businesses.฀Special฀items฀are฀discussed฀in฀detail฀
for฀each฀major฀operating฀area฀in฀the฀“Results฀of฀Operations”฀sec-
tion฀beginning฀on฀page฀30.฀“Restructuring฀and฀Reorganizations”฀
is฀described฀in฀detail฀in฀Note฀12฀to฀the฀Consolidated฀Financial฀
Statements฀on฀page฀63.

Millions฀of฀dollars฀–฀Gains฀(charges)  2003 2002
Asset Dispositions
Continuing Operations   $ 122 $ –
Discontinued Operations   – –
Litigation Provisions  – (57)
Asset Impairments/Write-offs  (340) (485)
Dynegy-Related   325 (2,306)
Tax Adjustments   118 60
Restructuring and Reorganizations   (146) –
Environmental Remediation Provisions   (132) (160)
Merger-Related Expenses   – (386)
  $ (53) $ (3,334)

As฀shown฀in฀the฀“Special฀Items”฀table,฀net฀special฀gains฀of฀
$1.2฀billion,฀associated฀mainly฀with฀the฀disposition฀of฀non-
strategic฀upstream฀assets,฀benefited฀income฀in฀2004.฀In฀2002,฀
$2.3฀billion฀of฀the฀$3.3฀billion฀of฀net฀charges฀related฀to฀the฀
company’s฀investment฀in฀its฀Dynegy฀Inc.฀affiliate.฀Refer฀to฀page฀35฀
for฀a฀discussion฀of฀the฀company’s฀investment฀in฀Dynegy.฀
The฀special฀items฀recorded฀in฀2002฀through฀2004฀are฀not฀
indicative฀of฀any฀future฀trends฀of฀events฀or฀their฀impact฀on฀future฀
earnings.฀Because฀of฀the฀nature฀of฀special฀item-related฀events,฀the฀
company฀may฀not฀always฀be฀able฀to฀anticipate฀their฀occurrence฀
or฀associated฀effects฀on฀income฀in฀any฀period.฀Apart฀from฀the฀
effects฀of฀special-item฀gains฀and฀charges,฀the฀company’s฀earnings฀
depend฀largely฀on฀the฀profitability฀of฀its฀upstream฀–฀exploration฀
and฀production฀–฀and฀downstream฀–฀refining,฀marketing฀and฀
transportation฀–฀business฀segments.฀The฀single฀largest฀variable฀
that฀affects฀the฀company’s฀results฀of฀operations฀is฀crude฀oil฀prices.฀
Overall฀earnings฀trends฀are฀typically฀less฀affected฀by฀results฀from฀
the฀company’s฀commodity฀chemicals฀segment฀and฀other฀activi-
ties฀and฀investments.฀
The฀company’s฀long-term฀competitive฀position,฀particularly฀
given฀the฀capital-intensive฀and฀commodity-based฀nature฀of฀the฀
industry,฀is฀closely฀associated฀with฀the฀company’s฀ability฀to฀invest฀
in฀projects฀that฀provide฀adequate฀financial฀returns฀and฀to฀manage฀
operating฀expenses฀effectively.฀Creating฀and฀maintaining฀an฀inven-
tory฀of฀projects฀depends฀on฀many฀factors,฀including฀obtaining฀
rights฀to฀explore,฀develop฀and฀produce฀hydrocarbons฀in฀promising฀
areas,฀drilling฀success,฀the฀ability฀to฀bring฀long-lead-time฀capital-
intensive฀projects฀to฀completion฀on฀budget฀and฀schedule,฀and฀
efficient฀and฀profitable฀operation฀of฀mature฀properties.
The฀company฀also฀continuously฀evaluates฀opportunities฀to฀
dispose฀of฀assets฀that฀are฀not฀key฀to฀providing฀sufficient฀long-
term฀value฀and฀to฀acquire฀assets฀or฀operations฀complementary฀to฀
its฀asset฀base฀to฀help฀sustain฀the฀company’s฀growth.฀In฀addition฀to฀
the฀asset-disposition฀and฀restructuring฀plans฀announced฀in฀2003,฀
which฀generated฀$3.7฀billion฀of฀sales฀proceeds฀in฀2004,฀other฀such฀
plans฀may฀also฀occur฀in฀future฀periods฀and฀result฀in฀significant฀
gains฀or฀losses.฀Refer฀to฀the฀“Operating฀Developments”฀section฀on฀
page฀28฀for฀a฀discussion฀that฀includes฀references฀to฀the฀company’s฀
asset฀disposition฀activities.
Management’s Discussion and Analysis of Financial Condition and Results of Operations