Chevron 2004 Annual Report Download - page 37

CHEVRONTEXACO CORPORATION 2004 ANNUAL REPORT 35

At฀year-end฀2004,฀ChevronTexaco฀owned฀an฀approximate฀25฀per-
cent฀equity฀interest฀in฀the฀common฀stock฀of฀Dynegy฀–฀an฀energy฀
provider฀engaged฀in฀power฀generation,฀gathering฀and฀processing฀
of฀natural฀gas,฀and฀the฀fractionation,฀storage,฀transportation฀
and฀marketing฀of฀natural฀gas฀liquids.฀The฀company฀also฀held฀an฀
investment฀in฀Dynegy฀preferred฀stock.
Investment฀in฀Dynegy฀Common฀Stock฀ At฀December฀31,฀2004,฀
the฀carrying฀value฀of฀the฀company’s฀investment฀in฀Dynegy฀com-
mon฀stock฀was฀approximately฀$150฀million.฀This฀amount฀was฀
about฀$365฀million฀below฀the฀company’s฀proportionate฀interest฀
in฀Dynegy’s฀underlying฀net฀assets.฀This฀difference฀is฀primarily฀
the฀result฀of฀write-downs฀of฀the฀investment฀in฀2002฀for฀declines฀
in฀the฀market฀value฀of฀the฀common฀shares฀below฀the฀company’s฀
carrying฀value฀that฀were฀deemed฀to฀be฀other฀than฀temporary.฀
The฀difference฀has฀been฀assigned฀to฀the฀extent฀practicable฀to฀
specific฀Dynegy฀assets฀and฀liabilities,฀based฀upon฀the฀company’s฀
analysis฀of฀the฀various฀factors฀giving฀rise฀to฀the฀decline฀in฀value฀
of฀the฀Dynegy฀shares.฀The฀company’s฀equity฀share฀of฀Dynegy’s฀
reported฀earnings฀is฀adjusted฀quarterly฀when฀appropriate฀to฀rec-
ognize฀a฀portion฀of฀the฀difference฀between฀these฀allocated฀values฀
and฀Dynegy’s฀historical฀book฀values.฀The฀market฀value฀of฀the฀
company’s฀investment฀in฀Dynegy’s฀common฀stock฀at฀December฀
31,฀2004,฀was฀approximately฀$450฀million.
Investments฀in฀Dynegy฀Notes฀and฀Preferred฀Stock฀ At฀the฀
beginning฀of฀2004,฀the฀company฀held฀$223฀million฀face฀value฀
of฀Dynegy฀Junior฀Unsecured฀Subordinated฀Notes฀due฀2016฀and฀
$400฀million฀face฀value฀of฀Dynegy฀Series฀C฀Convertible฀Preferred฀
Stock฀with฀a฀stated฀maturity฀of฀2033.฀
The฀Junior฀Notes฀were฀redeemed฀at฀face฀value฀during฀
2004,฀and฀gains฀of฀$54฀million฀were฀recorded฀for฀the฀difference฀
between฀the฀face฀amounts฀and฀the฀carrying฀values฀at฀the฀time฀of฀
redemption.฀The฀face฀value฀of฀the฀company’s฀investment฀in฀the฀
Series฀C฀preferred฀stock฀at฀December฀31,฀2004,฀was฀$400฀million.฀
The฀stock฀is฀recorded฀at฀its฀fair฀value,฀which฀was฀estimated฀to฀be฀
$370฀million฀at฀December฀31,฀2004.฀Future฀temporary฀changes฀in฀
the฀estimated฀fair฀value฀of฀the฀preferred฀stock฀will฀be฀reported฀in฀
“Other฀comprehensive฀income.”฀However,฀if฀any฀future฀decline฀in฀
fair฀value฀is฀deemed฀to฀be฀other฀than฀temporary,฀a฀charge฀against฀
income฀in฀the฀period฀would฀be฀recorded.฀Dividends฀received฀
from฀the฀preferred฀stock฀are฀recognized฀in฀income฀each฀period.

Cash,฀Cash฀Equivalents฀and฀Marketable฀Securities฀ Total฀balances฀
were฀$10.7฀billion฀and฀$5.3฀billion฀at฀December฀31,฀2004฀and฀
2003,฀respectively.฀Cash฀provided฀by฀operating฀activities฀in฀
2004฀was฀$14.7฀billion,฀compared฀with฀$12.3฀billion฀in฀2003฀
and฀$9.9฀billion฀in฀2002.฀These฀amounts฀were฀net฀of฀contribu-
tions฀to฀employee฀pension฀plans฀of฀$1.6฀billion,฀$1.4฀billion฀
and฀$246฀million฀in฀2004,฀2003฀and฀2002,฀respectively.฀The฀2004฀
increase฀in฀cash฀provided฀by฀operating฀activities฀mainly฀reflected฀
higher฀earnings฀in฀the฀worldwide฀upstream฀and฀downstream฀
businesses.฀Cash฀provided฀by฀investing฀activities฀included฀pro-
ceeds฀from฀asset฀sales฀of฀$3.7฀billion฀in฀2004,฀$1.1฀billion฀in฀2003฀
and฀$2.3฀billion฀in฀2002.฀
Cash฀provided฀by฀operating฀activities฀and฀asset฀sales฀during฀
2004฀was฀sufficient฀to฀fund฀the฀company’s฀capital฀and฀exploratory฀
program,฀pay฀$3.2฀billion฀of฀dividends฀to฀stockholders,฀reduce฀
total฀debt฀by฀$1.3฀billion,฀repurchase฀$2.1฀billion฀of฀common฀
stock,฀and฀increase฀the฀balance฀of฀cash,฀cash฀equivalents฀and฀
marketable฀securities฀by฀$5.5฀billion.
Dividends฀ Payments฀of฀approximately฀$3.2฀billion฀in฀2004฀
and฀$3฀billion฀in฀2003฀and฀2002฀were฀made฀for฀dividends.฀In฀
September฀2004,฀the฀company฀increased฀its฀quarterly฀common฀
stock฀dividend฀by฀10฀percent฀to฀40฀cents฀per฀share,฀on฀a฀post-
stock฀split฀basis.
Debt,฀Capital฀Lease฀and฀Minority฀Interest฀Obligations฀ Total฀
debt฀and฀capital฀lease฀balances฀were฀$11.3฀billion฀at฀December฀31,฀
2004,฀down฀from฀$12.6฀billion฀at฀year-end฀2003.฀The฀company฀
also฀had฀minority฀interest฀obligations฀of฀$172฀million,฀down฀from฀
$268฀million฀at฀December฀31,฀2003.
The฀company’s฀debt฀and฀capital฀lease฀obligations฀due฀within฀
one฀year,฀consisting฀primarily฀of฀commercial฀paper฀and฀the฀cur-
rent฀portion฀of฀long-term฀debt,฀totaled฀$5.6฀billion฀at฀December฀
31,฀2004,฀down฀from฀$6.0฀billion฀at฀December฀31,฀2003.฀Of฀these฀
amounts,฀$4.7฀billion฀and฀$4.3฀billion฀were฀reclassified฀to฀long-
term฀at฀the฀end฀of฀each฀period,฀respectively.฀At฀year-end฀2004,฀
settlement฀of฀these฀obligations฀was฀not฀expected฀to฀require฀the฀
use฀of฀working฀capital฀in฀2005,฀as฀the฀company฀had฀the฀intent฀
and฀the฀ability,฀as฀evidenced฀by฀committed฀credit฀facilities,฀to฀
refinance฀them฀on฀a฀long-term฀basis.฀The฀company’s฀practice฀has฀
been฀to฀continually฀refinance฀its฀commercial฀paper,฀maintaining฀
levels฀it฀believes฀appropriate.฀
At฀year-end฀2004,฀ChevronTexaco฀had฀$4.7฀billion฀in฀
committed฀credit฀facilities฀with฀various฀major฀banks,฀which฀per-
mitted฀the฀refinancing฀of฀short-term฀obligations฀on฀a฀long-term฀
basis.฀These฀facilities฀support฀commercial฀paper฀borrowings฀and฀
also฀can฀be฀used฀for฀general฀corporate฀purposes.฀The฀company’s฀
practice฀has฀been฀to฀continually฀replace฀expiring฀commitments฀
with฀new฀commitments฀on฀substantially฀the฀same฀terms,฀main-
taining฀levels฀management฀believes฀appropriate.฀Any฀borrowings฀
under฀the฀facilities฀would฀be฀unsecured฀indebtedness฀at฀interest฀
rates฀based฀on฀the฀London฀Interbank฀Offered฀Rate฀or฀an฀average฀
of฀base฀lending฀rates฀published฀by฀specified฀banks฀and฀on฀terms฀
reflecting฀the฀company’s฀strong฀credit฀rating.฀No฀borrowings฀
were฀outstanding฀under฀these฀facilities฀at฀December฀31,฀2004.฀
In฀addition,฀the฀company฀had฀three฀existing฀effective฀“shelf”฀
registrations฀on฀file฀with฀the฀Securities฀and฀Exchange฀Commis-
sion฀(SEC)฀that฀together฀would฀permit฀additional฀registered฀debt฀
offerings฀up฀to฀an฀aggregate฀of฀$3.8฀billion฀of฀debt฀securities.฀
In฀2004,฀repayments฀of฀long-term฀debt฀at฀maturity฀included฀
$500฀million฀of฀6.625฀percent฀ChevronTexaco฀Corporation฀
bonds,฀an฀aggregate฀$265฀million฀of฀various฀Philippine฀debt฀and฀
$240฀million฀of฀ChevronTexaco฀Corporation฀8.11฀percent฀notes.฀
0.0
15.0
12.0
9.0
6.0
3.0
0100 02 03 



Billions of dollars
Higher฀earnings฀helped฀boost฀
the฀company’s฀operating฀cash฀
flow฀by฀19฀percent.

0.0
20.0
15.0
5.0
10.0
0.0
1.5
1.2
0.9
0.6
0.3
0100 02 03 



Billions of dollars
Total Interest Expense
(right scale)
Total Debt (left scale)
Interest฀expense฀continued฀to฀fall฀
on฀significantly฀lower฀debt฀levels.
