Chevron 2004 Annual Report Download - page 39

CHEVRONTEXACO CORPORATION 2004 ANNUAL REPORT 37


Direct฀or฀Indirect฀Guarantees�
Millions฀of฀dollars Commitment Expiration by Period
2006– After
Total 2005 2008 2009 2009
Guarantees of Non-
consolidated Affiliates or
Joint Venture Obligations $ 963 $ 515 $ 210 $ 135 $ 103
Guarantees of Obligations
of Third Parties 130 70 16 4 40
Guarantees of Equilon Debt
and Leases 215 18 61 18 118
* The amounts exclude indemnifications of contingencies associated with the sale
of the company’s interest in Equilon and Motiva in 2002, as discussed in the
“Indemnifications” section on page 38.
At฀December฀31,฀2004,฀the฀company฀and฀its฀subsidiaries฀pro-
vided฀guarantees,฀either฀directly฀or฀indirectly,฀of฀$963฀million฀for฀
notes฀and฀other฀contractual฀obligations฀of฀affiliated฀companies฀
and฀$130฀million฀for฀third฀parties฀as฀described฀by฀major฀category฀
below.฀There฀are฀no฀amounts฀being฀carried฀as฀liabilities฀for฀the฀
company’s฀obligations฀under฀these฀guarantees.฀
Of฀the฀$963฀million฀in฀guarantees฀provided฀to฀affiliates,฀
$774฀million฀relate฀to฀borrowings฀for฀capital฀projects฀or฀gen-
eral฀corporate฀purposes.฀These฀guarantees฀were฀undertaken฀to฀
achieve฀lower฀interest฀rates฀and฀generally฀cover฀the฀construction฀
period฀of฀the฀capital฀projects.฀Approximately฀90฀percent฀of฀the฀
amounts฀guaranteed฀will฀expire฀by฀2009,฀with฀the฀remaining฀
guarantees฀expiring฀by฀the฀end฀of฀2015.฀Under฀the฀terms฀of฀the฀
guarantees,฀the฀company฀would฀be฀required฀to฀fulfill฀the฀guar-
antee฀should฀an฀affiliate฀be฀in฀default฀of฀its฀loan฀terms,฀generally฀
for฀the฀full฀amounts฀disclosed.฀There฀are฀no฀recourse฀provisions,฀
and฀no฀assets฀are฀held฀as฀collateral฀for฀these฀guarantees.฀The฀
$189฀million฀balance฀of฀the฀$963฀million฀represents฀obligations฀
in฀connection฀with฀pricing฀of฀power฀purchase฀agreements฀for฀
certain฀of฀its฀cogeneration฀affiliates.฀Under฀the฀terms฀of฀these฀
guarantees,฀the฀company฀may฀be฀required฀to฀make฀payments฀
under฀certain฀conditions฀if฀the฀affiliate฀does฀not฀perform฀under฀
the฀agreements.฀There฀are฀no฀recourse฀provisions฀to฀third฀parties,฀
and฀no฀assets฀are฀held฀as฀collateral฀for฀these฀pricing฀guarantees.
Guarantees฀of฀$130฀million฀have฀been฀provided฀to฀third฀
parties,฀including฀guarantees฀of฀approximately฀$40฀million฀of฀
construction฀loans฀to฀host฀governments฀in฀the฀company’s฀inter-
national฀upstream฀operations.฀The฀remaining฀guarantees฀of฀
$90฀million฀were฀provided฀principally฀as฀conditions฀of฀sale฀of฀
the฀company’s฀interest฀in฀certain฀operations,฀to฀provide฀a฀source฀
of฀liquidity฀to฀the฀guaranteed฀parties฀and฀in฀connection฀with฀
company฀marketing฀programs.฀No฀amounts฀of฀the฀company’s฀
obligations฀under฀these฀guarantees฀are฀recorded฀as฀liabilities.฀
About฀70฀percent฀of฀the฀total฀amounts฀guaranteed฀will฀expire฀in฀
2009,฀with฀the฀remainder฀expiring฀after฀2009.฀The฀company฀would฀
be฀required฀to฀perform฀under฀the฀terms฀of฀the฀guarantees฀should฀
an฀entity฀be฀in฀default฀of฀its฀loan฀or฀contract฀terms,฀generally฀for฀
the฀full฀amounts฀disclosed.฀Approximately฀$70฀million฀of฀the฀
guarantees฀have฀recourse฀provisions,฀which฀enable฀the฀company฀
to฀recover฀any฀payments฀made฀under฀the฀terms฀of฀the฀guarantees฀
from฀securities฀held฀over฀the฀guaranteed฀parties’฀assets.
At฀December฀31,฀2004,฀ChevronTexaco฀also฀had฀outstanding฀
guarantees฀for฀approximately฀$215฀million฀of฀Equilon฀debt฀and฀
leases.฀Following฀the฀February฀2002฀disposition฀of฀its฀interest฀in฀
Equilon,฀the฀company฀received฀an฀indemnification฀from฀Shell฀
and฀$400฀million฀for฀supply฀and฀transportation฀projects,฀including฀
pipelines฀to฀support฀expanded฀upstream฀production.
Investments฀in฀chemicals฀businesses฀in฀2005฀are฀budgeted฀
at฀$200฀million.฀Estimates฀for฀energy฀technology,฀information฀
technology฀and฀facilities,฀and฀power-related฀businesses฀total฀
approximately฀$500฀million.฀
Pension฀Obligations฀ In฀2004,฀the฀company’s฀pension฀plan฀
contributions฀totaled฀$1.6฀billion฀(approximately฀$1.3฀billion฀to฀
the฀U.S.฀plans).฀In฀2005,฀the฀company฀expects฀contributions฀to฀
be฀approximately฀$400฀million.฀Actual฀amounts฀are฀dependent฀
upon฀investment฀results,฀changes฀in฀pension฀obligations,฀regu-
latory฀environments฀and฀other฀economic฀factors.฀Additional฀
funding฀may฀be฀required฀if฀investment฀returns฀are฀insufficient฀to฀
offset฀increases฀in฀plan฀obligations.฀Refer฀also฀to฀the฀discussion฀
of฀pension฀accounting฀in฀“Critical฀Accounting฀Estimates฀and฀
Assumptions”฀beginning฀on฀page฀43.

Current฀Ratio฀–฀current฀assets฀divided฀by฀current฀liabilities.฀The฀
current฀ratio฀is฀adversely฀affected฀by฀the฀fact฀that฀ChevronTexaco’s฀
inventories฀are฀valued฀on฀a฀Last-In,฀First-Out฀(LIFO)฀basis.฀At฀
year-end฀2004,฀the฀book฀value฀of฀inventory฀was฀lower฀than฀
replacement฀costs,฀based฀on฀average฀acquisition฀costs฀during฀the฀
year,฀by฀approximately฀$3.0฀billion.
Interest฀Coverage฀Ratio฀–฀income฀before฀income฀tax฀expense,฀
plus฀interest฀and฀debt฀expense฀and฀amortization฀of฀capitalized฀
interest,฀divided฀by฀before-tax฀interest฀costs.฀The฀company’s฀
interest฀coverage฀ratio฀was฀higher฀in฀2004,฀primarily฀due฀to฀
higher฀before-tax฀income฀and฀lower฀average฀debt฀balances.฀
Debt฀Ratio฀–฀total฀debt฀as฀a฀percentage฀of฀total฀debt฀plus฀
equity.฀฀The฀decrease฀between฀the฀comparable฀periods฀was฀due฀
to฀lower฀average฀debt฀levels฀and฀higher฀retained฀earnings.฀
Financial฀Ratios
At December 31
 2003 2002
Current Ratio  1.2 0.9
Interest Coverage Ratio  24.3 7.6
Total Debt/Total Debt Plus Equity  25.8% 34.0%
0.0
8.0
6.0
4.0
2.0
0100 02 03 




Billions of dollars
United States
International
Exploration฀and฀production฀
projects฀accounted฀for฀76฀percent฀
of฀total฀capital฀and฀exploratory฀
expenditures฀in฀2004.
�฀Includes฀equity฀in฀affiliates

0.0
60.0
45.0
15.0
30.0
0
50
40
30
20
10
0100 02 03 



Billions of dollars/Percent
Debt (left scale)
Stockholders’ Equity (left scale)
Ratio (right scale)
ChevronTexaco’s฀ratio฀of฀total฀
debt฀to฀total฀debt-plus-equity฀
fell฀to฀20฀percent฀at฀year-end฀
as฀the฀company’s฀stockholders’฀
equity฀climbed.
