Chevron 2004 Annual Report Download - page 62

60 CHEVRONTEXACO CORPORATION 2004 ANNUAL REPORT
of฀a฀customer฀is฀not฀considered฀sufficient,฀Letters฀of฀Credit฀are฀
the฀principal฀security฀obtained฀to฀support฀lines฀of฀credit.
Investment฀in฀Dynegy฀Notes฀and฀Preferred฀Stock฀ At฀the฀begin-
ning฀of฀2004,฀the฀company฀held฀investments฀in฀$223฀face฀value฀
of฀Dynegy฀Junior฀Unsecured฀Subordinated฀Notes฀due฀2016฀and฀
$400฀face฀value฀of฀Dynegy฀Series฀C฀Convertible฀Preferred฀Stock฀
with฀a฀stated฀maturity฀date฀of฀2033.฀฀
The฀Junior฀Notes฀were฀redeemed฀at฀face฀value฀during฀2004,฀
and฀gains฀of฀$54฀were฀recorded฀for฀the฀difference฀between฀the฀
face฀amounts฀and฀the฀carrying฀values฀at฀the฀time฀of฀redemp-
tion.฀The฀face฀value฀of฀the฀company’s฀investment฀in฀the฀Series฀C฀
preferred฀stock฀at฀December฀31,฀2004,฀was฀$400.฀The฀stock฀is฀
recorded฀at฀its฀fair฀value,฀which฀was฀estimated฀to฀be฀$370฀at฀
December฀31,฀2004.฀Future฀temporary฀changes฀in฀the฀estimated฀
fair฀value฀of฀the฀preferred฀stock฀will฀be฀reported฀in฀“Other฀com-
prehensive฀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฀payable฀on฀the฀pre-
ferred฀stock฀are฀recognized฀in฀income฀each฀period.


Although฀each฀subsidiary฀of฀ChevronTexaco฀is฀responsible฀for฀
its฀own฀affairs,฀ChevronTexaco฀Corporation฀manages฀its฀invest-
ments฀in฀these฀subsidiaries฀and฀their฀affiliates.฀For฀this฀purpose,฀
the฀investments฀are฀grouped฀as฀follows:฀upstream฀–฀explora-
tion฀and฀production;฀downstream฀–฀refining,฀marketing฀and฀
transportation;฀chemicals;฀and฀all฀other.฀The฀first฀three฀of฀these฀
groupings฀represent฀the฀company’s฀“reportable฀segments”฀and฀
“operating฀segments”฀as฀defined฀in฀FAS฀131,฀“Disclosures฀About฀
Segments฀of฀an฀Enterprise฀and฀Related฀Information.”
The฀segments฀are฀separately฀managed฀for฀investment฀
purposes฀under฀a฀structure฀that฀includes฀“segment฀managers”฀
who฀report฀to฀the฀company’s฀“chief฀operating฀decision฀maker”฀
(CODM)฀(terms฀as฀defined฀in฀FAS฀131).฀The฀CODM฀is฀the฀com-
pany’s฀Executive฀Committee,฀a฀committee฀of฀senior฀officers฀that฀
includes฀the฀Chief฀Executive฀Officer฀and฀that฀in฀turn฀reports฀to฀
the฀Board฀of฀Directors฀of฀ChevronTexaco฀Corporation.
The฀operating฀segments฀represent฀components฀of฀the฀com-
pany฀as฀described฀in฀FAS฀131฀terms฀that฀engage฀in฀activities฀(a)฀
from฀which฀revenues฀are฀earned฀and฀expenses฀are฀incurred;฀(b)฀
whose฀operating฀results฀are฀regularly฀reviewed฀by฀the฀CODM,฀
which฀makes฀decisions฀about฀resources฀to฀be฀allocated฀to฀the฀
segments,฀and฀to฀assess฀their฀performance;฀and฀(c)฀for฀which฀dis-
crete฀financial฀information฀is฀available.
Segment฀managers฀for฀the฀reportable฀segments฀are฀directly฀
accountable฀to฀and฀maintain฀regular฀contact฀with฀the฀company’s฀
CODM฀to฀discuss฀the฀segment’s฀operating฀activities฀and฀financial฀
performance.฀The฀CODM฀approves฀annual฀capital฀and฀explor-
atory฀budgets฀at฀the฀reportable฀segment฀level฀and฀also฀approves฀
capital฀and฀exploratory฀funding฀for฀major฀projects฀and฀major฀
changes฀to฀the฀annual฀capital฀and฀exploratory฀budgets.฀However,฀
business-unit฀managers฀within฀the฀operating฀segments฀are฀directly฀
responsible฀for฀decisions฀relating฀to฀project฀implementation฀and฀all฀
other฀matters฀connected฀with฀daily฀operations.฀Company฀officers฀
who฀are฀members฀of฀the฀Executive฀Committee฀also฀have฀individual฀
management฀responsibilities฀and฀participate฀in฀other฀committees฀
for฀purposes฀other฀than฀acting฀as฀the฀CODM.
“All฀Other”฀activities฀include฀the฀company’s฀interest฀in฀
Dynegy,฀coal฀mining฀operations,฀power฀generation฀businesses,฀
worldwide฀cash฀management฀and฀debt฀financing฀activities,฀cor-
porate฀administrative฀functions,฀insurance฀operations,฀real฀estate฀
activities฀and฀technology฀companies.
The฀company’s฀primary฀country฀of฀operation฀is฀the฀United฀
States฀of฀America,฀its฀country฀of฀domicile.฀Other฀components฀of฀
the฀company’s฀operations฀are฀reported฀as฀“International”฀(out-
side฀the฀United฀States).
Segment฀Earnings฀ The฀company฀evaluates฀the฀performance฀of฀
its฀operating฀segments฀on฀an฀after-tax฀basis,฀without฀considering฀
the฀effects฀of฀debt฀financing฀interest฀expense฀or฀investment฀interest฀
income,฀both฀of฀which฀are฀managed฀by฀the฀company฀on฀a฀world-
wide฀basis.฀Corporate฀administrative฀costs฀and฀assets฀are฀not฀
allocated฀to฀the฀operating฀segments.฀However,฀operating฀segments฀
are฀billed฀for฀the฀direct฀use฀of฀corporate฀services.฀Nonbillable฀
costs฀remain฀at฀the฀corporate฀level฀in฀“All฀Other.”฀Merger-related฀
expenses฀in฀2002฀were฀also฀included฀in฀“All฀Other.”฀After-tax฀
segment฀income฀(loss)฀from฀continuing฀operations฀is฀presented฀
in฀the฀following฀table:฀
Year ended December 31
 2003 2002


 
United States   $ 3,160 $ 1,703
International  3,199 2,823
  6,359 4,526

 
United States  482 (398)
International  685 31

   1,167 (367)

United States  5 13
International  64 73
  69 86
  7,595 4,245

Interest expense  (352) (406)
Interest income  75 72
Other  64 (2,423)
Merger-related expenses  – (386)
  7,382 1,102
  44 30
Cumulative effect of changes in
accounting principles    (196) –
  $ 7,230 $ 1,132
Notes to the Consolidated Financial Statements
Millions฀of฀dollars,฀except฀per-share฀amounts
 FINANCIAL AND DERIVATIVE INSTRUMENTS – Continued