Chevron 2004 Annual Report Download - page 68



Year ended December 31
 2003 2002
Taxes on income1
U.S. federal
Current  $ 1,133 $ (80)
Deferred2  121 (414)
State and local  133 21
Total United States  1,387 (473)
International
Current  3,864 3,138
Deferred2  43 333
Total International  3,907 3,471
Total taxes on income  $ 5,294 $ 2,998
1 Excludes income tax expense of $100, $50 and $26 related to discontinued opera-
tions for 2004, 2003 and 2002, respectively.
2 Excludes a U.S. deferred tax benefit of $191 and a foreign deferred tax expense of
$170 associated with the adoption of FAS 143 in 2003 and the related cumulative
effect of changes in accounting method in 2003.
In฀2004,฀the฀before-tax฀income฀for฀U.S.฀operations,฀including฀
related฀corporate฀and฀other฀charges,฀was฀$7,776,฀compared฀with฀a฀
before-tax฀income฀of฀$5,664฀in฀2003฀and฀a฀before-tax฀loss฀of฀$2,162฀
in฀2002.฀For฀international฀operations,฀before-tax฀income฀was฀
$12,775,฀$7,012฀and฀$6,262฀in฀2004,฀2003฀and฀2002,฀respectively.฀
U.S.฀federal฀income฀tax฀expense฀was฀reduced฀by฀$176,฀$196฀and฀
$208฀in฀2004,฀2003฀and฀2002,฀respectively,฀for฀business฀tax฀credits.
The฀company’s฀effective฀income฀tax฀rate฀varied฀from฀the฀
U.S.฀statutory฀federal฀income฀tax฀rate฀because฀of฀the฀following:
Year ended December 31
 2003 2002
U.S. statutory federal income tax rate  35.0% 35.0%
Effect of income taxes from inter-
national operations in excess of
taxes at the U.S. statutory rate  12.8 29.9
State and local taxes on income, net
of U.S. federal income tax benefit  0.5 1.1
Prior-year tax adjustments  (1.6) (7.1)
Tax credits  (1.5) (5.1)
Effects of enacted changes in tax laws  0.3 2.0
Impairment of investments in
equity affiliates  – 12.6
Capital loss tax benefit  (0.8) –
Other  (1.9) –
Consolidated companies  42.8 68.4
Effect of recording income from
certain equity affiliates on an
after-tax basis   (1.0) 4.7
Effective tax rate  41.8% 73.1%
International฀taxes฀in฀2004฀were฀reduced฀by฀approximately฀
$129฀related฀to฀changes฀in฀income฀tax฀laws.฀The฀company฀records฀
its฀deferred฀taxes฀on฀a฀tax-jurisdiction฀basis฀and฀classifies฀those฀net฀
amounts฀as฀current฀or฀noncurrent฀based฀on฀the฀balance฀sheet฀clas-
sification฀of฀the฀related฀assets฀or฀liabilities.
company฀also฀views฀netting฀the฀separate฀components฀of฀buy/sell฀
contracts฀in฀the฀income฀statement฀to฀be฀inconsistent฀with฀the฀
gross฀presentation฀that฀FIN฀39฀requires฀for฀the฀resulting฀receiv-
able฀and฀payable฀on฀the฀balance฀sheet.฀
The฀company’s฀buy/sell฀transactions฀are฀also฀similar฀to฀
the฀“barrel฀back”฀example฀used฀in฀other฀accounting฀literature,฀
including฀EITF฀Issue฀No.฀03-11,฀“Reporting฀Realized฀Gains฀and฀
Losses฀on฀Derivative฀Instruments฀That฀Are฀Subject฀to฀FASB฀State-
ment฀No.฀133฀and฀Not฀‘Held฀for฀Trading฀Purposes’฀as฀Defined฀
in฀Issue฀No.฀02-3”฀(which฀indicates฀a฀company’s฀decision฀to฀
show฀buy/sell-types฀of฀transactions฀gross฀on฀the฀income฀state-
ment฀as฀being฀a฀matter฀of฀judgment฀of฀the฀relevant฀facts฀and฀
circumstances฀of฀the฀company’s฀activities)฀and฀Derivatives฀
Implementation฀Group฀(DIG)฀Issue฀No.฀K1,฀“Miscellaneous:฀
Determining฀Whether฀Separate฀Transactions฀Should฀be฀Viewed฀
as฀a฀Unit.”
The฀company฀further฀notes฀that฀the฀accounting฀for฀buy/sell฀
contracts฀as฀separate฀purchases฀and฀sales฀is฀in฀contrast฀to฀the฀
accounting฀for฀other฀types฀of฀contracts฀typically฀described฀by฀
the฀industry฀as฀exchange฀contracts,฀which฀are฀considered฀non-
monetary฀in฀nature฀and฀appropriately฀shown฀net฀on฀the฀income฀
statement.฀Under฀an฀exchange฀contract,฀for฀example,฀one฀com-
pany฀agrees฀to฀exchange฀refined฀products฀in฀one฀location฀for฀
another฀company’s฀same฀quantity฀of฀refined฀products฀in฀another฀
location.฀Upon฀transfer,฀the฀only฀amounts฀that฀may฀be฀invoiced฀
are฀for฀transportation฀and฀quality฀differentials.฀Among฀other฀
things,฀unlike฀buy/sell฀contracts,฀the฀obligations฀of฀each฀party฀
to฀perform฀under฀the฀contract฀are฀not฀independent฀and฀the฀risks฀
and฀rewards฀of฀ownership฀are฀not฀separately฀transferred.
As฀shown฀on฀the฀company’s฀Consolidated฀Statement฀of฀
Income,฀“Sales฀and฀other฀operating฀revenues”฀for฀the฀three฀years฀
ending฀December฀31,฀2004,฀included฀$18,650,฀$14,246฀and฀$7,963,฀
respectively,฀for฀buy/sell฀contracts.฀The฀costs฀associated฀with฀these฀
buy/sell฀revenue฀amounts฀are฀included฀in฀“Purchased฀crude฀oil฀and฀
products”฀on฀the฀Consolidated฀Statement฀of฀Income฀in฀each฀period.
66 CHEVRONTEXACO CORPORATION 2004 ANNUAL REPORT
Notes to the Consolidated Financial Statements
Millions฀of฀dollars,฀except฀per-share฀amounts
 ACCOUNTING FOR BUY/SELL CONTRACTS – Continued