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CHEVRONTEXACO CORPORATION 2004 ANNUAL REPORT 75

tained฀a฀performance฀element฀that฀had฀to฀be฀satisﬁed฀in฀order฀for฀

all฀or฀a฀speciﬁed฀portion฀of฀the฀shares฀to฀vest.฀Upon฀the฀merger,฀

all฀restricted฀shares฀became฀vested฀and฀converted฀to฀Chevron-

Texaco฀shares฀at฀the฀merger฀exchange฀ratio฀of฀0.77.฀Apart฀from฀

the฀restored฀options,฀no฀further฀awards฀may฀be฀granted฀under฀the฀

former฀Texaco฀plans.฀No฀amount฀for฀these฀plans฀was฀charged฀to฀

compensation฀expense฀in฀2004,฀2003฀or฀2002.

The฀fair฀market฀value฀of฀each฀stock฀option฀granted฀is฀

estimated฀on฀the฀date฀of฀grant฀under฀FAS฀No.฀123฀using฀the฀

Black-Scholes฀option-pricing฀model฀with฀the฀following฀weighted-

average฀assumptions:

 2003 2002

ChevronTexaco plans:

Expected life in years  7 7

Risk-free interest rate  3.1% 4.6%

Volatility  19.3% 21.6%

Dividend yield  3.5% 3.0%

Texaco plans:

Expected life in years  2 2

Risk-free interest rate  1.7% 1.6%

Volatility  22.0% 24.1%

Dividend yield  3.9% 3.1%

The฀Black-Scholes฀weighted-average฀fair฀value฀of฀the฀Chevron-

Texaco฀options฀granted฀during฀2004,฀2003฀and฀2002฀was฀$7.14,฀

$5.51฀and฀$9.30฀per฀share,฀respectively,฀and฀the฀weighted-average฀

fair฀value฀of฀the฀SIP฀restored฀options฀granted฀during฀2004,฀2003฀

and฀2002฀was฀$4.00,฀$4.03฀and฀$5.15฀per฀share,฀respectively.

A฀summary฀of฀the฀status฀of฀stock฀options฀awarded฀under฀

the฀company’s฀LTIP,฀as฀well฀as฀the฀former฀Texaco฀plans,฀for฀2004,฀

2003฀and฀2002฀follows:

Options Weighted-Average

(thousands) Exercise Price

Outstanding at December 31, 2001 45,240 $ 40.57

Granted 6,582 43.07

Exercised (3,636) 36.51

Restored 2,548 44.69

Forfeited (1,490) 44.05

Outstanding at December 31, 2002 49,244 $ 41.33

Granted 9,320 36.70

Exercised (1,458) 25.07

Restored 120 41.35

Forfeited (1,966) 42.70

Outstanding at December 31, 2003 55,260 $ 40.93

Granted 9,164 47.06

Exercised (14,308) 39.87

Restored 4,814 48.84

Forfeited (578) 43.94

Outstanding at December 31, 2004 54,352 $ 42.90

Exercisable at December 31

2002 42,890 $ 41.07

2003 42,554 $ 41.62

2004 35,547 $ 42.15

The฀following฀table฀summarizes฀information฀about฀stock฀

options฀outstanding,฀including฀those฀from฀former฀Texaco฀plans,฀

at฀December฀31,฀2004:

Options Outstanding Options Exercisable

Weighted-

Average Weighted- Weighted-

Number Remaining Average Number Average

Range of Outstanding Contractual Exercise Exercisable Exercise

Exercise Prices (thousands) Life (years) Price (thousands) Price

$ 15 to $ 25 513 0.55 $ 24.09 513 $ 24.09

25 to 35 875 1.86 32.94 875 32.94

35 to 45 33,061 6.13 40.97 26,031 41.71

45 to 55 19,846 6.54 47.02 8,128 45.69

55 to 65 57 2.41 55.21 – –

$ 15 to $ 65 54,352 6.15 $ 42.90 35,547 $ 42.15





Income฀Taxes฀ The฀company฀estimates฀its฀income฀tax฀expense฀

and฀liabilities฀annually.฀These฀liabilities฀generally฀are฀not฀ﬁnal-

ized฀with฀the฀individual฀taxing฀authorities฀until฀several฀years฀

after฀the฀end฀of฀the฀annual฀period฀for฀which฀income฀taxes฀have฀

been฀estimated.฀The฀U.S.฀federal฀income฀tax฀liabilities฀have฀been฀

settled฀through฀1996฀for฀ChevronTexaco฀(formerly฀Chevron฀

Corporation),฀1997฀for฀ChevronTexaco฀Global฀Energy฀Inc.฀(for-

merly฀Caltex)฀and฀1991฀for฀Texaco฀Inc.฀California฀franchise฀tax฀

liabilities฀have฀been฀settled฀through฀1991฀for฀Chevron฀and฀1987฀

for฀Texaco.฀Settlement฀of฀open฀tax฀years,฀as฀well฀as฀tax฀issues฀in฀

other฀countries฀where฀the฀company฀conducts฀its฀businesses,฀is฀

not฀expected฀to฀have฀a฀material฀effect฀on฀the฀consolidated฀ﬁnan-

cial฀position฀or฀liquidity฀of฀the฀company,฀and฀in฀the฀opinion฀

of฀management,฀adequate฀provision฀has฀been฀made฀for฀income฀

and฀franchise฀taxes฀for฀all฀years฀under฀examination฀or฀subject฀to฀

future฀examination.

Guarantees฀ At฀December฀31,฀2004,฀the฀company฀and฀its฀subsid-

iaries฀provided,฀either฀directly฀or฀indirectly,฀guarantees฀of฀$963฀

for฀notes฀and฀other฀contractual฀obligations฀of฀afﬁliated฀compa-

nies฀and฀$130฀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฀guarantees฀provided฀to฀afﬁliates,฀$774฀relate฀to฀

borrowings฀for฀capital฀projects฀or฀general฀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฀guarantee฀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฀collat-

eral฀for฀these฀guarantees.฀The฀$189฀balance฀of฀the฀$963฀represents฀

obligations฀in฀connection฀with฀pricing฀of฀power฀purchase฀agree-

ments฀for฀certain฀of฀the฀company’s฀cogeneration฀afﬁliates.฀Under฀

the฀terms฀of฀these฀guarantees,฀the฀company฀may฀be฀required฀

to฀make฀payments฀under฀certain฀conditions฀if฀the฀afﬁliates฀do฀

not฀perform฀under฀the฀agreements.฀There฀are฀no฀provisions฀for฀

recourse฀to฀third฀parties,฀and฀no฀assets฀are฀held฀as฀collateral฀for฀

these฀pricing฀guarantees.

Guarantees฀of฀$130฀have฀been฀provided฀to฀third฀parties,฀

including฀approximately฀$40฀of฀construction฀loans฀to฀host฀gov-

ernments฀of฀certain฀of฀the฀company’s฀international฀upstream฀

operations.฀The฀remaining฀guarantees฀of฀$90฀were฀provided฀

 STOCK OPTIONS – Continued