Chevron 2005 Annual Report Download - page 40

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
38 CHEVRON CORPORATION 2005 ANNUAL REPORT
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 specifi ed banks and on terms
refl ecting the company’s strong credit rating. No borrow-
ings were outstanding under these facilities at December 31,
2005. In addition, the company has three existing effective
“shelf” registration statements on fi le with the Securities and
Exchange Commission that together would permit additional
registered debt offerings up to an aggregate $3.8 billion of debt
securities. Following the acquisition of Unocal, the company
withdrew Unocal’s “shelf” registration statements.
In October 2005, the company fully redeemed the
Unocal subsidiary Pure Resources’ 7.125 percent Senior
Notes due 2011 for $395 million. The company’s $150 mil-
lion of Texaco Brasil zero coupon notes were paid at maturity
in November 2005. In December 2005, the company
exercised a par-call redemption of $200 million in Texaco
Capital Inc. 5.7 percent Notes due 2008.
In February 2006, the company retired Union Oil bonds
at maturity for approximately $185 million.
Texaco Capital LLC, a wholly owned fi nance subsid-
iary, issued Deferred Preferred Shares Series C (Series C) in
December 1995. In February 2005, the company redeemed
the Series C shares and paid accumulated dividends of
approximately $140 million.
In January 2005, the company contributed $98 million
to its Employee Stock Ownership Plan (ESOP) to permit the
ESOP to make a $144 million debt service payment, which
included a principal payment of $113 million.
In the second quarter 2004, Chevron entered into $1 bil-
lion of interest rate fi xed-to-fl oating swap transactions, in which
the company receives a fi xed interest rate and pays a fl oating
rate, based on the notional principal amounts. Under the terms
of the swap agreements, of which $250 million and $750 mil-
lion will terminate in September 2007 and February 2008,
respectively, the net cash settlement will be based on the differ-
ence between fi xed-rate and fl oating-rate interest amounts.
Chevron’s senior debt is rated AA by Standard and
Poor’s Corporation and Aa2 by Moody’s Investors Service.
The company’s senior debt of Texaco Capital Inc. is rated
Aa3, and Union Oil Company of California bonds are rated
A1 by Moody’s. These companies are wholly owned subsid-
iaries of Chevron. The company’s U.S. commercial paper is
rated A-1+ by Standard and Poor’s and P-1 by Moody’s, and
the company’s Canadian commercial paper is rated R-1 (mid-
dle) by Dominion Bond Rating Service. All of these ratings
denote high-quality investment-grade securities.
The company’s future debt level is dependent primarily
on results of operations, the capital-spending program and
cash that may be generated from asset dispositions. Further
reductions from debt balances at December 31, 2005, are
dependent upon many factors, including management’s con-
tinuous assessment of debt as an appropriate component of
the company’s overall capital structure. The company believes
it has substantial borrowing capacity to meet unanticipated
cash requirements, and during periods of low prices for crude
oil and natural gas and narrow margins for refi ned products
and commodity chemicals, the company believes that it has
the fl exibility to increase borrowings and/or modify capital-
spending plans to continue paying the common stock dividend
and maintain the company’s high-quality debt ratings.
Common Stock Repurchase Program In connection with a
$5 billion stock repurchase program initiated in April 2004,
the company acquired 92.1 million of its common shares
for $5 billion through November 2005. During 2005, about
49.8 million of common shares were repurchased under this
program for a total cost of $2.9 billion.
In December 2005, the company authorized the acquisi-
tion of up to an additional $5 billion of its common shares
from time to time at prevailing prices, as permitted by securi-
ties laws and other legal requirements and subject to market
conditions and other factors. The program is for a period
of up to three years and may be discontinued at any time.
Under this program, the company acquired approximately
1.7 million shares in the open market for $100 million dur-
ing December 2005. Purchases through mid-February 2006
increased the total shares acquired to 8.3 million at a cost of
$481 million.
Capital and exploratory expenditures Excluding the $17.3
billion acquisition of Unocal Corporation, total reported
expenditures for 2005 were $11.1 billion, including $1.7
billion for the company’s share of affi liates’ expenditures,
which did not require cash outlays by the company. In 2004
Capital and Exploratory Expenditures
2005 2004 2003
Millions of dollars U.S. Int’l. Total U.S. Int’l. Total U.S. Int’l. Total
Upstream – Exploration and Production $ 2,450 $ 5,939 $ 8,389 $ 1,820 $ 4,501 $ 6,321 $ 1,641 $ 4,034 $ 5,675
Downstream – Refi ning, Marketing and
Transportation 818 1,332 2,150 497 832 1,329 403 697 1,100
Chemicals 108 43 151 123 27 150 173 24 197
All Other 329 44 373 512 3 515 371 20 391
Total $ 3,705 $ 7,358 $ 11,063 $ 2,952 $ 5,363 $ 8,315 $ 2,588 $ 4,775 $ 7,363
Total, Excluding Equity in Affi liates $ 3,522 $ 5,860 $ 9,382 $ 2,729 $ 4,024 $ 6,753 $ 2,306 $ 3,920 $ 6,226