Chevron 2006 Annual Report Download - page 38

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
36 CHEVRON CORPORATION 2006 ANNUAL REPORT
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities Tot al ba la nces
were $11.4 billion and $11.1 billion at December 31, 2006
and 2005, respectively. Cash provided by operating activities
in 2006 was $24.3 billion, compared with $20.1 billion in
2005 and $14.7 billion in 2004.
The 2006 increase in cash provided by operating activi-
ties mainly refl ected higher earnings in the upstream and
downstream segments, including a full year of earnings
from the former Unocal operations that were acquired in
August 2005. Cash provided by operating activities was
net of contributions to employee pension plans of $0.4 bil-
lion, $1.0 billion and $1.6 billion in 2006, 2005 and 2004,
respectively. Cash provided by investing activities included
proceeds from asset sales of $1.0 billion in 2006, $2.7 billion
in 2005 and $3.7 billion in 2004.
Cash provided by operating activities and asset sales dur-
ing 2006 was suffi cient to fund the company’s $13.8 billion
capital and exploratory program, pay $4.4 billion of divi-
dends to stockholders, repay approximately $2.9 billion in
debt and repurchase $5 billion of common stock.
Dividends The company paid dividends of approximately
$4.4 billion in 2006, $3.8 billion in 2005 and $3.2 billion in
2004. In April 2006, the company increased its quarterly com-
mon stock dividend by 15.5 percent to 52 cents per share.
Debt, capital lease and minority interest obligations
Total debt and capital lease balances were $9.8 billion at
December 31, 2006, down from $12.9 billion at year-end
2005. The company also had minority interest obligations of
$209 million, up from $200 million at December 31, 2005.
The $3.1 billion reduction in total debt and capital lease
obligations during 2006 included the early redemption and
maturity of several individual debt issues. In the fi rst quarter,
$185 million of Union Oil Company bonds matured. In the
second quarter, the company redeemed approximately $1.7
billion of Unocal debt prior to maturity. In the fourth quarter,
a $129 million Texaco Capital Inc. bond matured, and Union
Oil Company bonds of $196 million were redeemed prior to
maturity. Commercial paper balances at the end of 2006 were
reduced $626 million from year-end 2005. In February 2007,
a $144 million Texaco Capital Inc. bond matured.
The company’s debt and capital lease obligations due
within one year, consisting primarily of commercial paper
and the current portion of long-term debt, totaled $6.6
billion at December 31, 2006, up from $5.6 billion at year-
end 2005. Of these amounts, $4.5 billion and $4.9 billion
were reclassifi ed to long-term at the end of each period,
respectively. At year-end 2006, settlement of the reclassifi ed
amount was not expected to require the use of working capi-
tal in 2007, as the company had the intent and the ability,
as evidenced by committed credit facilities, to refi nance the
amounts on a long-term basis. The company’s practice has
been to maintain commercial paper levels it believes appro-
priate and economic.
At year-end 2006, the company had $5 billion in com-
mitted credit facilities with various major banks, which
permitted the refi nancing of short-term obligations on a
long-term basis. These facilities support commercial paper
borrowings and can be used for general corporate purposes.
The company’s practice has been to continually replace expir-
ing commitments with new commitments on substantially
the same terms, maintaining levels management 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 com-
pany’s strong credit rating. No borrowings were outstanding
under these facilities at December 31, 2006. In addition, the
company has three existing effective “shelf” registration state-
ments on fi le with the Securities and Exchange Commission
that together would permit additional registered debt offer-
ings up to an aggregate $3.8 billion of debt securities.
In 2004, Chevron entered into $1 billion of interest
rate 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 million will terminate in
September 2007 and February 2008, respectively, the net
cash settlement will be based on the difference between
fi xed interest rates and fl oating interest rates.
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