Chevron 2006 Annual Report Download - page 78

76 CHEVRON CORPORATION 2006 ANNUAL REPORT76 CHEVRON CORPORATION 2006 ANNUAL REPORT
Notes to the Consolidated Financial Statements
Millions of dollars, except per-share amounts
measured. To assess the plans’ investment performance, long-
term asset allocation policy benchmarks have been established.
For the primary U.S. pension plan, the Chevron Board
of Directors has established the following approved asset allo-
cation ranges: Equities 40–70 percent, Fixed Income 20–60
percent, Real Estate 0–15 percent and Other 0–5 percent.
The signifi cant international pension plans also have estab-
lished maximum and minimum asset allocation ranges that
vary by each plan. Actual asset allocation within approved
ranges is based on a variety of current economic and market
conditions and consideration of specifi c asset category risk.
Equities include investments in the company’s common
stock in the amount of $17 and $13 at December 31, 2006
and 2005, respectively. The “Other” asset category includes
minimal investments in private-equity limited partnerships.
Cash Contributions and Benefi t Payments In 2006, the
company contributed $224 and $225 to its U.S. and inter-
national pension plans, respectively. In 2007, the company
expects contributions to be approximately $300 and $200 to
its U.S. and international pension plans, respectively. Actual
contribution amounts are dependent upon plan-investment
returns, changes in pension obligations, regulatory environ-
ments and other economic factors. Additional funding may
ultimately be required if investment returns are insuffi cient
to offset increases in plan obligations.
The company anticipates paying other postretirement
benefi ts of approximately $223 in 2007, as compared with
$211 paid in 2006.
The following benefi t payments, which include estimated
future service, are expected to be paid in the next 10 years:
Pension Benefi ts Other
U.S. Int’l. Benefi ts
2007 $ 775 $ 206 $ 223
2008 $ 755 $ 228 $ 226
2009 $ 786 $ 237 $ 228
2010 $ 821 $ 253 $ 233
2011 $ 865 $ 249 $ 239
2012–2016 $ 4,522 $ 1,475 $ 1,252
Employee Savings Investment Plan Eligible employees of
Chevron and certain of its subsidiaries participate in the
Chevron Employee Savings Investment Plan (ESIP).
Charges to expense for the ESIP represent the company’s
contributions to the plan, which are funded either through
the purchase of shares of common stock on the open market
or through the release of common stock held in the leveraged
employee stock ownership plan (LESOP), which is discussed
below. Total company matching contributions to employee
accounts within the ESIP were $169, $145 and $139 in 2006,
2005 and 2004, respectively. This cost was reduced by the value
of shares released from the LESOP totaling $6, $4 and $138 in
2006, 2005 and 2004, respectively. The remaining amounts,
totaling $163, $141 and $1 in 2006, 2005 and 2004, respec-
tively, represent open market purchases.
Employee Stock Ownership Plan Within the Chevron ESIP is
an employee stock ownership plan (ESOP). In 1989, Chevron
established a LESOP as a constituent part of the ESOP. The
LESOP provides partial prefunding of the company’s future
commitments to the ESIP.
As permitted by American Institute of Certifi ed Public
Accountants (AICPA) Statement of Position 93-6, Employers’
Accounting for Employee Stock Ownership Plans, the company
has elected to continue its practices, which are based on
AICPA Statement of Position 76-3, Accounting Practices for
Certain Employee Stock Ownership Plans, and subsequent con-
sensus of the EITF of the FASB. The debt of the LESOP is
recorded as debt, and shares pledged as collateral are reported
as “Deferred compensation and benefi t plan trust” on the
Consolidated Balance Sheet and the Consolidated Statement
of Stockholders’ Equity.
The company reports compensation expense equal to
LESOP debt principal repayments less dividends received
and used by the LESOP for debt service. Interest accrued
on LESOP debt is recorded as interest expense. Dividends
paid on LESOP shares are refl ected as a reduction of retained
earnings. All LESOP shares are considered outstanding for
earnings-per-share computations.
Total (credits) expenses recorded for the LESOP were
$(1), $94 and $(29) in 2006, 2005 and 2004, respectively,
including $17, $18 and $23 of interest expense related to
LESOP debt and a (credit) charge to compensation expense
of $(18), $76 and $(52).
Of the dividends paid on the LESOP shares, $59, $55
and $52 were used in 2006, 2005 and 2004, respectively,
to service LESOP debt. The amount in 2006 included $28
of LESOP debt service that was scheduled for payment
on the fi rst business day of January 2007 and was paid in
late December 2006. Included in the 2004 amount was a
repayment of debt entered into in 1999 to pay interest on the
ESOP debt. Interest expense on this debt was recognized and
reported as LESOP interest expense in 1999. In addition,
the company made contributions in 2005 of $98 to satisfy
LESOP debt service in excess of dividends received by the
LESOP. No contributions were required in 2006 or 2004 as
dividends received by the LESOP were suffi cient to satisfy
LESOP debt service.
Shares held in the LESOP are released and allocated
to the accounts of plan participants based on debt service
deemed to be paid in the year in proportion to the total of
current year and remaining debt service. LESOP shares as
of December 31, 2006 and 2005, were as follows:
NOTE 21. EMPLOYEE BENEFIT PLANS – Continued