Chevron 2007 Annual Report Download - page 43

 41


Direct Guarantee
Millions of dollars Commitment Expiration by Period
2009– After
Total 2008 2011 2012 2012
Guarantee of non-
consolidated affiliate or
joint-venture obligation $ 613 $ – $ – $ 38 $ 575
The company’s guarantee of approximately $600 mil-
lion is associated with certain payments under a terminal use
agreement entered into by a company affiliate. The terminal
is expected to be operational by 2012. Over the approximate
16-year term of the guarantee, the maximum guarantee
amount will reduce over time as certain fees are paid by the
affiliate. There are numerous cross-indemnity agreements
with the affiliate and the other partners to permit recovery of
any amounts paid under the guarantee. Chevron carries no
liability for its obligation under this guarantee.
Indemnifications The company provided certain indem-
nities of contingent liabilities of Equilon and Motiva to Shell
and Saudi Refining, Inc., in connection with the February
2002 sale of the company’s interests in those investments.
The company would be required to perform if the indemni-
fied liabilities become actual losses. Were that to occur, the
company could be required to make future payments up to
$300 million. Through the end of 2007, the company had
paid $48 million under these indemnities and continues to
be obligated for possible additional indemnification payments
in the future.
The company has also provided indemnities relating to
contingent environmental liabilities related to assets origi-
nally contributed by Texaco to the Equilon and Motiva joint
ventures and environmental conditions that existed prior to
the formation of Equilon and Motiva or that occurred dur-
ing the period of Texaco’s ownership interest in the joint
ventures. In general, the environmental conditions or events
that are subject to these indemnities must have arisen prior
to December 2001. Claims must be asserted no later than
February 2009 for Equilon indemnities and no later than
February 2012 for Motiva indemnities. Under the terms of
these indemnities, there is no maximum limit on the amount
of potential future payments. The company has not recorded
any liabilities for possible claims under these indemnities.
The company posts no assets as collateral and has made no
payments under the indemnities.
The amounts payable for the indemnities described above
are to be net of amounts recovered from insurance carriers
and others and net of liabilities recorded by Equilon or Motiva
prior to September 30, 2001, for any applicable incident.
In the acquisition of Unocal, the company assumed
certain indemnities relating to contingent environmental
liabilities associated with assets that were sold in 1997. Under
the indemnification agreement, the company’s liability
is unlimited until April 2022, when the indemnifica-
tion expires. The acquirer shares in certain environmental
Pension Obligations In 2007, the company’s pension plan
contributions were $317 million (approximately $78 million
to the U.S. plans). The company estimates contributions in
2008 will be approximately $500 million. Actual contribu-
tion amounts are dependent upon plan-investment results,
changes in pension obligations, regulatory requirements and
other economic factors. Additional funding may be required
if investment returns are insufficient to offset increases in
plan obligations. Refer also to the discussion of pension
accounting in “Critical Accounting Estimates and Assump-
tions,” beginning on page 46.

Financial Ratios
At December 31
2007 2006 2005
Current Ratio 1.2 1.3 1.4
Interest Coverage Ratio 69.2 53.5 47.5
Total Debt/Total Debt-Plus-Equity 8.6% 12.5% 17.0%
Current Ratio – current assets divided by current liabili-
ties. The current ratio in all periods was adversely affected by
the fact that Chevron’s inventories are valued on a Last-In,
First-Out basis. At year-end 2007, the book value of inventory
was lower than replacement costs, based on average acquisi-
tion costs during the year, by approximately $7 billion.
Interest Coverage Ratio – income before income tax
expense, plus interest and debt expense and amortization of
capitalized interest, divided
by before-tax interest costs.
The company’s interest
coverage ratio was higher
between 2007 and 2006 and
between 2006 and 2005,
primarily due to higher
before-tax income and lower
average debt balances in each
of the subsequent years.
Debt Ratio – total debt
as a percentage of total debt
plus equity. The progressive
decrease between 2005 and
2007, was due to lower aver-
age debt levels and higher
stockholders’ equity balances.
'%'
(''%'
)'%'
-'%'
/'%'
+'%'
'
,'
+'
*'
)'
('
024 – Total Debt to Debt Plus
Equity Ratio – v2
Total Debt to Total
Debt-Plus-Equity Ratio








'+'* ', '- '.
/+%*