Chevron 2007 Annual Report Download - page 84

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vesting provisions of the company’s share-based compensation
programs for awards issued after adoption of FAS 123R. As
of December 31, 2007, there was $160 of total unrecognized
before-tax compensation cost related to nonvested share-based
compensation arrangements granted or restored under the
plans. That cost is expected to be recognized over a weighted-
average period of two years.
At January 1, 2007, the number of LTIP performance
units outstanding was equivalent to 2,110,196 shares. Dur-
ing 2007, 931,200 units were granted, 784,364 units vested
with cash proceeds distributed to recipients and 32,017 units
were forfeited. At December 31, 2007, units outstanding
were 2,225,015, and the fair value of the liability recorded for
these instruments was $205. In addition, outstanding stock
appreciation rights and other awards that were granted under
various LTIP and former Texaco and Unocal programs totaled
approximately 1 million equivalent shares as of December 31,
2007. A liability of $38 was recorded for these awards.
Broad-Based Employee Stock Options In addition to the plans
described above, Chevron granted all eligible employees
stock options or equivalents in 1998. The options vested in
February 2000 and expired in February 2008. A total of
9,641,600 options were awarded with an exercise price of
$38.16 per share.
The fair value of each option on the date of grant was
estimated at $9.54 using the Black-Scholes model for the
preceding 10 years. The assumptions used in the model,
based on a 10-year average, were: a risk-free interest rate of
7 percent, a dividend yield of 4.2 percent, an expected life
of seven years and a volatility of 24.7 percent.
At January 1, 2007, the number of broad-based employee
stock options outstanding was 1,306,059. During 2007, exer-
cises of 637,044 shares and forfeitures of 16,300 shares reduced
outstanding options to 652,715. As of December 31, 2007,
these instruments had an aggregate intrinsic value of $36 and
the remaining contractual term of these options was 0.1 year.
The total intrinsic value of these options exercised during
2007, 2006 and 2005 was $30, $10 and $9, respectively.
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Income Taxes The company calculates its income tax expense
and liabilities quarterly. These liabilities generally are subject to
audit and are not finalized with the individual taxing authori-
ties until several years after the end of the annual period for
which income taxes have been calculated. Refer to Note 15
beginning on page 70 for a discussion of the periods for which
tax returns have been audited for the company’s major tax
jurisdictions and a discussion for all tax jurisdictions of the dif-
ferences between the amount of tax benefits recognized in the
financial statements and the amount taken or expected to be
taken in a tax return. The company does not expect settlement
of income tax liabilities associated with uncertain tax positions
will have a material effect on its results of operations, consoli-
dated financial position or liquidity.
Guarantees The company’s guarantee of approximately $600
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 indemni-
ties 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. Through the end of 2007, the company paid $48 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
liabil ities associated with assets that were sold in 1997. Under
the indemnification agreement, the company’s liability
is unlimited until April 2022, when the indemnification
expires. The acquirer shares in certain environmental
remediation costs up to a maximum obligation of $200,
which had not been reached as of December 31, 2007.
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Notes to the Consolidated Financial Statements
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