Chevron 2009 Annual Report Download - page 55

Chevron Corporation 2009 Annual Report 53
FS-PB
Note 12 Investments and Advances – ContinuedNote 14 Litigation – Continued
given to Texpet by the Republic of Ecuador and Petroecua-
dor. With regard to the facts, the company believes that the
evidence confirms that Texpet’s remediation was properly
conducted and that the remaining environmental damage
reflects Petroecuador’s failure to timely fulfill its legal obliga-
tions and Petroecuador’s further conduct since assuming full
control over the operations.
In April 2008, a mining engineer appointed by the
court to identify and determine the cause of environmen-
tal damage, and to specify steps needed to remediate it,
issued a report recommending that the court assess $8,000,
which would, according to the engineer, provide financial
compensation for purported damages, including wrongful
death claims, and pay for, among other items, environmental
remediation, health care systems and additional infrastruc-
ture for Petroecuador. The engineer’s report also asserted
that an additional $8,300 could be assessed against Chevron
for unjust enrichment. The engineer’s report is not binding
on the court. Chevron also believes that the engineer’s work
was performed and his report prepared in a manner contrary
to law and in violation of the court’s orders. Chevron sub-
mitted a rebuttal to the report in which it asked the court
to strike the report in its entirety. In November 2008, the
engineer revised the report and, without additional evidence,
recommended an increase in the financial compensation for
purported damages to a total of $18,900 and an increase in
the assessment for purported unjust enrichment to a total of
$8,400. Chevron submitted a rebuttal to the revised report,
which the court dismissed. In September 2009, following
the disclosure by Chevron of evidence that the judge partici-
pated in meetings in which businesspeople and individuals
holding themselves out as government officials discussed
the case and its likely outcome, the judge presiding over the
case petitioned to be recused. In late September 2009, the
judge was recused, and in October 2009, the full chamber
of the provincial court affirmed the recusal, resulting in the
appointment of a new judge. Chevron filed motions to annul
all of the rulings made by the prior judge, but the new judge
denied these motions. The court has completed most of the
procedural aspects of the case and could render a judgment
at any time. Chevron will continue a vigorous defense of any
attempted imposition of liability.
In the event of an adverse judgment, Chevron would
expect to pursue its appeals and vigorously defend against
enforcement of any such judgment; therefore, the ultimate
outcome – and any financial effect on Chevron – remains
uncertain. Management does not believe an estimate of a rea-
sonably possible loss (or a range of loss) can be made in this
case. Due to the defects associated with the engineer’s report,
management does not believe the report has any utility in
calculating a reasonably possible loss (or a range of loss).
Moreover, the highly uncertain legal environment surround-
ing the case provides no basis for management to estimate a
reasonably possible loss (or a range of loss).
Note 15
Taxes
Income Taxes
Year ended December 31
2009 2008 2007
Taxes on income
U.S. Federal
Current $ 128 $ 2,879 $ 1,446
Deferred (147) 274 225
State and local
Current 216 528 356
Deferred 14 141 (18)
Total United States 211 3,822 2,009
International
Current 7,154 15,021 11,416
Deferred 600 183 54
Total International 7,754 15,204 11,470
Total taxes on income $ 7,965 $ 19,026 $ 13,479
In 2009, before-tax income for U.S. operations,
including related corporate and other charges, was $1,310,
compared with before-tax income of $10,765 and $7,886 in
2008 and 2007, respectively. For international operations,
before-tax income was $17,218, $32,292 and $24,388 in
2009, 2008 and 2007, respectively. U.S. federal income tax
expense was reduced by $204, $198 and $132 in 2009, 2008
and 2007, respectively, for business tax credits.
The reconciliation between the U.S. statutory federal
income tax rate and the company’s effective income tax rate is
explained in the following table:
Year ended December 31
2009 2008 2007
U.S. statutory federal income tax rate 35.0% 35.0% 35.0%
Effect of income taxes from inter-
national operations at rates different
from the U.S. statutory rate 10.4 10.1 8.2
State and local taxes on income, net
of U.S. federal income tax benefit 0.9 1.0 0.8
Prior-year tax adjustments (0.3) (0.1) 0.3
Tax credits (1.1) (0.5) (0.4)
Effects of enacted changes in tax laws 0.1 (0.6) (0.3)
Other (2.0) (0.7) (1.8)
Effective tax rate 43.0% 44.2% 41.8%