Chevron 2011 Annual Report Download - page 40

38 Chevron Corporation 2011 Annual Report
For federal Superfund sites and analogous sites under
state laws, the company records a liability for its designated
share of the probable and estimable costs and probable
amounts for other potentially responsible parties when man-
dated by the regulatory agencies because the other parties are
not able to pay their respective shares.
e gross amount of environmental liabilities is based
on the company’s best estimate of future costs using currently
available technology and applying current regulations and
the company’s own internal environmental policies. Future
amounts are not discounted. Recoveries or reimbursements
are recorded as assets when receipt is reasonably assured.
Currency Translation e U.S. dollar is the functional cur-
rency for substantially all of the company’s consolidated
operations and those of its equity affiliates. For those opera-
tions, all gains and losses from currency remeasurement are
included in current period income. e cumulative trans-
lation eects for those few entities, both consolidated and
affiliated, using functional currencies other than the U.S.
dollar are included in “Currency translation adjustment” on
the Consolidated Statement of Equity.
Revenue Recognition Revenues associated with sales of crude
oil, natural gas, coal, petroleum and chemicals products,
andall other sources are recorded when title passes to the
customer, net of royalties, discounts and allowances, as
applicable. Revenues from natural gas production from prop-
erties in which Chevron has an interest with other producers
are generally recognized on the entitle ment method. Excise,
value-added and similar taxes assessed by a governmental
authority on a revenue- producing transaction between a seller
and a customer are presented on a gross basis. e associated
amounts are shown as a footnote to the Consolidated State-
ment of Income, on page 31. Purchases and sales of
inventorywith the same counterparty that are entered into
incontemplation of one another (including buy/sell arrange-
ments) are combined and recorded on a net basis and reported
in “Purchased crude oil and products” on the Consolidated
Statement of Income.
Stock Options and Other Share-Based Compensation e
company issues stock options and other share-based compen-
sation to its employees and accounts for these transactions
under the accounting standards for share-based compensa-
tion (ASC 718). For equity awards, such as stock options,
total compensation cost is based on the grant date fair value,
and for liability awards, such as stock appreciation rights,
total compensation cost is based on the settlement value. e
company recognizes stock-based compensation expense for
all awards over the service period required to earn the award,
which is the shorter of the vesting period or the time period
an employee becomes eligible to retain the award at retire-
ment. Stock options and stock appreciation rights granted
under the company’s Long-Term Incentive Plan have graded
vesting provisions by which one-third of each award vests on
the rst, second and third anniversaries of the date of grant.
e company amortizes these graded awards on a straight-
line basis.
Note 2
Acquisition of Atlas Energy, Inc.
On February 17, 2011, the company acquired Atlas Energy,
Inc. (Atlas), which held one of the premier acreage positions in
the Marcellus Shale, concentrated in southwestern Pennsylva-
nia. e aggregate purchase price of Atlas was approximately
$4,500, which included $3,009 cash for all the common shares
of Atlas, a $403 cash advance to facilitate Atlas’ purchase of a
49 percent interest in Laurel Mountain Midstream LLC and
about $1,100 of assumed debt. Subsequent to the close of the
transaction, the company paid o the assumed debt and made
payments of $184 in connection with Atlas equity awards. As
part of the acquisition, Chevron assumed the terms of a carry
arrangement whereby Reliance Marcellus, LLC, funds 75 per-
cent of Chevron’s drilling costs, up to $1,300.
e acquisition was accounted for as a business combina-
tion (ASC 805) which, among other things, requires assets
acquired and liabilities assumed to be measured at their
acquisition date fair values. Provisional fair value measure-
ments were made in rst quarter 2011 for acquired assets and
assumed liabilities, and the measurement process was nal-
ized in fourth quarter 2011.
Proforma nancial information is not presented as it
would not be materially dierent from the information pre-
sented in the Consolidated Statement of Income.
e following table summarizes the measurement of the
assets acquired and liabilities assumed:
Millions of Dollars At February 17, 2011
Current assets $ 155
Investments and long-term receivables 456
Properties 6,051
Goodwill 27
Other assets 5
Total assets acquired 6,694
Current liabilities (560)
Long-term debt and capital leases (761)
Deferred income taxes (1,915)
Other liabilities (25)
Total liabilities assumed (3,261)
Net assets acquired $ 3,433
Note 1 Summary of Significant Accounting Policies – Continued
Notes to the Consolidated Financial Statements
Millions of dollars, except per-share amounts