• Financial Highlights
• Management's Discussion and Analysis
• Consolidated Financial Statements
• Notes to the Consolidated Financial Statements
  • Note 1. Summary of Significant Accounting Policies
  • Note 2. Acquisition of Unocal Corporation
  • Note 3. Information Relating to the Consolidated Statement of Cash Flows
  • Note 4. Summarized Financial Data – Chevron U.S.A. Inc.
  • Note 5. Summarized Financial Data – Chevron Transport Corporation Ltd.
  • Note 6. Stockholders’ Equity
  • Note 7. Financial and Derivative Instruments
  • Note 8. Operating Segments and Geographic Data
  • Note 9. Lease Commitments
  • Note 10. Restructuring and Reorganization Costs
  • Note 11. Investments and Advances
  • Note 12. Properties, Plant and Equipment
  • Note 13. Accounting for Buy/Sell Contracts
  • Note 14. Litigation
  • Note 15. Taxes
  • Note 16. Short-Term Debt
  • Note 17. Long-Term Debt
  • Note 18. New Accounting Standards
  • Note 19. Accounting for Suspended Exploratory Wells
  • Note 20. Employee Benefit Plans
  • Note 21. Stock Options and Other Share-Based Compensation
  • Note 22. Other Contingencies and Commitments
  • Note 23. Asset Retirement Obligations
  • Note 24. Other Financial Information
  • Note 25. Earnings Per Share
• Five-Year Operating Summary
• Five-Year Financial Summary
• Supplemental Information on Oil and Gas Producing Activities

Note 3. Information Relating to the
Consolidated Statement of Cash Flows

Millions of dollars

	Year ended December 31
	2007	2006	2005
Net decrease (increase) in operating working capital was composed of the following:
(Increase) decrease in accounts and notes receivable	$(3,867)	$17	$(3,164)
Increase in inventories	(749)	(536)	(968)
Increase in prepaid expenses and other current assets	(370)	(31)	(54)
Increase in accounts payable and accrued liabilities	4,930	1,246	3,851
Increase in income and other taxes payable	741	348	281
Net decrease (increase) in operating working capital	$685	$1,044	$(54)
Net cash provided by operating activities includes the following cash payments for interest and income taxes:
Interest paid on debt (net of capitalized interest)	$203	$470	$455
Income taxes	$12,340	$13,806	$8,875
Net (purchases) sales of marketable securities consisted of the following gross amounts:
Marketable securities purchased	$(1,975)	$(1,271)	$(918)
Marketable securities sold	$2,160	$1,413	$1,254
Net sales (purchases) of marketable securities	$185	$142	$336

The Consolidated Statement of Cash Flows does not include noncash financing and investing activities. Refer to Note 23 for a discussion of revisions to the company's asset retirement obligations that did not involve cash receipts or payments in 2007.

In accordance with the cash-flow classification requirements of FAS 123R, Share-Based Payment, the "Net decrease (increase) in operating working capital" includes reductions of $96 and $94 for excess income tax benefits associated with stock options exercised during 2007 and 2006, respectively. These amounts are offset by "Net purchases of treasury shares."

The 2007 "Net purchases of other short-term investments" consist of $799 in restricted cash associated with capital-investment projects at the company's Pascagoula, Mississippi, refinery and Angola liquefied natural gas project that was invested in short-term marketable securities and reclassified from cash equivalents to a long-term deferred asset on the Consolidated Balance Sheet. In December 2007, the company issued a $650 tax exempt Mississippi Gulf Opportunity Zone Bond as a source of funds for the Pascagoula Refinery project.

The "Net purchases of treasury shares" represents the cost of common shares acquired in the open market less the cost of shares issued for share-based compensation plans. Open-market purchases totaled $7,036, $5,033 and $3,029 in 2007, 2006 and 2005, respectively.

The major components of "Capital expenditures" and the reconciliation of this amount to the reported capital and exploratory expenditures, including equity affiliates, presented in Management's Discussion and Analysis are presented in the following table:

	Year ended December 31
	2007	2006	2005
* Net of noncash additions of $3,560 in 2007, $440 in 2006 and $435 in 2005.
Additions to properties, plant and equipment*	$16,127	$12,800	$8,154
Additions to investments	881	880	459
Current-year dry hole expenditures	418	400	198
Payments for other liabilities and assets, net	(748)	(267)	(110)
Capital expenditures	16,678	13,813	8,701
Expensed exploration expenditures	816	844	517
Assets acquired through capital lease obligations and other financing obligations	196	35	164
Capital and exploratory expenditures, excluding equity affiliates	17,690	14,692	9,382
Equity in affiliates' expenditures	2,336	1,919	1,681
Capital and exploratory expenditures, including equity affiliates	$20,026	$16,611	$11,063