Employee Stock Options and Nonvested Common Stock (Restricted Stock) Awards: The Corporation uses the intrinsic value method to account for employee stock options. Because the exercise prices of employee stock options equal or exceed the market price of the stock on the date of grant, the Corporation does not recognize compen- sation expense. The following pro forma financial informa- tion presents the effect on net income and earnings per share as if the Corporation used the fair value method. The Corporation records compensation expense for non-vested common stock awards ratably over the vesting period.  effects of fluctuations in crude oil, natural gas and refined product selling prices. The Corporation also uses derivatives in its energy marketing activities to fix the purchase prices of commodities to be sold under fixed-price contracts. Related hedge gains or losses are an integral part of the selling or purchase prices. Generally, these derivatives are designated as hedges of expected future cash flows or forecasted transactions (cash flow hedges), and the changes in fair value are recorded in accumulated other comprehensive income. These transactions meet the requirements for hedge accounting, including correlation. The Corporation reclassifies hedging gains and losses included in accumu- lated other comprehensive income to earnings at the time the hedged transactions are recognized. The ineffective por- tion of hedges is included in current earnings. The Corpora- tion’s remaining derivatives, including foreign currency contracts, are not designated as hedges and the change in fair value is included in income currently. Trading: Derivatives (futures, forwards, options and swaps) used in energy trading activities are marked to market, with net gains and losses recorded in operating revenue. Gains or losses from the sale of physical products are recorded at the time of sale. 2003: The Corporation recorded a pre-tax charge of $58million for premiums paid on the repurchase of bonds. This amount included premiums on bonds repurchased with proceeds of the fourth quarter preferred stock offering. The repurchased bonds included notes due in 2005 and 2007 assumed from Triton Energy at the time of the acquisition. This charge is reflected in non-operating income (expense) in the income statement. The Corporation recorded expense of $53 million, before income taxes, for accrued severance and London office lease costs in exploration and production operations. Of this amount, $32 million relates to leased office space and the remainder relates to severance for positions that were eliminated in London, Aberdeen and Houston. Over 700 employee and contractor positions have been or will be eliminated or transferred to other operators. Approximately 240 employees are receiving severance, $15 million of which has been paid. The remainder is expected to be paid in 2004. The estimated annual savings from this cost reduction initiative is approximately $50 million before income taxes. The Corporation anticipates realizing Foreign Currency Translation: The U.S. dollar is the func- tional currency (primary currency in which business is con- ducted) for most foreign operations. For these operations, adjustments resulting from translating foreign currency assets and liabilities into U.S. dollars are recorded in income. For operations that use the local currency as the functional currency, adjustments resulting from translating foreign functional currency assets and liabilities into U.S. dollars are recorded in a separate component of stockhold- ers’ equity entitled accumulated other comprehensive income. Gains or losses resulting from transactions in other than the functional currency are reflected in net income. Hedging: The Corporation uses futures, forwards, options and swaps, individually or in combination, to reduce the 42 Millions of dollars, except per share data 2003 2002 2001 Net income (loss) $ 643 $ (218) $ 914 Add stock-based employee  compensation expense  included in net income,  net of taxes 7 5 8 Less total stock-based employee  compensation expense  determined using the fair value  method, net of taxes (8) (19) (22) Pro forma net income (loss) $ 642 $ (232) $ 900 Net income (loss) per share  as reported Basic $7.19 $(2.48) $10.38 Diluted 7.11 (2.48) 10.25 Pro forma net income (loss)  per share Basic $7.19 $(2.63) $10.23 Diluted 7.11 (2.63) 10.10 2. ITEMS AFFECTING INCOME FROM  CONTINUING OPERATIONS