Sunoco 2005 Annual Report Download - page 55

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3. Other Income (Loss), Net
(Millions of Dollars) 2005 2004 2003
Gain pertaining to income tax
matters (Note 4) $3 $28 $—
Loss on phenol supply contract
dispute (Note 2) (95) ——
Loss on early extinguishment of
debt (Note 11) —(53) —
Equity income (loss):
Pipeline joint ventures
(Notes 2 and 7) 16 19 20
Belvieu Environmental Fuels
(Note 2) —2 (29)
Other 10 52
Noncash reduction in minority
interests in cokemaking
operations (Note 13) 15 53
Gain on divestments (Note 2) 10 532
Other 28 19 12
$(13) $30 $40
4. Income Taxes
The components of income tax expense are as follows:
(Millions of Dollars) 2005 2004 2003
Income taxes currently payable:
U.S. federal $470 $212 $ 61
State and other 133 55 11
603 267 72
Deferred taxes:
U.S. federal —100 101
State and other 323 10
3123 111
$606 $390 $183
The reconciliation of income tax expense at the U.S. stat-
utory rate to the income tax expense is as follows:
(Millions of Dollars) 2005 2004 2003
Income tax expense at U.S.
statutory rate of 35 percent $553 $348 $173
Increase (reduction) in income
taxes resulting from:
Manufacturers’ deduction (14) ——
Income tax settlements (19) (5) —
State and other income taxes, net
of Federal income tax effects 88 51 14
Dividend exclusion for affiliated
companies (2) (3) (4)
Nonconventional fuel credit (1) (1) (1)
Other 1—1
$606 $390 $183
The tax effects of temporary differences which comprise
the net deferred income tax liability are as follows:
December 31
(Millions of Dollars) 2005 2004
Deferred tax assets:
Retirement benefit liabilities $ 197 $ 196
Environmental remediation liabilities 43 49
Other liabilities not yet deductible 290 200
Inventories 144 63
Other 56 50
Valuation allowance* (3) (3)
727 555
Deferred tax liabilities:
Properties, plants and equipment (1,259) (1,150)
Other (70) (50)
(1,329) (1,200)
Net deferred income tax liability $ (602) $ (645)
*The valuation allowance reduces the benefit of certain state net operating loss
carryforwards to the amount that will more likely than not be realized.
The net deferred income tax liability is classified in the
consolidated balance sheets as follows:
December 31
(Millions of Dollars) 2005 2004
Current asset $ 215 $ 110
Noncurrent liability (817) (755)
$(602) $(645)
Net cash payments for (refunds of) income taxes were
$597, $152 and $(42) million in 2005, 2004 and 2003,
respectively.
During 2005, Sunoco settled certain federal income tax
issues and established a provision for certain state and
local tax matters. In connection with these tax matters,
an $18 million net after-tax gain was recognized in the
2005 consolidated statement of income. There was no
cash received in connection with the federal income tax
settlement.
During 2004, Sunoco received a $2 million refund related
to the computation of interest on numerous federal in-
come tax issues. In connection with this settlement, an
$18 million after-tax gain was recognized in the 2004
consolidated statement of income. Also in 2004, Sunoco
settled certain federal income tax issues that had been in
dispute, which increased net income by $5 million. In
connection with this settlement, Sunoco received $9 mil-
lion of cash proceeds.
53