Chevron 2007 Annual Report Download - page 72

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70 
liquidity or financial position. The terms of this agreement are
confidential, and subject to further negotiation and approval,
including by the courts.


Income Taxes
Year ended December 31
2007 2006 2005
Taxes on income
U.S. Federal
Current $ 1,446 $ 2,828 $ 1,459
Deferred 225 200 567
State and local 338 581 409
Total United States 2,009 3,609 2,435
International
Current 11,416 11,030 7,837
Deferred 54 199 826
Total International 11,470 11,229 8,663
Total taxes on income $ 13,479 $ 14,838 $ 11,098
In 2007, before-tax income for U.S. operations,
including related corporate and other charges, was $7,794,
compared with before-tax income of $9,131 and $6,733 in
2006 and 2005, respectively. For international operations,
before-tax income was $24,373, $22,845 and $18,464 in
2007, 2006 and 2005, respectively. U.S. federal income tax
expense was reduced by $132, $116 and $289 in 2007, 2006
and 2005, 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 table below:
Year ended December 31
2007 2006 2005
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 8.3 10.3 9.2
State and local taxes on income, net
of U.S. federal income tax benefit 0.8 1.0 1.0
Prior-year tax adjustments 0.3 0.9 0.1
Tax credits (0.4) (0.4) (1.1)
Effects of enacted changes in tax laws (0.3) 0.3 –
Other (1.8) (0.7) (0.1)
Effective tax rate 41.9% 46.4% 44.1%
The company’s effective tax rate decreased by 4.5 per-
cent in 2007 from the prior year. The 2 percent decrease
pertaining to the “Effect of income taxes from international


MTBE Chevron and many other companies in the petroleum
industry have used methyl tertiary butyl ether (MTBE) as
a gasoline additive. The company is a party to 88 lawsuits
and claims, the majority of which involve numerous other
petroleum marketers and refiners, related to the use of MTBE
in certain oxygenated gasolines and the alleged seepages of
MTBE into groundwater. Chevron has agreed in principle to
a tentative settlement of 60 pending lawsuits and claims. The
terms of this agreement, which must be approved by a num-
ber of parties, including the court, are confidential and not
material to the company’s results of operations, liquidity or
financial position.
Resolution of remaining lawsuits and claims may ulti-
mately require the company to correct or ameliorate the
alleged effects on the environment of prior release of MTBE
by the company or other parties. Additional lawsuits and
claims related to the use of MTBE, including personal-injury
claims, may be filed in the future. The tentative settlement of
the referenced 60 lawsuits did not set any precedents related
to standards of liability to be used to judge the merits of the
claims, corrective measures required or monetary damages to
be assessed for the remaining lawsuits and claims or future
lawsuits and claims. As a result, the company’s ultimate
exposure related to pending lawsuits and claims is not cur-
rently determinable, but could be material to net income in
any one period. The company no longer uses MTBE in the
manufacture of gasoline in the United States.
RFG Patent Fourteen purported class actions were brought
by consumers of reformulated gasoline (RFG) alleging that
Unocal misled the California Air Resources Board into
adopting standards for composition of RFG that overlapped
with Unocal’s undisclosed and pending patents. Eleven law-
suits were consolidated in U.S. District Court for the Central
District of California, where a class action has been certified,
and three were consolidated in a state court action. Unocal
is alleged to have monopolized, conspired and engaged in
unfair methods of competition, resulting in injury to con-
sumers of RFG. Plaintiffs in both consolidated actions seek
unspecified actual and punitive damages, attorneys’ fees, and
interest on behalf of an alleged class of consumers who pur-
chased “summertime” RFG in California from January 1995
through August 2005. The parties have reached a tentative
agreement to resolve all of the above matters in an amount
that is not material to the company’s results of operations,
Notes to the Consolidated Financial Statements
