Chevron 2007 Annual Report Download - page 73

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operations …” was primarily due to the impact of asset sales
and to lower effective tax rates in certain non-U.S. opera-
tions. The 1 percent decrease in “Other” primarily relates to
the effects of asset sales in 2007.
The company records its deferred taxes on a tax-
jurisdiction basis and classifies those net amounts as current
or noncurrent based on the balance sheet classification of the
related assets or liabilities. The reported deferred tax balances
are composed of the following:
At December 31
2007 2006
Deferred tax liabilities
Properties, plant and equipment $ 17,310 $ 16,054
Investments and other 1,837 2,137
Total deferred tax liabilities 19,147 18,191
Deferred tax assets
Abandonment/environmental reserves (3,587) (2,925)
Employee benefits (2,148) (2,707)
Tax loss carryforwards (1,603) (1,509)
Capital losses – (246)
Deferred credits (1,689) (1,670)
Foreign tax credits (3,138) (1,916)
Inventory (608) (378)
Other accrued liabilities (477) (375)
Miscellaneous (1,528) (1,144)
Total deferred tax assets (14,778) (12,870)
Deferred tax assets valuation allowance 5,949 4,391
Total deferred taxes, net $ 10,318 $ 9,712
In 2007, deferred tax liabilities increased by approxi-
mately $1,000 from the amount reported in 2006. The
increase was primarily related to increased temporary differ-
ences for properties, plant and equipment.
Deferred tax assets increased by approximately $1,900
in 2007. The increase related primarily to additional foreign
tax credits arising from earnings in high-tax-rate international
jurisdictions. This increase was substantially offset by valua-
tion allowances.
The overall valuation allowance relates to foreign tax
credit carry forwards, tax loss carryforwards and temporary
differences for which no benefit is expected to be realized. Tax
loss carry forwards exist in many international jurisdictions.
Whereas some of these tax loss carry forwards do not have
an expiration date, others expire at various times from 2008
through 2029. Foreign tax credit carryforwards of $3,138
will expire between 2008 and 2017.
At December 31, 2007 and 2006, deferred taxes were
classified in the Consolidated Balance Sheet as follows:
At December 31
2007 2006
Prepaid expenses and other current assets $ (1,234) $ (1,167)
Deferred charges and other assets (812) (844)
Federal and other taxes on income 194 76
Noncurrent deferred income taxes 12,170 11,647
Total deferred income taxes, net $ 10,318 $ 9,712
Income taxes are not accrued for unremitted earnings
of international operations that have been or are intended
to be reinvested indefinitely. Undistributed earnings of inter-
national consolidated subsidiaries and affiliates for which
no deferred income tax provision has been made for possible
future remittances totaled $20,557 at December 31, 2007.
This amount represents earnings reinvested as part of the
company’s ongoing international business. It is not practica-
ble to estimate the amount of taxes that might be payable on
the eventual remittance of earnings that are intended to be
reinvested indefinitely. At the end of 2007, deferred income
taxes were recorded for the undistributed earnings of certain
international operations for which the company no longer
intends to indefinitely reinvest the earnings. The company
does not anticipate incurring significant additional taxes on
remittances of earnings that are not indefinitely reinvested.
Uncertain Income Tax Positions Effective January 1, 2007, the
company implemented Financial Accounting Standards Board
(FASB) Interpretation No. 48, Accounting for Uncertainty in
Income Taxes – An Interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for income tax benefits
that are uncertain in nature. This interpretation was intended
by the standard-setters to address the diversity in practice that
existed in this area of accounting for income taxes.
Under FIN 48, a company recognizes a tax benefit in
the financial statements for an uncertain tax position only if
management’s assessment is that the position is “more likely
than not” (i.e., a likelihood greater than 50 percent) to be
allowed by the tax jurisdiction based solely on the technical
merits of the position. The term “tax position” in FIN 48
refers to a position in a previously filed tax return or a
position expected to be taken in a future tax return that is
reflected in measuring current or deferred income tax assets
and liabilities for interim or annual periods. The accounting
interpretation also provides guidance on measurement meth-
odology, derecognition thresholds, financial statement
classification and disclosures, recognition of interest and
penalties, and accounting for the cumulative-effect adjust-
ment at the date of adoption. Upon adoption of FIN 48 on
January 1, 2007, the company recorded a cumulative-effect
adjustment that reduced retained earnings by $35.
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