Sunoco 2004 Annual Report Download - page 58

4. Income Taxes
The components of income tax expense (benefit) are as
follows:
(Millions of Dollars) 2004 2003 2002
Income taxes currently payable:
U.S. federal $212 $ 61 $(47)
State and other 55 11 2
267 72 (45)
Deferred taxes:
U.S. federal 100 101 18
State and other 23 10 1
123 111 19
$390 $183 $(26)
The reconciliation of income tax expense (benefit) at the
U.S. statutory rate to the income tax expense (benefit) is
as follows:
(Millions of Dollars) 2004 2003 2002
Income tax expense (benefit) at U.S.
statutory rate of 35 percent $348 $173 $(26)
Increase (reduction) in income taxes
resulting from:
Income tax settlements (5) ——
State income taxes net of Federal
income tax effects 51 14 2
Dividend exclusion for affiliated
companies (3) (4) (3)
Nonconventional fuel credit (1) (1) —
Other —11
$390 $183 $(26)
The tax effects of temporary differences which comprise
the net deferred income tax liability are as follows:
December 31
(Millions of Dollars) 2004 2003
Deferred tax assets:
Retirement benefit liabilities $ 196 $ 205
Environmental remediation liabilities 49 52
Other liabilities not yet deductible 200 209
Alternative minimum tax credit
carryforward —63
Other 113 87
Valuation allowance* (3) (8)
555 608
Deferred tax liabilities:
Properties, plants and equipment (1,150) (1,043)
Other (50) (76)
(1,200) (1,119)
Net deferred income tax liability $ (645) $ (511)
*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) 2004 2003
Current asset $ 110 $91
Noncurrent liability (755) (602)
$(645) $(511)
Net cash payments for (refunds of) income taxes were
$152, $(42) and $(49) million in 2004, 2003 and 2002,
respectively.
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, a
$28 million pretax gain ($18 million after tax) was
recognized in other income, net, in the 2004 consolidated
statement of operations. 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 million of cash
proceeds.
5. Earnings Per Share Data
The following table sets forth the reconciliation of the
weighted-average number of common shares used to
compute basic earnings per share (“EPS”) to those used to
compute diluted EPS:
(In Millions) 2004 2003 2002*
Weighted-average number of common
shares outstanding—basic 74.1 76.7 76.2
Add effect of dilutive stock incentive
awards .8 .8 —
Weighted-average number of shares—
diluted 74.9 77.5 76.2
*Since the assumed issuance of common stock under stock incentive awards would not
have been dilutive, the weighted-average number of shares used to compute diluted
EPS is equal to the weighted-average number of shares used in the basic EPS
computation.
6. Inventories
December 31
(Millions of Dollars) 2004 2003
Crude oil $319 $150
Petroleum and chemical products 315 223
Materials, supplies and other 131 121
$765 $494
The current replacement cost of all inventories valued at
LIFO exceeded their carrying value by $1,550 and $1,029
million at December 31, 2004 and 2003, respectively.
During 2002, Sunoco reduced certain inventory quanti-
ties which were valued at lower LIFO costs prevailing in
prior years. The effect of this reduction was to increase
2002 results of operations by $5 million after tax.
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