Sunoco 2006 Annual Report Download - page 56

The tax effects of temporary differences which comprise
the net deferred income tax liability are as follows:
December 31
(Millions of Dollars) 2006 2005
Deferred tax assets:
Retirement benefit liabilities $ 199 $ 197
Environmental remediation liabilities 36 43
Other liabilities not yet deductible 234 290
Inventories 62 144
Other 39 56
Valuation allowance* (2) (3)
568 727
Deferred tax liabilities:
Properties, plants and equipment (1,253) (1,259)
Other (51) (70)
(1,304) (1,329)
Net deferred income tax liability $ (736) $ (602)
*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) 2006 2005
Current asset $93 $ 215
Noncurrent liability (829) (817)
$(736) $(602)
Net cash payments for income taxes were $528, $597 and
$152 million in 2006, 2005 and 2004, respectively.
During 2006, Sunoco recorded a $10 million net after-tax
gain in the consolidated statement of income consisting
of a $17 million deferred tax benefit as a result of state
tax law changes and a $7 million net provision, primarily
attributable to an increase in state income taxes reflecting
the impact of an unfavorable court decision against an
unrelated taxpayer.
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.
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) 2006 2005 2004
Weighted-average number of
common shares
outstanding—basic 128.3 136.6 148.2
Add effect of dilutive stock
incentive awards .7 .9 1.6
Weighted-average number of
shares—diluted 129.0 137.5 149.8
6. Inventories
December 31
(Millions of Dollars) 2006 2005
Crude oil $ 325 $317
Petroleum and chemical products 735 322
Materials, supplies and other 159 160
$1,219 $799
The current replacement cost of all inventories valued at
LIFO exceeded their carrying value by $2,273 and $2,304
million at December 31, 2006 and 2005, respectively.
During 2006, 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
2006 results of operations by $20 million after tax.
7. Investments and Long-Term Receivables
December 31
(Millions of Dollars) 2006 2005
Investments in affiliated companies:
Pipeline joint ventures (Notes 2 and 3) $85 $86
Other 24 38
109 124
Accounts and notes receivable 20 19
$129 $143
Dividends received from affiliated companies amounted
to $41, $14 and $23 million in 2006, 2005 and 2004, re-
spectively. Earnings employed in the business at
December 31, 2006 include $29 million of undistributed
earnings of affiliated companies.
54