Sunoco 2007 Annual Report Download - page 19

incentive compensation and the absence of a $6 million after-tax accrual for the adoption
of a new accounting interpretation related to asset retirement obligations that was re-
corded in 2005.
Net Financing Expenses and Other—Net financing expenses and other decreased $8 million
in 2007 primarily due to higher capitalized interest ($7 million), lower expenses attribut-
able to the preferential return of third-party investors in Sunoco’s cokemaking operations
($18 million) and the absence of a loss pertaining to the purchase of the minority interest
in the Jewell cokemaking operations ($3 million), partially offset by lower interest income
($6 million), higher interest expense ($8 million) and the absence of a net gain attribut-
able to income tax matters ($5 million). Included in the preferential return expense in
2006 was a $7 million after-tax charge attributable to a computational error. In 2006, net
financing expenses and other increased $4 million primarily due to a decrease in cap-
italized interest ($6 million), the loss pertaining to the purchase of the Jewell minority in-
terest ($3 million) and the charge attributable to the preferential return error correction
($7 million), partially offset by the net gain attributable to income tax matters ($5 million)
and higher interest income ($7 million).
Issuance of Sunoco Logistics Partners L.P. Limited Partnership Units—During 2007, Sunoco
recognized a $90 million after-tax gain related to the prior issuance of limited partnership
units of the Partnership to the public. (See Note 2 to the consolidated financial
statements.)
Asset Write-Downs and Other Matters—During 2007, Sunoco recorded an $8 million
after-tax provision to write off a previously idled phenol line at Chemicals’ Haverhill, OH
plant which was permanently shut down; recorded a $7 million after-tax loss related to the
sale of Chemicals’ Neville Island, PA terminal facility, which included an accrual for en-
hanced pension benefits associated with employee terminations and for other required exit
costs; and recorded a $17 million after-tax accrual related to the settlement in principle of
certain MTBE litigation. (See Notes 2 and 14 to the consolidated financial statements.)
Income Tax Matters—During 2005, Sunoco settled certain federal income tax issues and
established a provision for certain state and local tax matters, the net effect of which was
to increase net income by $18 million. (See Note 4 to the consolidated financial
statements.)
Phenol Supply Contract Dispute—During 2005, Sunoco recognized a $56 million after-tax
loss associated with Chemicals’ phenol supply contract dispute. (See Note 2 to the con-
solidated financial statements.)
Analysis of Consolidated Statements of Income
Revenues—Total revenues were $44.73 billion in 2007, $38.72 billion in 2006 and $33.76
billion in 2005. The 16 percent increase in 2007 was primarily due to higher refined prod-
uct prices and sales volumes, higher crude oil sales in connection with the crude oil gather-
ing and marketing activities of the Company’s Logistics operations and a $151 million
pretax gain recognized in 2007 related to the prior issuance of Sunoco Logistics Partners
L.P. limited partnership units. In 2006, the 15 percent increase was primarily due to sig-
nificantly higher refined product prices. Also contributing to the increase in 2006 were
higher crude oil sales in connection with the crude oil gathering and marketing activities
of the Company’s Logistics operations. Partially offsetting these positive factors were lower
refined product sales volumes.
Costs and Expenses—Total pretax costs and expenses were $43.32 billion in 2007, $37.14
billion in 2006 and $32.18 billion in 2005. The 17 percent increase in 2007 was primarily
due to higher crude oil and refined product acquisition costs resulting largely from price
increases and higher crude oil costs in connection with the crude oil gathering and market-
ing activities of the Company’s Logistics operations. In 2006, the 15 percent increase was
primarily due to significantly higher crude oil and refined product acquisition costs result-
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