Sunoco 2007 Annual Report Download - page 52

July 2009 will be based essentially on the pricing formula
established in the arbitration proceeding.
3. Other Income (Loss), Net
(Millions of Dollars) 2007 2006 2005
Loss on phenol supply contract
dispute (Note 2) $— $— $(95)
Equity income:
Pipeline joint ventures
(Notes 2 and 7) 28 22 16
Other 3410
Noncash (increase) reduction in
minority interests in cokemaking
operations (Note 15) (17) (3) 15
Gain on divestments (Note 2) 38 18 10
Other 30 431
$82 $ 45 $(13)
4. Income Taxes
The components of income tax expense are as follows:
(Millions of Dollars) 2007 2006 2005
Income taxes currently payable:
U.S. federal $265 $370 $470
State and other 67 114 133
332 484 603
Deferred taxes:
U.S. federal 141 122 —
State and other 45 (5) 3
186 117 3
$518 $601 $606
The reconciliation of income tax expense at the U.S. stat-
utory rate to the income tax expense is as follows:
(Millions of Dollars) 2007 2006 2005
Income tax expense at U.S.
statutory rate of 35 percent $493 $553 $553
Increase (reduction) in income
taxes resulting from:
Manufacturers’ deduction (19) (13) (14)
Income tax settlements (4) — (19)
State income taxes, net of federal
income tax effects (see below) 71 71 88
Nonconventional fuel credits (17) (9) (1)
Other (6) (1) (1)
$518 $601 $606
The tax effects of temporary differences which comprise
the net deferred income tax liability are as follows:
December 31
(Millions of Dollars) 2007 2006
Deferred tax assets:
Retirement benefit liabilities $ 145 $ 199
Environmental remediation liabilities 35 36
Other liabilities not yet deductible 193 199
Inventories 96 62
Other 73 39
Valuation allowance* —(2)
542 533
Deferred tax liabilities:
Properties, plants and equipment (1,389) (1,218)
Other (50) (51)
(1,439) (1,269)
Net deferred income tax liability $ (897) $ (736)
*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) 2007 2006
Current asset $ 130 $93
Noncurrent liability (1,027) (829)
$ (897) $(736)
Net cash payments for income taxes were $397, $528 and
$597 million in 2007, 2006 and 2005, 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.
Effective January 1, 2007, the Company adopted FASB
Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes—an interpretation of FASB Statement
No. 109” (“FASB Interpretation No. 48”). This inter-
pretation clarifies the accounting for uncertainty in in-
come taxes recognized in an entity’s financial statements
in accordance with Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes,” by
prescribing the minimum recognition threshold and
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