Sunoco 2008 Annual Report Download - page 81

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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.
The following table sets forth the changes in unrecognized tax benefits pursuant to FASB Interpretation
No. 48 (in millions of dollars):
2008 2007
Balance at beginning of year ......................................... $69 $38
Additions (reductions) attributable to tax positions taken in the current year . . . (17) 9
Additions attributable to tax positions taken in prior years .................. 7 28
Reductions attributable to tax positions taken in prior years ................ (10) (5)
Settlements ....................................................... (4) (1)
Balance at end of year ............................................ $45* $69
*Includes $13 million ($8 million after federal income tax benefits) related to tax positions which, if recognized, would impact the
Company’s effective tax rate.
During 2008 and 2007, the Company recognized $2 and $4 million, respectively, in interest on
unrecognized tax benefits. Accruals for interest and penalties totaled $11 and $17 million at December 31, 2008
and 2007, respectively.
The Company’s federal income tax returns have been examined by the Internal Revenue Service for all
years through 2004. It is reasonably possible that a federal examination for the years 2005 and 2006 will be
completed within the next twelve months. If the examination was to be completed and settled, the Company
anticipates that the total amount of unrecognized tax benefits could decrease by approximately $30 million as a
result of the settlement of certain tax depreciation, manufacturing deduction and inventory-related matters.
State and other income tax returns are generally subject to examination for a period of three to five years
after the filing of the respective returns. The state impact of any amended federal returns remains subject to
examination by various states for a period of up to one year after formal notification of such amendments to the
states. The Company and its subsidiaries have various state and other income tax returns in the process of
examination or administrative appeal. Among the issues applicable to those tax years which are under
examination is the deductibility of certain intercompany expenses that were claimed in the returns as filed and
whether certain Sunoco entities have economic nexus in various jurisdictions. The Company does not expect that
any unrecognized tax benefits pertaining to state income tax matters will significantly increase or decrease in the
next twelve months.
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):
2008 2007 2006
Weighted-average number of common shares
outstanding—basic ..................................... 117.0 119.7 128.3
Add effect of dilutive stock incentive awards ................... .1 .3 .7
Weighted-average number of shares—diluted .............. 117.1 120.0 129.0
73