Sunoco 2006 Annual Report Download - page 60

The health care cost trend assumption used at December
31, 2006 to compute the APBO for the postretirement
benefit plans was an increase of 10.0 percent (11.0 per-
cent at December 31, 2005), which is assumed to decline
gradually to 5.5 percent in 2012 and to remain at that
level thereafter. A one-percentage point change each
year in assumed health care cost trend rates would have
the following effects at December 31, 2006:
(Millions of Dollars)
1-Percentage
Point Increase
1-Percentage
Point Decrease
Effect on total of service and
interest cost components of
postretirement benefits expense $1 $(1)
Effect on APBO $9 $(8)
Defined Contribution Pension Plans
Sunoco has defined contribution pension plans which
provide retirement benefits for most of its employees.
Sunoco’s contributions, which are principally based on a
percentage of employees’ annual base compensation and
are charged against income as incurred, amounted to $24,
$24 and $21 million in 2006, 2005 and 2004,
respectively.
Sunoco’s principal defined contribution plan is SunCAP.
Sunoco matches 100 percent of employee contributions
to this plan up to 5 percent of an employee’s base
compensation. SunCAP is a combined profit sharing and
employee stock ownership plan which contains a provi-
sion designed to permit SunCAP, only upon approval by
the Company’s Board of Directors, to borrow in order to
purchase shares of Company common stock. As
of December 31, 2006, no such borrowings had been ap-
proved.
10. Deferred Charges and Other Assets
Deferred charges and other assets consist of the following:
December 31
(Millions of Dollars) 2006 2005
Goodwill $125 $122
Propylene supply contract 110 123
Dealer and distributor contracts and other
intangible assets 66 64
Restricted cash 42 48
Other 130 86
$473 $443
During 2003, Sunoco formed a limited partnership with
Equistar Chemicals, L.P. (“Equistar”) involving Equistar’s
ethylene facility in LaPorte, TX. Equistar is a wholly
owned subsidiary of Lyondell Chemical Company. Under
the terms of the partnership agreement, the partnership
has agreed to provide Sunoco with 700 million
pounds-per-year of propylene pursuant to a 15-year supply
contract. Of this amount, 500 million pounds per year is
priced on a cost-based formula that includes a fixed dis-
count that declines over the life of the contract, while
the remaining 200 million pounds per year is based on
market prices. At the time of the transaction, $160 mil-
lion was allocated to the propylene supply contract,
which is being amortized over the life of the contract in a
manner that reflects the future decline in the fixed dis-
count over the contract period.
11. Short-Term Borrowings and Credit Facilities
The Company has a revolving credit facility (the
“Facility”), which matures in August 2011. In January
2007, the Facility was amended to increase the amount
available under the Facility from $900 million to $1.3 bil-
lion. The Facility provides the Company with access to
short-term financing and is intended to support the issu-
ance of commercial paper, letters of credit and other debt.
The Company also can borrow directly from the partic-
ipating banks under the Facility. The Facility is subject to
commitment fees, which are not material. Under the
terms of the Facility, Sunoco is required to maintain
tangible net worth (as defined in the Facility) in an
amount greater than or equal to targeted tangible net
worth (targeted tangible net worth being determined by
adding $1.125 billion and 50 percent of the excess of net
income over share repurchases (as defined in the Facility)
for each quarter ended after March 31, 2004). At De-
cember 31, 2006, the Company’s tangible net worth was
$2.5 billion and its targeted tangible net worth was $1.5
billion. The Facility also requires that Sunoco’s ratio of
consolidated net indebtedness, including borrowings of
Sunoco Logistics Partners L.P., to consolidated capital-
ization (as those terms are defined in the Facility) not
exceed .60 to 1. At December 31, 2006, this ratio was .40
to 1. At December 31, 2006, the Facility was being used
to support $275 million of commercial paper (with a
weighted-average interest rate of 5.43 percent) and $103
million of floating-rate notes due in 2034 (Note 12).
Sunoco Logistics Partners L.P. has a $300 million revolv-
ing credit facility, which matures in November 2010.
This facility is available to fund the Partnership’s working
capital requirements, to finance acquisitions, and for
general partnership purposes. It includes a $20 million
distribution sublimit that is available for distributions to
third-party unitholders and Sunoco. Amounts out-
standing under the facility totaled $68 and $107 million
at December 31, 2006 and 2005, respectively. The credit
facility contains covenants requiring the Partnership to
maintain a ratio of up to 4.75 to 1 of its consolidated total
debt to its consolidated EBITDA (each as defined in the
credit facility) and an interest coverage ratio (as defined
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