Sunoco 2006 Annual Report Download - page 62

13. Other Deferred Credits and Liabilities
Other deferred credits and liabilities consist of the following:
December 31
(Millions of Dollars) 2006 2005
Self-insurance accrual $109 $114
Environmental remediation accrual (Note 14) 85 100
Deferred revenue on power contract
restructuring (Note 2) 76 78
Asset retirement obligations 68 66
Other 139 128
$477 $486
14. Commitments and Contingent Liabilities
Leases and Other Commitments
Sunoco, as lessee, has noncancelable operating leases for
marine transportation vessels, service stations, office
space and other property and equipment. Total rental
expense for such leases for the years 2006, 2005 and 2004
amounted to $199, $198 and $197 million, respectively,
which include contingent rentals totaling $13, $12 and
$15 million, respectively. Approximately 5 percent of
total rental expense was recovered through related
sub-lease rental income during 2006.
The aggregate amount of future minimum annual rentals
applicable to noncancelable operating leases, including
amounts pertaining to lease extension options which are
assumed to be exercised, are as follows (in millions of
dollars):
Current
Lease
Term
Lease
Extension
Options Total
Year ending December 31:
2007 $173 $ 2 $ 175
2008 140 5 145
2009 116 7 123
2010 100 9 109
2011 59 11 70
Thereafter 244 201 445
Future minimum lease payments $832 $235 1,067
Less: Sub-lease rental income (26)
Net minimum lease payments $1,041
Approximately 36 percent of the aggregate amount of
future minimum annual rentals applicable to non-
cancelable operating leases relates to time charters for
marine transportation vessels. Most of these time charters
contain terms of between three to seven years with
renewal and sublease options. The time charter leases
typically require a fixed-price payment or a fixed-price
minimum and a variable component based on spot-
market rates. In the table above, the variable component
of the lease payments has been estimated utilizing the
average spot-market prices for the year 2006. The actual
variable component of the lease payments attributable to
these time charters could vary significantly from the
estimates included in the table.
Sunoco is contingently liable under various arrangements
which guarantee debt of third parties aggregating to ap-
proximately $5 million at December 31, 2006. At this
time, management does not believe that it is likely that
the Company will have to perform under any of these
guarantees.
Over the years, Sunoco has sold thousands of retail gaso-
line outlets as well as refineries, terminals, coal mines, oil
and gas properties and various other assets. In connection
with these sales, the Company has indemnified the pur-
chasers for potential environmental and other contingent
liabilities related to the period prior to the transaction
dates. In most cases, the effect of these arrangements was
to afford protection for the purchasers with respect to
obligations for which the Company was already primarily
liable. While some of these indemnities have spending
thresholds which must be exceeded before they become
operative, or limits on Sunoco’s maximum exposure, they
generally are not limited. The Company recognizes the
fair value of the obligations undertaken for all guarantees
entered into or modified after January 1, 2003. In addi-
tion, the Company accrues for any obligations under
these agreements when a loss is probable and reasonably
estimable. The Company cannot reasonably estimate the
maximum potential amount of future payments under
these agreements.
Sunoco is a party under agreements which provide for
future payments to secure wastewater treatment services
at its Toledo refinery and coal handling services at its
Indiana Harbor cokemaking facility. The fixed and
determinable amounts of the obligations under these
agreements are as follows (in millions of dollars):
Year ending December 31:
2007 $ 9
2008 8
2009 8
2010 8
2011 8
2012 through 2018 30
Total 71
Less: Amount representing interest (19)
Total at present value $ 52
Payments under these agreements, including variable
components, totaled $21, $20 and $19 million for the
years 2006, 2005 and 2004, respectively.
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