Sunoco 2006 Annual Report Download - page 70

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Common stock unit awards under the Company’s
management incentive plans mature upon completion of
a three-year service period or upon attainment of pre-
determined performance targets during the three-year
period. For performance-based awards, adjustments for
attainment of performance targets can range from 0-200
percent of the award grant. Awards are payable in cash or
common stock. Awards to be paid in cash are classified as
liabilities in the Company’s consolidated balance sheets
and are re-measured for expense purposes at fair value
each period (based on the fair value of an equivalent
number of Sunoco common shares at the end of the peri-
od) with any change in fair value recognized as an in-
crease or decrease in income. For awards to be settled in
common stock, the fair value for expense purposes is
based on the closing price of the Company’s shares on the
date of grant.
The following tables set forth separately information with
respect to common stock unit awards to be settled in cash
and awards to be settled in stock under Sunoco’s
management incentive plans:
Cash Settled Awards
(Dollars in Millions, Except
Per-Share Amounts) Awards
Weighted-
Average
Fair Value
Per Unit*
Fair/
Intrinsic
Value
Nonvested,
December 31, 2003 635,030 $ 19.38
Granted 198,440 $ 41.28
Performance factor
adjustment** 138,000
Vested*** (276,000) $ 18.91 $12
Nonvested,
December 31, 2004 695,470 $ 25.72
Granted 99,170 $ 77.54
Performance factor
adjustment** 263,500
Vested*** (527,000) $ 15.08 $43
Nonvested,
December 31, 2005 531,140 $ 40.68
Granted 128,980 $68.43
Performance factor
adjustment** 233,530
Vested*** (467,060) $24.51 $31
Nonvested,
December 31, 2006 426,590†$57.92
* Represents the weighted-average fair value per unit as of the date of grant.
** Consists of adjustments to vested performance-based awards to reflect actual
performance. The adjustments are required since the original grants of these awards
were at 100 percent of the targeted amounts.
*** Cash payments for vested awards are made in the first quarter of the following year.
†Includes 82,110 awards attributable to retirement-eligible employees for whom no
further service is required.
Stock Settled Awards
(Dollars in Millions, Except
Per-Share Amounts) Awards
Weighted-
Average
Fair Value
Per Unit*
Fair/
Intrinsic
Value
Nonvested,
December 31, 2003 145,468 $ 19.18
Granted 46,480 $ 40.28
Performance factor
adjustment** 26,600
Vested (77,868) $ 18.47 $3
Nonvested,
December 31, 2004 140,680 $ 26.49
Granted 3,500 $ 77.54
Performance factor
adjustment** 34,600
Vested (73,200) $ 15.07 $6
Nonvested,
December 31, 2005 105,580 $ 32.36
Granted 115,785 $74.06
Performance factor
adjustment** 27,600
Vested (81,200) $23.41 $5
Canceled (4,830) $46.57
Nonvested,
December 31, 2006 162,935 $64.70
* Represents the weighted-average fair value per unit as of the date of grant.
** Consists of adjustments to vested performance-based awards to reflect actual
performance. The adjustments are required since the original grants of these awards
were at 100 percent of the targeted amounts.
For the years 2006, 2005 and 2004, the Company recog-
nized stock-based compensation expense of $35, $65 and
$31 million, respectively, and related tax benefits of $14,
$26 and $13 million, respectively. As of December 31,
2006, total compensation cost related to nonvested
awards not yet recognized was $25 million, and the
weighted-average period over which this cost is expected
to be recognized in income is 1.6 years. The stock-based
compensation expense and the total compensation cost
related to nonvested awards not yet recognized reflect the
Company’s estimates of performance factors pertaining to
performance-based common stock unit awards. In addi-
tion, equity-based compensation expense attributable to
Sunoco Logistics Partners L.P. for 2006, 2005 and 2004
amounted to $4, $3 and $4 million, respectively.
18. Financial Instruments
The estimated fair value of financial instruments has been
determined based on the Company’s assessment of avail-
able market information and appropriate valuation
methodologies. However, these estimates may not
necessarily be indicative of the amounts that the Com-
pany could realize in a current market exchange.
68