Sunoco 2009 Annual Report Download - page 80

the Coke segment. The investors’ preferential return was recorded as an increase in noncontrolling interests and
was recorded as expense in the Corporate and Other segment. The net of these two amounts represented a
noncash change in noncontrolling interests in cokemaking operations. The nonconventional fuel credits and other
tax benefits were recognized in other income, net, while the preferential returns were reflected as net income
attributable to noncontrolling interests in the consolidated statements of operations. Upon completion of the
preferential return period, the third-party investor’s share of net income generated by the Company’s cokemaking
operations is recorded as a noncash increase in noncontrolling interest expense in the Coke segment and is
reflected as net income attributable to noncontrolling interests in the consolidated statements of operations.
Cash payments, representing the distributions of the investors’ share of cash generated by the cokemaking
operations, are recorded as a reduction in noncontrolling interests.
Issuance of Partnership Units
Prior to January 1, 2009, in accordance with accounting guidance in effect at that time, Sunoco elected to
record any increases in the value of its proportionate share of the equity of Sunoco Logistics Partners L.P.
resulting from the Partnership’s issuance of common units to the public as gains in the consolidated financial
statements. Such gains were initially deferred as a component of noncontrolling interests in the Company’s
consolidated balance sheet and then recognized in income when Sunoco’s remaining subordinated units in the
Partnership converted to common units, at which time, the common units became residual interests (Note 15).
Effective January 1, 2009, the Company is required to reflect all changes in noncontrolling interests that do not
result in a loss of control of the subsidiary as equity transactions at the time of the issuance.
Stock-Based Compensation
Stock-based payment transactions are recorded utilizing a fair-value-based method of accounting. In
addition, the Company uses a non-substantive vesting period approach for stock-based payment awards granted
prior to December 2008 that vest when an employee becomes retirement eligible (i.e., the vesting period cannot
exceed the date an employee becomes retirement eligible). For awards granted in December 2008 and thereafter,
there was no accelerated vesting for retirement-eligible employees.
Asset Retirement Obligations
Sunoco establishes accruals for the fair value of conditional asset retirement obligations (i.e., legal
obligations to perform asset retirement activities in which the timing and/or method of settlement are conditional
on a future event that may or may not be within the control of the entity) if the fair value can be reasonably
estimated. Sunoco has legal asset retirement obligations for several other assets at its refineries, pipelines and
terminals, for which it is not possible to estimate when the obligations will be settled. Consequently, the
retirement obligations for these assets cannot be measured at this time.
Fair Value Measurements
Effective January 1, 2008, the Company adopted new accounting guidance which pertains to certain balance
sheet items measured at fair value on a recurring basis. The new guidance defines fair value and establishes a
framework for measuring fair value, but does not require any new fair value measurements. In accordance with
this guidance, the Company determines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. As required, the
Company utilizes valuation techniques that maximize the use of observable inputs (levels 1 and 2) and minimize
the use of unobservable inputs (level 3) within the fair value hierarchy established by the new guidance. The
Company generally applies the “market approach” to determine fair value. This method uses pricing and other
information generated by market transactions for identical or comparable assets and liabilities. Assets and
liabilities are classified within the fair value hierarchy based on the lowest level (least observable) input that is
significant to the measurement in its entirety. Effective January 1, 2009, the Company adopted certain other fair
value provisions pertaining to measurements of certain nonfinancial assets and liabilities. These provisions did
not have a material impact on the consolidated financial statements for the year ended December 31, 2009.
72