Sunoco 2006 Annual Report Download - page 29

Pension Plan Funded Status
The following table sets forth the components of the change in market value of the invest-
ments in Sunoco’s defined benefit pension plans:
December 31
(Millions of Dollars) 2006 2005
Balance at beginning of year $1,196 $1,158
Increase (reduction) in market value of investments resulting from:
Net investment income 149 92
Company contributions 100 100
Plan benefit payments (158) (154)
Balance at end of year $1,287 $1,196
During 2006, the Company recorded two adjustments that resulted in a $32 million net
after-tax charge to the accumulated other comprehensive loss component of shareholders’
equity related to pensions and other postretirement benefits. At December 31, 2006, prior
to the adoption of Statement of Financial Accounting Standards No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS No.
158”) (see below), the Company recorded a $160 million favorable minimum pension li-
ability adjustment to shareholders’ equity due to improvements in the funded status of the
Company’s defined benefit pension plans. Under the predecessor accounting rules, a
minimum pension liability adjustment was required in shareholders’ equity at December
31, 2005 to reflect the unfunded accumulated benefit obligation relating to these plans
that existed at that time. Effective December 31, 2006, the Company adopted SFAS No.
158. Among other things, SFAS No. 158 requires that the funded status of defined benefit
and postretirement benefit plans be fully recognized on the balance sheet. The funded sta-
tus is determined by the difference between the fair value of plan assets and the benefit
obligation, with the benefit obligation represented by the projected benefit obligation for
defined benefit plans and the accumulated postretirement benefit obligation for
postretirement benefit plans. Under the new accounting, previously unrecognized actuarial
gains (losses) and prior service costs (benefits) are recognized in the consolidated balance
sheet as a reduction in prepaid retirement costs and an increase in the retirement benefit
liability with a corresponding charge or credit initially to the accumulated other compre-
hensive loss component of shareholders’ equity. This charge or credit to shareholders’
equity, which is reflected net of related tax effects, is subsequently recognized in net in-
come when amortized as a component of defined benefit plans and postretirement benefit
plans expense. Upon adoption of SFAS No. 158, the Company recorded an after-tax charge
totaling $192 million to shareholders’ equity. The following table sets forth the changes in
2006 in the accumulated other comprehensive loss balance in shareholders’ equity related
to pensions and other postretirement benefits:
(Millions of Dollars)
Balance at beginning of year $(191)
Minimum pension liability adjustment 160
Adjustment pertaining to adoption of SFAS No. 158 (192)
Balance at end of year $(223)
Management currently anticipates making up to $100 million of voluntary contributions to
its funded defined benefit plans in 2007. Management believes that the pension plans can
be funded over time without a significant impact on liquidity. Future changes in the finan-
cial markets and/or interest rates could result in additional significant increases or de-
creases to the accumulated other comprehensive loss component of shareholders’ equity
and to future pension expense and funding requirements.
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