Sunoco 2007 Annual Report Download - page 49

prepaid retirement costs or an increase in the retirement
benefit liability with a corresponding charge or credit ini-
tially to the accumulated other comprehensive loss com-
ponent of shareholders’ equity. The charge or credit to
shareholders’ equity, which is reflected net of related tax
effects, is subsequently recognized in net income when
amortized as a component of defined benefit plans and
postretirement benefit plans expense with an offsetting
adjustment to comprehensive income for the period.
Upon adoption of SFAS No. 158, the Company recorded
an after-tax charge totaling $192 million to the accumu-
lated other comprehensive loss component of share-
holders’ equity at December 31, 2006. The adoption of
SFAS No. 158 had no impact on Sunoco’s 2006 con-
solidated statement of income.
The following table sets forth the changes in 2006 in the
accumulated other comprehensive loss balance in share-
holders’ equity related to pensions and other postretire-
ment benefits:
(Millions of Dollars)
Balance at January 1, 2006 $(191)
Minimum pension liability adjustment 160
Adjustment pertaining to adoption of SFAS No. 158 (192)
Balance at December 31, 2006 $(223)
Minority Interests in Cokemaking Operations
Cash investments by third parties were recorded as an in-
crease in minority interests in the consolidated balance
sheets. There was no recognition of any gain at the dates
cash investments were made as the third-party investors
were entitled to a preferential return on their investments.
Nonconventional fuel credit and other net tax benefits
generated by the Company’s cokemaking operations that
were allocated to third-party investors prior to the com-
pletion of the preferential return period during the fourth
quarter of 2007 were recorded as a reduction in minority
interests and were included as income in the Coke seg-
ment. The investors’ preferential return was recorded as
an increase in minority interests and was recorded as ex-
pense in the Corporate and Other segment. The net of
these two amounts represented a noncash change in mi-
nority interests in cokemaking operations, which was
recognized in other income (loss), net, in the con-
solidated statements of income. 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 minority
interest expense in the Coke segment and is included in
selling, general and administrative expenses in the con-
solidated statements of income.
Cash payments, representing the distributions of the in-
vestors’ share of cash generated by the cokemaking oper-
ations, are recorded as a reduction in minority interests.
Issuance of Partnership Units
Securities and Exchange Commission Staff Accounting
Bulletin No. 51, “Accounting for Sales of Stock by a
Subsidiary” (“SAB No. 51”) provides guidance on
accounting for the effect of issuances of a subsidiary’s
common equity. In accordance with SAB No. 51, Sunoco
elected to record any increases in the value of its
proportionate share of the equity of Sunoco Logistics
Partners L.P. (the “Partnership”) resulting from the
Partnership’s issuance of common units to the public as
gains in the consolidated financial statements. However,
SAB No. 51 does not permit such gains to be recognized
in income until the common units issued represent
residual interests in the Partnership. In the first quarter of
2007, Sunoco’s remaining subordinated units in the
Partnership converted to common units, at which time,
the common units became the residual interests.
Accordingly, a gain of $151 million ($90 million after
tax) related to prior issuances of common units to the
public that had previously been deferred as a component
of minority interest in the Company’s consolidated
balance sheet was recognized in income (Note 15).
Subsequent to adoption of Statement of Financial
Accounting Standards No. 160, “Noncontrolling
Interests in Consolidated Financial Statements,” which
will be effective January 1, 2009 (see below), any gain or
loss resulting from the Partnership’s future issuance of
common units to the public that does not result in a
change in control would be accounted for as an equity
transaction at the time of the issuance.
Stock-Based Compensation
Effective January 1, 2006, the Company adopted State-
ment of Financial Accounting Standards No. 123
(revised 2004), “Share-Based Payment” (“SFAS
No. 123R”), utilizing the modified-prospective method.
SFAS No. 123R revised the accounting for stock-based
compensation required by Statement of Financial Ac-
counting Standards No. 123, “Accounting for Stock-
Based Compensation” (“SFAS No. 123”). Among other
things, SFAS No. 123R requires a fair-value-based method
of accounting for share-based payment transactions,
which is similar to the method followed by the Company
under the provisions of SFAS No. 123. SFAS No. 123R
also requires the use of a non-substantive vesting period
approach for new share-based payment awards that vest
when an employee becomes retirement eligible as is the
case under Sunoco’s share-based awards (i.e., the vesting
period cannot exceed the date an employee becomes re-
tirement eligible). The effect is to accelerate expense
recognition compared to the vesting period approach that
Sunoco previously followed under SFAS No. 123.
Adoption of SFAS No. 123R resulted in $7 million higher
after-tax compensation expense in 2006 compared to
what it otherwise would have been under SFAS No. 123,
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