Sunoco 2007 Annual Report Download - page 57

The measurement date for the Company’s defined benefit and postretirement benefit plans is December 31. The following
weighted-average assumptions were used at December 31, 2007 and 2006 to determine benefit obligations for the plans:
Defined
Benefit Plans
Postretirement
Benefit Plans
(In Percentages) 2007 2006 2007 2006
Discount rate 6.25% 5.85% 6.10% 5.80%
Rate of compensation increase 4.00% 4.00%
The health care cost trend assumption used at De-
cember 31, 2007 to compute the APBO for the
postretirement benefit plans was an increase of 10.0 per-
cent (10.0 percent at December 31, 2006), which is as-
sumed to decline gradually to 5.5 percent in 2017 and to
remain at that level thereafter. A one-percentage point
change each year in assumed health care cost trend rates
would have the following effects at December 31, 2007:
(Millions of Dollars)
1-Percentage
Point Increase
1-Percentage
Point Decrease
Effect on total of service and
interest cost components of
postretirement benefits expense $1 $(1)
Effect on APBO $10 $(9)
Defined Contribution Pension Plans
Sunoco has defined contribution pension plans which pro-
vide retirement benefits for most of its employees. Sunoco’s
contributions, which are principally based on a percentage
of employees’ annual base compensation and are charged
against income as incurred, amounted to $27, $24 and $24
million in 2007, 2006 and 2005, respectively.
Sunoco’s principal defined contribution plan is SunCAP.
Sunoco matches 100 percent of employee contributions
to this plan up to 5 percent of an employee’s base
compensation. SunCAP is a combined profit sharing and
employee stock ownership plan which contains a provi-
sion designed to permit SunCAP, only upon approval by
the Company’s Board of Directors, to borrow in order to
purchase shares of Company common stock. As of De-
cember 31, 2007, no such borrowings had been approved.
10. Deferred Charges and Other Assets
Deferred charges and other assets consist of the following:
December 31
(Millions of Dollars) 2007 2006
Goodwill $126 $125
Propylene supply contract 99 110
Dealer and distributor contracts and other
intangible assets 59 66
Prepaid retirement costs 122 21
Restricted cash 68 42
Other 100 109
$574 $473
During 2003, Sunoco formed a limited partnership with
Equistar Chemicals, L.P. (“Equistar”) involving Equistar’s
ethylene facility in LaPorte, TX. Equistar is a wholly owned
subsidiary of Lyondell/Basell Industries. Under the terms of
the partnership agreement, the partnership has agreed to
provide Sunoco with 700 million pounds per year of propy-
lene pursuant to a 15-year supply contract. Of this amount,
500 million pounds per year is priced on a cost-based for-
mula that includes a fixed discount that declines over the
life of the contract, while the remaining 200 million
pounds per year is based on market prices. At the time of
the transaction, $160 million was allocated to the propy-
lene supply contract, which is being amortized over the life
of the contract in a manner that reflects the future decline
in the fixed discount over the contract period.
11. Short-Term Borrowings and Credit Facilities
The Company has a $1.3 billion revolving credit facility
(the “Facility”), of which $1.2245 billion matures in
August 2012 with the balance maturing in August 2011.
The Facility provides the Company with access to short-
term financing and is intended to support the issuance
of commercial paper, letters of credit and other debt.
The Company also can borrow directly from the partic-
ipating banks under the Facility. The Facility is subject
to commitment fees, which are not material. Under the
terms of the Facility, Sunoco is required to maintain
tangible net worth (as defined in the Facility) in an
amount greater than or equal to targeted tangible net
worth (targeted tangible net worth being determined by
adding $1.125 billion and 50 percent of the excess of
net income over share repurchases (as defined in the
Facility) for each quarter ended after March 31, 2004).
At December 31, 2007, the Company’s tangible net
worth was $2.8 billion and its targeted tangible net
worth was $1.7 billion. The Facility also requires that
Sunoco’s ratio of consolidated net indebtedness, includ-
ing borrowings of Sunoco Logistics Partners L.P., to
consolidated capitalization (as those terms are defined
in the Facility) not exceed .60 to 1. At December 31,
2007, this ratio was .27 to 1. At December 31, 2007, the
Facility was being used to support $103 million of
floating-rate notes due in 2034 (Note 12). At December
31, 2006, $275 million of commercial paper was out-
standing under the Facility (with a weighted-average
interest rate of 5.43 percent).
55