Sunoco 2007 Annual Report Download - page 66

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be settled in common stock, the grant-date fair value is
based on the closing price of the Company’s shares on the
date of grant. For performance-based awards, the payout
of which is determined by market conditions related to
stock price performance, the grant-date fair value is gen-
erally estimated using a Monte Carlo simulation model.
Use of this model requires the Company to make certain
assumptions regarding expected volatility of the Compa-
ny’s stock price during the vesting period as well as
regarding the risk-free interest rate and correlations of
stock returns among the Company and its peers. The
Company uses historical share prices, for a period equiv-
alent to the award’s term, to estimate the expected vola-
tility of the Company’s share price. The risk-free interest
rate is based on the U.S. Treasury yield curve at the date
of grant for a term that approximates the award’s term.
Correlations of stock returns among the Company and its
peers are calculated using historical daily stock-return
data for a period equivalent to the award’s term.
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-Unit Amounts) Awards
Weighted-
Average
Fair Value
Per Unit*
Fair/
Intrinsic
Value
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
Granted 143,170 $63.98
Performance factor adjustment** 198,440
Vested*** (396,880) $41.28 $29
Nonvested,
December 31, 2007 371,320†$69.15
* 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 180,920 awards attributable to retirement-eligible employees for whom no
further service is required.
Stock Settled Awards
(Dollars in Millions, Except
Per-Unit Amounts) Awards
Weighted-
Average
Fair Value
Per Unit*
Fair/
Intrinsic
Value
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
Granted 117,490 $65.42
Performance factor adjustment** 20,760
Vested (66,040) $40.58 $4
Canceled (3,980) $73.62
Nonvested,
December 31, 2007 231,165 $69.69
* 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 2007, 2006 and 2005, the Company recog-
nized stock-based compensation expense of $33, $35 and
$65 million, respectively, and related tax benefits of $13,
$14 and $26 million, respectively. As of December 31,
2007, total compensation cost related to nonvested
awards not yet recognized was $20 million, and the
weighted-average period over which this cost is expected
to be recognized in income is 2.1 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 2007, 2006 and 2005
amounted to $5, $4 and $3 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.
64