Sunoco 2008 Annual Report Download - page 100

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For the years 2008, 2007 and 2006, the Company recognized stock-based compensation expense of $7,
$33 and $35 million, respectively, and related tax benefits of $3, $13 and $14 million, respectively. As of
December 31, 2008, total compensation cost related to nonvested awards not yet recognized was $18 million, and
the weighted-average period over which this cost is expected to be recognized in income is 2.9 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 addition, equity-based compensation expense attributable to Sunoco Logistics Partners L.P. for 2008,
2007 and 2006 amounted to $4, $5 and $4 million, respectively.
18. Fair Value Measurements
Effective January 1, 2008, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”), which pertain to certain balance sheet items
measured at fair value (Note 1). In accordance with SFAS No. 157, the following table sets forth the assets and
liabilities measured at fair value, by input level, in the consolidated balance sheet at December 31, 2008 (in
millions of dollars):
Quoted Prices in
Active Markets
for Identical
Assets
or Liabilities
(Level 1)
Significant
Other Observable
Inputs (Level 2)
Significant
Unobservable
Inputs
(Level 3) Total
Assets:
Cash equivalents ............. $218 $— $— $218
Available-for-sale securities ..... 10 9 — 19
Derivative contract gains ....... — 77 — 77
$228 $86 $— $314
Liabilities:
Derivative contract losses ...... $ 14 $80 $— $ 94
$ 14 $80 $— $ 94
Sunoco uses swaps, options, futures, forwards and other derivative instruments for hedging purposes.
Sunoco is at risk for possible changes in the market value for these derivative instruments. However, it is
anticipated that such risk would be mitigated by price changes in the underlying hedged items. In addition,
Sunoco is exposed to credit risk in the event of nonperformance by counterparties. Management believes this risk
is not significant as the Company has established credit limits with such counterparties which require the
settlement of net positions when these credit limits are reached. As a result, the Company had no significant
derivative counterparty credit exposure at December 31, 2008. Market and credit risks associated with all of
Sunoco’s derivative contracts are reviewed regularly by management.
Derivative instruments are used from time to time to achieve ratable pricing of crude oil purchases, to
convert certain expected refined product sales to fixed or floating prices, to lock in what Sunoco considers to be
acceptable margins for various refined products and to lock in the price of a portion of the Company’s electricity
and natural gas purchases or sales.
Sunoco uses ethanol as an oxygenate component in gasoline. Most of the ethanol purchased by Sunoco in
recent years has been through normal fixed-price purchase contracts. However, increasingly in 2008, Sunoco has
satisfied its ethanol purchase commitments utilizing contracts based on spot-market prices. To reduce the margin
92