Sunoco 2008 Annual Report Download - page 76

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Issuance of Partnership Units
Securities and Exchange Commission Staff Accounting Bulletin No. 51, “Accounting for Sales of Stock by
a Subsidiary” (“SAB No. 51”) provided 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. Under
SAB No. 51, such gains were initially deferred as a component of minority interest in the Company’s
consolidated balance sheet and then recognized in income when Sunoco’s remaining subordinated units in the
Partnership converted to common units, at which time, the common units became residual interests (Note 15).
Effective January 1, 2009, the Company is required to implement Statement of Financial Accounting Standards
No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” and 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
Stock-based payment transactions are recorded utilizing a fair-value-based method of accounting. In
addition, the Company uses a non-substantive vesting period approach for stock-based payment awards granted
prior to December 2008 that vest when an employee becomes retirement eligible (i.e., the vesting period cannot
exceed the date an employee becomes retirement eligible). For awards granted in December 2008, there was no
accelerated vesting for retirement-eligible employees.
Asset Retirement Obligations
Sunoco establishes accruals for the fair value of conditional asset retirement obligations (i.e., legal
obligations to perform asset retirement activities in which the timing and/or method of settlement are conditional
on a future event that may or may not be within the control of the entity) if the fair value can be reasonably
estimated. Sunoco has legal asset retirement obligations for several other assets at its refineries, pipelines and
terminals, for which it is not possible to estimate when the obligations will be settled. Consequently, the
retirement obligations for these assets cannot be measured at this time.
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 on a recurring basis. Among other things, SFAS No. 157 defines fair value and establishes
a framework for measuring fair value, but does not require any new fair value measurements.
In accordance with SFAS No. 157, the Company determines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. As required, the Company utilizes valuation techniques that maximize the use of observable
inputs (levels 1 and 2) and minimize the use of unobservable inputs (level 3) within the fair value hierarchy
established by SFAS No. 157. The Company generally applies the “market approach” to determine fair value.
This method uses pricing and other information generated by market transactions for identical or comparable
assets and liabilities. Assets and liabilities are classified within the fair value hierarchy based on the lowest level
(least observable) input that is significant to the measurement in its entirety.
The Company is currently evaluating the impact on its financial statements of the remaining provisions of
SFAS No. 157 pertaining to measurements of certain nonfinancial assets and liabilities, which must be
implemented effective January 1, 2009.
New Accounting Pronouncements
In December 2007, Statement of Financial Accounting Standards No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141R”), was issued. SFAS No. 141R retains the fundamental requirements of
Statement of Financial Accounting Standards No. 141, “Business Combinations.” Under the new standard, the
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