Sunoco 2010 Annual Report Download - page 108

For the years 2010, 2009 and 2008, the Company recognized stock-based compensation expense of $15, $5
and $7 million, respectively, and related tax benefits of $6, $2 and $3 million, respectively. As of December 31,
2010, 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 2.3 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 2010, 2009 and
2008 amounted to $5, $5 and $4 million, respectively.
17. Noncontrolling Interests
Cokemaking Operations
Sunoco received a total of $415 million in exchange for interests in its Indiana Harbor cokemaking
operations in two separate transactions in 1998 and 2002. Sunoco did not recognize any gain as of the dates of
these transactions because the third-party investors were entitled to a preferential return on their respective
investments until the investors had recovered their investment and achieved a cumulative annual after-tax return
of approximately 10 percent. Those investors are now entitled to a noncontrolling interest amounting to 34
percent of the partnership’s net income, which declines to 10 percent by 2038.
The Company indemnifies the third-party investors (including a former investor in Sunoco’s Jewell
cokemaking operations) for certain tax benefits that were available to them during the preferential return period
in the event the Internal Revenue Service (“IRS”) disallows the tax deductions and benefits allocated to the third
parties. These tax indemnifications are in effect until the applicable tax returns are no longer subject to IRS
review. Although the Company believes the possibility is remote that it will be required to do so, at
December 31, 2010, the maximum potential payment under these tax indemnifications would have been
approximately $20 million.
Logistics Operations
The Partnership’s issuance of common units to the public resulted in an increase in the value of Sunoco’s
proportionate share of the Partnership’s equity as the issuance price per unit exceeded Sunoco’s carrying amount
per unit at the time of issuance. In accordance with accounting guidance in effect until January 1, 2009, prior to
the conversion of Sunoco’s remaining subordinated units to common units in February 2007, the resultant gain to
Sunoco on the issuance of common units to the public had been deferred as a component of the noncontrolling
interest in the Company’s consolidated balance sheets as the common units issued did not represent residual
interests in the Partnership due to Sunoco’s ownership of the subordinated units. A deferred gain of $151 million
($90 million after tax) was recognized in income in 2007 when Sunoco’s remaining subordinated units converted
to common units at which time the common units became residual interests. An additional $23 million ($14
million after tax) was recognized in income in 2008 attributable to a correction of an error in the computation of
the gain that was recorded in 2007. The prior-period amount was not restated as this adjustment was not deemed
to be material.
In 2009, Sunoco Logistics Partners L.P. issued 2.25 million limited partnership units in a public offering,
generating $110 million of net proceeds. Upon completion of this transaction, Sunoco’s interest in the
Partnership, including its 2 percent general partnership interest, decreased to 40 percent. Sunoco’s general
partnership interest also includes incentive distribution rights, which have provided Sunoco, as the general
partner, up to 50 percent of the Partnership’s incremental cash flow. Sunoco received approximately 56 percent
of the Partnership’s cash distributions during 2009 and 2008 attributable to its limited and general partnership
interests and its incentive distribution rights. In February 2010, Sunoco received $201 million in cash from the
Partnership in connection with a modification of the incentive distribution rights which was financed by the
Partnership’s issuance of $500 million of long-term debt, consisting of $250 million of 5.50 percent notes due in
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