Sunoco 2003 Annual Report Download - page 36

In 2003 and 2001, the Company repurchased 2.9 and 10.7 million shares, respectively, of
its common stock for $136 and $393 million, respectively. The Company did not re-
purchase any of its common stock during 2002. At December 31, 2003, the Company had
a remaining authorization from its Board of Directors to purchase up to $243 million of
Company common stock in the open market from time to time depending on prevailing
market conditions and available cash.
Critical Accounting Policies
A summary of the Company’s significant accounting policies is included in Note 1 to the
consolidated financial statements. Management believes that the application of these poli-
cies on a consistent basis enables the Company to provide the users of the financial state-
ments with useful and reliable information about the Company’s operating results and
financial condition. The preparation of Sunoco’s consolidated financial statements re-
quires management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and the disclosures of contingent assets and li-
abilities. Significant items that are subject to such estimates and assumptions consist of re-
tirement benefit liabilities, long-lived assets and environmental remediation activities.
Although management bases its estimates on historical experience and various other as-
sumptions that are believed to be reasonable under the circumstances, actual results may
differ to some extent from the estimates on which the Company’s consolidated financial
statements are prepared at any point in time. Despite these inherent limitations, manage-
ment believes the Company’s Management’s Discussion and Analysis and consolidated
financial statements provide a meaningful and fair perspective of the Company. Manage-
ment has reviewed the assumptions underlying its critical accounting policies with the
Audit Committee of Sunoco’s Board of Directors.
Retirement Benefit Liabilities
Sunoco has noncontributory defined benefit pension plans which provide retirement bene-
fits for approximately one-half of its employees. Sunoco also has postretirement benefit
plans which provide health care benefits for substantially all of its retirees. The postretire-
ment benefit plans are unfunded and the costs are shared by Sunoco and its retirees. The
levels of required retiree contributions to these plans are adjusted periodically, and the
plans contain other cost-sharing features, such as deductibles and coinsurance. In addition,
in 1993, Sunoco implemented a dollar cap on its future contributions for its principal
retirement health care benefits plan, which significantly reduces the impact of future cost
increases on the estimated postretirement benefit expense and benefit obligation.
The principal assumptions that impact the determination of both expense and benefit obli-
gations for Sunoco’s pension plans are the discount rate, the long-term rate of return on
plan assets and the rate of compensation increase. The discount rate and the health care
cost trend are the principal assumptions that impact the determination of expense and
benefit obligations for Sunoco’s postretirement health care plans.
The discount rates used to determine the present value of future pension payments and
medical costs are based on the yields on high-quality, fixed income investments (such as
Moody’s Aa-rated long-term corporate bonds). The present values of Sunoco’s future pen-
sion and other postretirement obligations were determined using discount rates of 6.00
percent at December 31, 2003 and 6.75 percent at December 31, 2002. Sunoco’s expense
under these plans is determined using the discount rate as of the beginning of the year,
which was 6.75 percent for 2003, 7.25 percent for 2002, 7.50 percent for 2001, and is 6.00
percent for 2004.
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