Sunoco 2004 Annual Report Download - page 38

$.30 per share ($1.20 per year) for the third quarter of 2004 and to $.40 per share ($1.60
per year) for the second quarter of 2005.
In 2004 and 2003, the Company repurchased 8.0 and 2.9 million shares, respectively, of its
common stock for $568 and $136 million, respectively. The Company did not repurchase
any of its common stock during 2002. In September 2004, the Company announced that
its Board of Directors approved an increase of $500 million to the share repurchase author-
ization. At December 31, 2004, the Company had a remaining authorization from its
Board to purchase up to $227 million of Company common stock in the open market from
time to time depending on prevailing market conditions and available cash. In March
2005, an additional $500 million authorization was approved.
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 of Financial Con-
dition and Results of Operations and consolidated financial statements provide a
meaningful and fair perspective of the Company. Management has reviewed the assump-
tions 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 expected 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 ex-
pense 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 a portfolio of high-quality (AA rated) corporate bonds with
maturities that reflect the duration of Sunoco’s pension and other postretirement benefit
obligations. The present values of Sunoco’s future pension and other postretirement
obligations were determined using discount rates of 5.75 and 5.50 percent, respectively, at
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