Sunoco 2005 Annual Report Download - page 35

The Company has paid cash dividends on a regular quarterly basis since 1904. The Com-
pany increased the quarterly dividend paid on common stock from $.125 per share ($.50
per year) to $.1375 per share ($.55 per year) beginning with the fourth quarter of 2003 and
then to $.15 per share ($.60 per year) beginning with the third quarter of 2004, to $.20 per
share ($.80 per year) beginning with the second quarter of 2005 and to $.25 per share
($1.00 per year) beginning with the second quarter of 2006.
The Company repurchased in 2005, 2004 and 2003, 6.7, 15.9 and 5.8 million shares, re-
spectively, of its common stock for $435, $568 and $136 million, respectively. In March
2005, the Company announced that its Board of Directors had approved an additional
$500 million share repurchase authorization. At December 31, 2005, the Company had a
remaining authorization from its Board to purchase up to $306 million of Company com-
mon stock in the open market from time to time depending on prevailing market con-
ditions 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
statements 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
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