Sunoco 2006 Annual Report Download - page 3

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1
To Our Shareholders
From a fi nancial
perspective, 2006 was
another successful year
for Sunoco. Income
before special items*
was $979 million, with
earnings per share of
$7.59, up 3 percent from
the record 2005 level.
This was our fourth
consecutive year of earnings per share growth.
Refi ning and Supply earned $881 million
in 2006 and continued to be the primary
source of income for the Company. Refi ning
margins remained healthy, particularly in
the MidContinent region and for the diesel
part of the barrel. Strong summer gasoline
margins, in part due to the 2006 transition
from MTBE to ethanol-based gasoline, also
benefi ted earnings. Sunoco’s non-refi ning
business earnings totaled $205 million, up 6
percent from 2005. Retail Marketing, Logistics
and Coke each improved; but rising feedstock
prices and weak demand growth resulted in
lower Chemicals earnings.
Pursuing high returns on the Company’s
capital investments while returning cash to our
shareholders has been our consistent strategy.
Return on Capital Employed remained strong
at over 28 percent for the year. We increased
our dividend 25 percent in 2006 and recently
announced another 10 percent increase. We
continued to repurchase shares and reduce the
Company’s outstanding share base. We enter
2007 with 9 percent fewer shares outstanding
than a year ago and 20 percent less than just
three years ago.
After three years of sustained upward
momentum, exceptionally warm winter
weather and moderating refi ning expectations
contributed to a 20 percent share price decline
during the year. While disappointed in the
2006 share price performance, the longer-term
returns have been strong (total shareholder
return of 269 percent over the past fi ve years).
We believe our businesses can continue to add
value to Sunoco shares.
Operationally, results were mixed. Overall
health, environment and safety (HES)
performance was the best ever for the
Company with best historic and/or top
quartile performance achieved in most areas.
Signifi cant capital investment and a priority
focus on Operations Excellence have resulted
in sustained improvements in HES over the
past several years. We will strive to do better.
Health, environment and safety are musts and
the foundation of all that we do.
Two major operational challenges for 2006,
namely the MTBE-to-ethanol conversion and
the transition to the new ultra-low-sulfur
diesel specifi cations, were well planned and
executed across the organization. Total refi ning
production, however, fell short of our 2006
targets and 2005 levels. This was, in part, due
to several shutdowns associated with a crude
unit at our Philadelphia refi nery. While we
have planned signifi cant refi nery maintenance
in 2007, our goal is to continue to improve
production and reduce unplanned downtime.
With asset acquisition opportunities scarce
and expensive, strategic efforts were largely
directed at executing a signifi cant Refi ning
and Supply capital program and continuing to
pursue growth in Sunoco Logistics Partners
L.P. (SXL) and Sun Coke.
––––––––––––––
* Net income for 2006, 2005 and 2004 amounted to $979, $974 and $605 million,
respectively, which includes net charges for special items of $0, $38 and $24 million,
respectively.