Sunoco 2009 Annual Report Download - page 102

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The following table sets forth the components (net of related income taxes) of the accumulated other
comprehensive loss balances in shareholders’ equity (in millions of dollars):
December 31
2009 2008
Retirement benefit plan funded status adjustment (Notes 1 and 9) ........ $(328) $(471)
Hedging activities (Note 18) ........................................ — (4)
Available-for-sale securities ........................................ (1) (2)
$(329) $(477)
17. Management Incentive Plans
Sunoco’s principal management incentive plans are the Executive Incentive Plan (“EIP”) and the Long-
Term Performance Enhancement Plan II (“LTPEP II”). The EIP provides for the payment of annual cash
incentive awards while the LTPEP II provides for the award of stock options, common stock units and related
rights to directors, officers and other key employees of Sunoco. LTPEP II authorizes the use of eight million
shares of common stock for awards. At December 31, 2009, 1,641,101 shares of common stock were available
for grant. No awards may be granted under LTPEP II after December 31, 2013.
The stock options granted under LTPEP II have a 10-year term and permit optionees to purchase Company
common stock at its fair market value on the date of grant. Options that were granted prior to December 2008 are
exercisable two years after the date of grant, while the options granted in December 2008 and thereafter are
exercisable over a three-year period in one-third increments on each anniversary date after the date of grant. The
fair value of the stock options is estimated using the Black-Scholes option pricing model. Use of this model
requires the Company to make certain assumptions regarding the term that the options are expected to be
outstanding (“expected life”), as well as regarding the risk-free interest rate, the Company’s expected dividend
yield and the expected volatility of the Company’s stock price during the period the options are expected to be
outstanding. The expected life and dividend yield are estimated based on historical experience. The risk-free
interest rate is based on the U.S. Treasury yield curve at the date of grant for periods that are approximately equal
to the expected life. The Company uses historical share prices, for a period equivalent to the options’ expected
life, to estimate the expected volatility of the Company’s share price. The fair value of the stock options has been
based on the following weighted-average assumptions:
2009 2008 2007
Expected life (years) .................................. 5 5 5
Risk-free interest rate .................................. 2.2% 1.4% 3.5%
Dividend yield ........................................ 3.6% 3.4% 1.7%
Expected volatility .................................... 41.1% 35.6% 29.0%
94