Sunoco 2009 Annual Report Download - page 61

rate debt. A hypothetical one-percentage point decrease in interest rates would increase the fair value of the
Company’s fixed-rate borrowings at December 31, 2009 by approximately $80 million. However, such change in
interest rates would not have a material impact on income or cash flows as the majority of the outstanding
borrowings consisted of fixed-rate instruments. Sunoco also has market risk exposure for changes in interest rates
relating to its retirement benefit plans (see “Critical Accounting Policies—Retirement Benefit Liabilities”
below). Sunoco generally does not use derivatives to manage its market risk exposure to changing interest rates.
Dividends and Share Repurchases
The Company has paid cash dividends regularly on a quarterly basis since 1904. The Company reduced the
quarterly cash dividend on its common stock from $.30 per share ($1.20 per year) to $.15 per share ($.60 per
year) beginning with the first quarter of 2010. The Company had previously increased the quarterly cash
dividend from $.25 per share to $.275 per share beginning with the second quarter of 2007 and then to $.30 per
share beginning with the second quarter of 2008. The Company’s management believes that Sunoco’s current
dividend level is sustainable under current conditions.
The Company did not repurchase any of its common stock in 2009. In 2008 and 2007, the Company
repurchased 0.8 and 4.0 million shares, respectively, of its common stock for $49 and $300 million, respectively.
At December 31, 2009, the Company had a remaining authorization from its Board to repurchase up to $600
million of Company common stock. Additional repurchases of Company stock will be dependent on prevailing
market conditions, available cash and the attractiveness of repurchasing stock relative to other investment
alternatives. The Company currently has no plans to repurchase any of its common stock during 2010.
Critical Accounting Policies
A summary of the Company’s significant accounting policies is included in Note 1 to the Consolidated
Financial Statements (Item 8). Management believes that the application of these policies 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 requires management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. Significant items that
are subject to such estimates and assumptions consist of retirement benefit liabilities, long-lived assets and
environmental remediation activities. Although management bases its estimates on historical experience and
various other assumptions 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, management believes the Company’s Management’s Discussion
and Analysis of Financial Condition and Results of Operations and Consolidated Financial Statements provide a
meaningful and fair perspective of the Company. Management has reviewed the assumptions underlying its
critical accounting policies with the Audit Committee of Sunoco’s Board of Directors.
Retirement Benefit Liabilities
Sunoco has substantial obligations in connection with its funded and unfunded noncontributory defined
benefit pension plans. Effective June 30, 2010, benefits under these plans will be frozen for most participants. In
addition, Sunoco has postretirement benefit plans which provide health care benefits for substantially all of its
current retirees. Medical benefits under these plans will also be phased down or eliminated for all employees
retiring after July 1, 2010. There are currently no planned changes in benefits for any employees who retire prior
to this date or for current retirees. The postretirement 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, there is a dollar
cap on Sunoco’s future contributions for its principal postretirement health care benefits plan, which significantly
reduces the impact of future cost increases on the estimated postretirement benefit expense and benefit
obligation.
53