Sunoco 2011 Annual Report Download - page 63

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interest rate fluctuation on cash flows associated with its credit facilities. At December 31, 2011, the Company
(excluding amounts attributable to SunCoke Energy) had $2,715 million of fixed-rate debt and $103 million of
floating-rate debt. The floating-rate notes were repaid in January 2012. A hypothetical one-percentage point
decrease in interest rates would increase the fair value of the Company’s fixed-rate borrowings at December 31,
2011 by approximately $190 million. 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).
Dividends and Share Repurchases
The Company has paid cash dividends regularly on a quarterly basis since 1904. The Company reduced the
quarterly cash dividend paid on its common stock by 50 percent to $.15 per share ($.60 per year) beginning with
the first quarter of 2010. In February 2012, the Company announced a 33 percent increase in its quarterly
dividend to $.20 per share ($.80 per year). The higher dividend is effective for the dividend payable in March
2012. The Company’s management believes that Sunoco’s new dividend level is sustainable under current
conditions.
During the third quarter of 2011, the Company repurchased 14.41 million shares of its outstanding common
stock for $500 million. In 2010 and 2009, the Company did not repurchase any of its common stock in the open
market. In February 2012, the Board of Directors approved a plan to repurchase up to 19.9 percent of Sunoco’s
outstanding common stock at the time, or approximately 21.25 million shares. The planned repurchase is
expected to occur over the next 12 to 18 months.
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,
environmental remediation activities and deferred income taxes. 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 were frozen for most participants. The
Company expects that upon its exit from the refining business, defined benefit pension plans will be frozen for
all participants and no additional benefits will be earned. In addition, Sunoco has postretirement benefit plans
which provide health care benefits for substantially all of its current retirees. Medical benefits under Sunoco’s
plans were also phased down or eliminated for all employees retiring after July 1, 2010. The postretirement
benefit plans are currently 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 per retiree dollar cap on Sunoco’s annual
contributions for its principal postretirement health care benefits plan. In February 2012, the Company
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