Sunoco 2003 Annual Report Download - page 30

6.75 percent at December 31, 2002 to 6.00 percent at December 31, 2003. As a result, the
accumulated other comprehensive loss component of shareholders’ equity related to pen-
sions declined by $7 million at December 31, 2003.
In March 2002, a temporary interest rate relief bill was enacted by Congress that mitigated
the impact of a decline in interest rates used in pension funding calculations. Congress is
currently considering legislation that would extend interest rate relief beyond 2003. The
planned employer contributions for 2004 for the Company’s funded benefit plans, which
are estimated to be $50 million, are based on the assumption that this legislation will be
enacted. In the event the pending legislation does not become law, the Company’s
employer contributions in 2004 and later years could increase significantly. In addition,
pension expense for 2004 is projected to increase approximately $10 million after tax.
Management believes any additional contributions to the pension plans can be funded
without a significant impact on liquidity. Future changes in the equity markets and/or the
discount rate could result in additional significant increases or decreases to the accumu-
lated other comprehensive loss component of shareholders’ equity and to future pension
expense and funding requirements.
Environmental Matters
Sunoco is subject to extensive and frequently changing federal, state and local laws and
regulations, including, but not limited to, those relating to the discharge of materials into
the environment or that otherwise deal with the protection of the environment, waste
management and the characteristics and composition of fuels. As with the industry gen-
erally, compliance with existing and anticipated laws and regulations increases the overall
cost of operating Sunoco’s businesses, including capital costs to construct, maintain and
upgrade equipment and facilities. Existing laws and regulations have required, and are ex-
pected to continue to require, Sunoco to make significant expenditures of both a capital
and expense nature. The following table summarizes Sunoco’s expenditures for environ-
mental projects and compliance activities:
(Millions of Dollars) 2003 2002 2001
Pollution abatement capital* $114 $47 $45
Remediation 44 49 38
Operations, maintenance and administration 127 147 158
$285 $243 $241
* Capital expenditures for pollution abatement are expected to approximate $240 and $270 million in 2004 and 2005, respectively.
These laws and regulations also result in liabilities and loss contingencies for remediation
at Sunoco’s facilities and at third-party or formerly owned sites. Sunoco accrues environ-
mental remediation costs for work at identified sites where an assessment has indicated
that cleanup costs are probable and reasonably estimable. Such accruals are undiscounted
and are based on currently available information, estimated timing of remedial actions and
related inflation assumptions, existing technology and presently enacted laws and regu-
lations. If a range of probable environmental cleanup costs exists for an identified site,
FASB Interpretation No. 14, “Reasonable Estimation of the Amount of a Loss,” requires
that the minimum of the range be accrued unless some other point in the range is more
likely in which case the most likely amount in the range is accrued. Engineering studies,
historical experience and other factors are used to identify and evaluate remediation alter-
natives and their related costs in determining the estimated accruals for environmental
remediation activities. Losses attributable to unasserted environmental claims are also re-
flected in the accruals to the extent they are probable of occurrence and reasonably estim-
able. The accrued liability for environmental remediation is classified in the consolidated
balance sheets as follows:
December 31
(Millions of Dollars) 2003 2002
Accrued liabilities $44 $43
Other deferred credits and liabilities 102 116
$146 $159
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