Sunoco 2005 Annual Report Download - page 29

The increase in the market value of investments during 2005 was more than offset by an
increase in the accumulated benefit obligations that resulted from a decline in the discount
rate from 5.75 percent at December 31, 2004 to 5.60 percent at December 31, 2005 and
from certain other actuarial assumption changes. As a result, the accumulated other com-
prehensive loss component of shareholders’ equity related to pensions increased by $25
million at December 31, 2005.
Management currently anticipates making $100 million of voluntary contributions to its
funded defined benefit plans in 2006. Management believes any additional contributions
to the pension plans can be funded without a significant impact on liquidity. Future
changes in the financial markets and/or interest rates could result in additional significant
increases or decreases to the accumulated other comprehensive loss component of share-
holders’ equity and to future pension expense and funding requirements.
Environmental Matters
General
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 an expense nature. The following table summarizes Sunoco’s expenditures for
environmental projects and compliance activities:
(Millions of Dollars) 2005 2004 2003
Pollution abatement capital* $498 $258 $114
Remediation 50 38 44
Operations, maintenance and administration 192 135 127
$740 $431 $285
*Capital expenditures for pollution abatement include amounts to comply with the Tier II low-sulfur fuel requirements and the Consent
Decree pertaining to certain alleged Clean Air Act violations at the Company’s refineries. Pollution abatement capital outlays are expected
to approximate $225 and $137 million in 2006 and 2007, respectively.
Remediation Activities
Laws and regulations result in liabilities and loss contingencies for remediation at Sunoco’s
facilities and at third-party or formerly owned sites. Sunoco accrues environmental re-
mediation 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 in-
flation assumptions, existing technology and presently enacted laws and regulations. If a
range of probable environmental cleanup costs exists for an identified site, FASB Inter-
pretation 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 alternatives and
their related costs in determining the estimated accruals for environmental remediation
activities. Losses attributable to unasserted claims are also reflected in the accruals to the
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