Sunoco 2006 Annual Report Download - page 68

16. Shareholders’ Equity
Each share of Company common stock is entitled to one
full vote. The $7 million of outstanding 6
3
⁄ 4 percent sub-
ordinated debentures are convertible into shares of
Sunoco common stock at any time prior to maturity at a
conversion price of $20.41 per share and are redeemable
at the option of the Company. At December 31, 2006,
there were 358,745 shares of common stock reserved for
this potential conversion (Note 12).
On July 7, 2005, the Company’s Board of Directors
(“Board”) approved a two-for-one split of Sunoco’s com-
mon stock to be effected in the form of a stock dividend.
The shares were distributed on August 1, 2005 to share-
holders of record as of July 18, 2005. In connection with
the common stock split, the number of authorized shares
of common stock was increased from 200 million to
400 million, and the shares of common stock reserved for
issuance pertaining to Sunoco’s 6
3
⁄ 4 percent convertible
debentures and various employee benefit plans were pro-
portionally increased in accordance with the terms of
those respective agreements and plans.
The Company increased the quarterly dividend paid on
common stock from $.15 per share ($.60 per year) begin-
ning with the third quarter of 2004, to $.20 per share
($.80 per year) beginning with the second quarter of
2005, to $.25 per share ($1.00 per year) beginning with
the second quarter of 2006 and to $.275 per share ($1.10
per year) beginning with the second quarter of 2007.
The Company repurchased in 2006, 2005 and 2004, 12.2,
6.7 and 15.9 million shares, respectively, of its common
stock for $871, $435 and $568 million, respectively. In
September 2006 and July 2006, the Company announced
that its Board had approved additional share repurchase
authorizations totaling $1 billion and $500 million, re-
spectively. At December 31, 2006, the Company had a
remaining authorization from its Board to repurchase up
to $943 million of Company common stock from time to
time depending on prevailing market conditions and
available cash.
The Company’s Articles of Incorporation authorize the
issuance of up to 15 million shares of preference stock
without par value, subject to approval by the Board. The
Board also has authority to fix the number, designation,
rights, preferences and limitations of these shares, subject
to applicable laws and the provisions of the Articles of
Incorporation. At December 31, 2006, no such shares had
been issued.
The following table sets forth the components (net of re-
lated income taxes) of the accumulated other compre-
hensive loss balances in shareholders’ equity:
December 31
(Millions of Dollars) 2006 2005
Retirement benefit plan funded status
adjustment $(223) $—
Minimum pension liability adjustment —(191)
Hedging activities (Note 18) 38 (1)
Available-for-sale securities 9—
$(176) $(192)
Effective December 31, 2006, the Company adopted
SFAS No. 158. The new standard requires that cumu-
lative retirement benefit prior service costs (benefits) and
actuarial gains (losses) not yet recognized in net income
be reflected as a reduction in prepaid retirement costs and
an increase in retirement benefit liabilities with a corre-
sponding charge or credit to the accumulated other com-
prehensive loss component of shareholders’ equity in
order to fully recognized the funded status of the Compa-
ny’s defined benefit and postretirement benefit plans in
the consolidated balance sheet. Under the predecessor
accounting rules, a minimum pension liability adjustment
was included in the accumulated other comprehensive
loss to reflect the unfunded accumulated benefit obliga-
tion (Note 1).
17. Management Incentive Plans
Sunoco’s principal management incentive plans are the
Executive Incentive Plan (“EIP”) and the Long-Term Per-
formance 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 op-
tions, common stock units and related rights to directors,
officers and other key employees of Sunoco. LTPEP II au-
thorizes the use of eight million shares of common stock
for awards. At December 31, 2006, 3,685,909 shares of
common stock were available for grant. No awards may
be granted under LTPEP II after December 31, 2008, un-
less the Board extends this date to a date no later than
December 31, 2013.
Effective January 1, 2006, the Company adopted State-
ment of Financial Accounting Standards No. 123
(revised 2004), “Share-Based Payment” (“SFAS
No. 123R”), utilizing the modified-prospective method.
SFAS No. 123R revised the accounting for stock-based
compensation required by Statement of Financial Ac-
counting Standards No. 123, “Accounting for Stock-
Based Compensation” (“SFAS No. 123”). Among other
things, SFAS No. 123R requires a fair-value-based method
of accounting for share-based payment transactions,
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