Sunoco 2007 Annual Report Download - page 64

Epsilon Joint Venture Operations
Sunoco and a third party were owners of Epsilon Products
Company, LLC (“Epsilon”), a joint venture that consists
of polymer-grade propylene operations at Sunoco’s Mar-
cus Hook, PA refinery and an adjacent polypropylene
plant. The joint venture was a variable interest entity for
which the Company was the primary beneficiary. As
such, the accounts of Epsilon were included in Sunoco’s
consolidated financial statements. In December 2007, in
connection with mediation concerning litigation among
Sunoco, Inc., Epsilon and the Epsilon joint-venture part-
ners related to Sunoco, Inc.’s repayment under a debt
guarantee of $151 million of Epsilon’s debt in 2006,
Sunoco agreed to purchase the joint-venture partner’s
interest in Epsilon for $18 million. All litigation concern-
ing this matter is now settled.
The following table sets forth the minority interest bal-
ance and the changes to this balance attributable to the
third-party investor’s interest in Epsilon:
(Millions of Dollars) 2007 2006 2005
Balance at beginning of year $13 $16 $11
Minority interest share of income
(loss)* (6) (3) 5
Acquisition of third-party investor’s
interest in Epsilon (7) ——
Balance at end of year $— $13 $16
*Included in selling, general and administrative expenses in the consolidated
statements of income.
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, 2007,
there were 355,561 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 cash dividend paid
on common stock from $.20 per share ($.80 per year) be-
ginning with the second quarter of 2005, to $.25 per
share ($1.00 per year) beginning with the second quarter
of 2006, to $.275 per share ($1.10 per year) beginning
with the second quarter of 2007 and to $.30 per share
($1.20 per year) beginning with the second quarter
of 2008.
The Company repurchased in 2007, 2006 and 2005, 4.0,
12.2 and 6.7 million shares, respectively, of its common
stock for $300, $871 and $435 million, respectively. In
2006, the Company announced that its Board had ap-
proved additional share repurchase authorizations total-
ing $1.5 billion. At December 31, 2007, the Company
had a remaining authorization from its Board to re-
purchase up to $649 million of Company common stock
from time to time depending on prevailing market con-
ditions 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, 2007, 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) 2007 2006
Retirement benefit plan funded status
adjustment (Notes 1 and 9) $(185) $(223)
Hedging activities (Note 18) (13) 38
Available-for-sale securities 59
$(193) $(176)
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, 2007, 3,042,379 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.
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