Sunoco 2010 Annual Report Download - page 105

The Company contributed 3.59 million shares of Sunoco common stock out of treasury valued at $90
million to its funded defined benefit pension plans in February 2010. The shares contributed to the defined
benefit plans were removed from treasury on a last-in, first-out basis resulting in a $251 million reduction in
treasury stock and a $161 million charge to capital in excess of par value.
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, 2010, no such shares had been issued.
The following table sets forth the components (net of related income taxes) of the accumulated other
comprehensive loss balances in equity (in millions of dollars):
December 31
2010 2009
Retirement benefit plans funded status adjustment (Notes 1 and 9) ....... $(248) $(328)
Hedging activities (Note 18) ........................................ (2) —
Available-for-sale securities ........................................ 1 (1)
$(249) $(329)
16. Stock-Based Incentive Plans
Sunoco’s principal stock-based incentive plans are the Long-Term Performance Enhancement Plan II
(“LTPEP II”) and, as approved by shareholders of Sunoco on May 6, 2010, the Long-Term Performance
Enhancement Plan III (“LTPEP III”). The LTPEP II and LTPEP III provide for the award of stock options,
common stock units and related rights to officers and other key employees of Sunoco. No awards may be granted
under LTPEP II and LTPEP III after December 31, 2013 and December 31, 2020, respectively. LTPEP II had
781,037 shares of common stock available for grant at December 31, 2010. LTPEP III authorizes the use of
3.5 million shares of common stock for awards and, as of December 31, 2010, no awards had been granted under
this plan.
The stock options that have been granted under LTPEP II have a 10-year term and permit optionees to
purchase Company common stock at its fair market value on the date of grant. Options that were granted prior to
December 2008 are exercisable two years after the date of grant, while the options granted in December 2008 and
thereafter become exercisable over a three-year period in one-third increments on each anniversary date after the
date of grant. The fair value of the stock options is estimated using the Black-Scholes option pricing model. Use
of this model requires the Company to make certain assumptions regarding the term that the options are expected
to be outstanding (“expected life”), as well as regarding the risk-free interest rate, the Company’s expected
dividend yield and the expected volatility of the Company’s stock price during the period the options are
expected to be outstanding. The expected life and dividend yield are estimated based on historical experience.
The risk-free interest rate is based on the U.S. Treasury yield curve at the date of grant for periods that are
approximately equal to the expected life. The Company uses historical share prices, for a period equivalent to the
options’ expected life, to estimate the expected volatility of the Company’s share price. The fair value of the
stock options has been based on the following weighted-average assumptions:
2010 2009 2008
Expected life (years) .................................... 5 5 5
Risk-free interest rate ................................... 2.3% 2.2% 1.4%
Dividend yield .......................................... 2.1% 3.6% 3.4%
Expected volatility ...................................... 41.1% 41.1% 35.6%
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