Sunoco 2010 Annual Report Download - page 66

debt. At December 31, 2010, the Company had $2,282 million of fixed-rate debt and $147 million of floating-
rate debt. A hypothetical one-percentage point decrease in interest rates would increase the fair value of the
Company’s fixed-rate borrowings at December 31, 2010 by approximately $130 million. However, such change
in interest rates would not have a material impact on income or cash flows as the majority of the outstanding
borrowings consisted of fixed-rate instruments. Sunoco also has market risk exposure for changes in interest rates
relating to its retirement benefit plans (see “Critical Accounting Policies—Retirement Benefit Liabilities”
below). Sunoco generally does not use derivatives to manage its market risk exposure to changing interest rates.
Dividends and Share Repurchases
The Company has paid cash dividends regularly on a quarterly basis since 1904. The Company reduced the
quarterly cash dividend paid on its common stock from $.30 per share ($1.20 per year) to $.15 per share ($.60 per
year) beginning with the first quarter of 2010. The Company had previously increased the quarterly cash
dividend from $.275 per share to $.30 per share beginning with the second quarter of 2008. The Company’s
management believes that Sunoco’s current dividend level is sustainable under current conditions.
The Company did not repurchase any of its common stock in the open market in 2010 and 2009. In 2008,
the Company repurchased 0.8 million shares of its common stock for $49 million. At December 31, 2010, the
Company had a remaining authorization from its Board to repurchase up to $600 million of Company common
stock. Additional repurchases of Company stock will be dependent on prevailing market conditions, available
cash and the attractiveness of repurchasing stock relative to other investment alternatives. The Company
currently has no plans to repurchase any of its common stock during 2011.
Critical Accounting Policies
A summary of the Company’s significant accounting policies is included in Note 1 to the Consolidated
Financial Statements (Item 8). Management believes that the application of these policies on a consistent basis
enables the Company to provide the users of the financial statements with useful and reliable information about
the Company’s operating results and financial condition. The preparation of Sunoco’s consolidated financial
statements requires management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. Significant items that
are subject to such estimates and assumptions consist of retirement benefit liabilities, long-lived assets,
environmental remediation activities and deferred income taxes. Although management bases its estimates on
historical experience and various other assumptions that are believed to be reasonable under the circumstances,
actual results may differ to some extent from the estimates on which the Company’s consolidated financial
statements are prepared at any point in time. Despite these inherent limitations, management believes the
Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations and
Consolidated Financial Statements provide a meaningful and fair perspective of the Company. Management has
reviewed the assumptions underlying its critical accounting policies with the Audit Committee of Sunoco’s
Board of Directors.
Retirement Benefit Liabilities
Sunoco has substantial obligations in connection with its funded and unfunded noncontributory defined
benefit pension plans. Effective June 30, 2010, benefits under these plans were frozen for most participants. In
addition, Sunoco has postretirement benefit plans which provide health care benefits for substantially all of its
current retirees. Medical benefits under these plans were also phased down or eliminated for all employees
retiring after July 1, 2010. There are no planned changes in benefits for current retirees. The postretirement
benefit plans are unfunded and the costs are shared by Sunoco and its retirees. The levels of required retiree
contributions to these plans are adjusted periodically, and the plans contain other cost-sharing features, such as
deductibles and coinsurance. In addition, there is a dollar cap on Sunoco’s future contributions for its principal
postretirement health care benefits plan, which significantly reduces the impact of future cost increases on the
estimated postretirement benefit expense and benefit obligation.
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