Sunoco 2011 Annual Report Download - page 44

• Modified retirement benefit plans to freeze pension benefits for most participants and to phase
down or eliminate postretirement medical benefits beginning June 30, 2010; and
• Enhanced the funded status of its defined benefit plans in 2010 with $234 million of contributions
consisting of $144 million of cash and 3.59 million shares of Sunoco common stock valued at $90
million.
For additional information regarding the above actions, see Notes 2, 9, 14 and 16 to the Consolidated
Financial Statements (Item 8).
Strategic Review Initiatives
Upon completion of the strategic review, the Company has decided to pursue a series of initiatives which
management believes are expected to enhance shareholder value, reduce outstanding share count, provide
strategic flexibility and lower future pension, postretirement medical and environmental cash outlays. The
specific initiatives are as follows:
• Repurchase up to 19.9 percent of Sunoco’s outstanding common stock at the time, or approximately
21.25 million shares. The planned repurchase is expected to occur over the next 12 to 18 months;
• Increase the quarterly dividend by 33 percent to $.20 per share ($.80 annualized). The higher dividend
will be effective in March 2012;
• Spend approximately $400 million in 2012 to reduce debt, including approximately $100 million of
floating-rate notes that were redeemed in January 2012. As a result of the debt repurchase, interest
expense is expected to decline by approximately $15 million pretax annually. The lower debt also
provides the Company with greater financial flexibility to pursue growth in an opportunistic manner;
• Make a tax-deductible contribution of approximately $80 million to Sunoco’s qualified pension plans.
This contribution significantly reduces the potential need for any additional pension contributions;
• Establish a funding trust for the Company’s postretirement benefit liabilities by making a
tax-deductible contribution of approximately $200 million and restructuring the postretirement medical
plan to eliminate Sunoco’s liability beyond this funded amount. Management expects that the trust
should cover medical expenses of retirees through 2020. By prefunding and restructuring this
postretirement medical plan, annual pretax costs of this plan will be approximately $20 million lower
than previous expectations, annual pretax cash flow will be improved by approximately $30 million
and the accumulated postretirement medical liability will be reduced by approximately $60 million;
and
• Contribute approximately $250 million to establish a segregated environmental fund by means of a
captive insurance company to be used for the remediation of legacy environmental obligations. The
contribution is expected to provide certain tax benefits, the extent of which are still being evaluated.
Known and unknown liabilities exist, largely related to legacy operations which are unrelated to the
current and future logistics and retail businesses. These legacy sites that are subject to environmental
remediation assessments include terminals and other logistics assets, retail sites that Sunoco no longer
operates, closed and/or sold refineries and other formerly owned sites. Annual cash outlays are
expected to decline by approximately $10-$20 million versus historical run rates. Funding of this
initiative is expected to occur by the end of 2012.
Sunoco management believes that after its exit from the refining business, completion of these initiatives
will allow the Company to be well-positioned to generate value for shareholders through the high-return logistics
and retail businesses. The Company will be financially stronger and have more flexibility without the burden of
significant legacy obligations. Finally, shareholders will be more levered to the Company’s businesses, resulting
in higher earnings and cash flows per share and higher dividends.
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