10-K

2005

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission file number 1-6841

SUNOCO, INC.

(Exact name of registrant as specified in its charter)

Pennsylvania	23-1743282
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1735 Market Street, Suite LL, Philadelphia, PA	19103-7583
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (215) 977-3000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $1 par value	New York Stock Exchange
Convertible Subordinated Debentures 6 3/4%, Due June 15, 2012	New York Stock Exchange
Sinking Fund Debentures 9 3/8%, Due June 1, 2016	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes x    No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ¨    No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments of this Form 10-K.    x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):    Large accelerated filer x    Accelerated filer ¨    Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ¨    No x

At June 30, 2005, the aggregate market value of voting stock held by non-affiliates was $7,698 million.

At January 31, 2006, there were 133,163,579 shares of Common Stock, $1 par value, outstanding.

Selected portions of the Sunoco, Inc. Annual Report to Shareholders for the Fiscal Year Ended December 31, 2005 are incorporated by reference in Parts I, II and IV of this Form 10-K.

Selected portions of the Sunoco, Inc. definitive Proxy Statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2005, are incorporated by reference in Part III of this Form 10-K.

PART I

ITEMS 1 AND 2.    BUSINESS AND PROPERTIES

Those statements in the Business and Properties discussion that are not historical in nature should be deemed forward-looking statements that are inherently uncertain. See “Forward-Looking Statements” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2005 Annual Report to Shareholders* for a discussion of the factors that could cause actual results to differ materially from those projected.

General

Sunoco, Inc.** was incorporated in Pennsylvania in 1971. It or its predecessors have been active in the petroleum industry since 1886. Its principal executive offices are located at 1735 Market Street, Suite LL, Philadelphia, PA 19103-7583. Its telephone number is (215) 977-3000 and its Internet website address is www.SunocoInc.com. The Company makes available free of charge on its website all materials that it files electronically with the Securities and Exchange Commission, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SEC.

The Company, through its subsidiaries, is principally a petroleum refiner and marketer and chemicals manufacturer with interests in logistics and cokemaking. Sunoco’s petroleum refining and marketing operations include the manufacturing and marketing of a full range of petroleum products, including fuels, lubricants and some petrochemicals. Sunoco’s chemical operations comprise the manufacturing, distribution and marketing of commodity and intermediate petrochemicals. The petroleum refining and marketing, chemicals and logistics operations are conducted principally in the eastern half of the United States. Sunoco’s cokemaking operations currently are conducted in Virginia, Indiana and Ohio.

The Company’s operations are organized into five business segments (Refining and Supply, Retail Marketing, Chemicals, Logistics and Coke) plus a holding company and a professional services group. Sunoco, Inc., the holding company, is a non-operating parent company which includes certain corporate officers. The professional services group consists of a number of staff functions, including: finance; legal and risk management; materials management; human resources; information systems; health, environment and safety; engineering services; facilities management; transaction processing; and government and public affairs. Costs incurred by the professional services group to provide these services are allocated to the five business segments and the holding company. This discussion of the Company’s business and properties reflects this organizational structure. For additional information regarding these business units, see Management’s Discussion and Analysis of Financial Condition and Results of Operations and the business segment information presented in Note 17 to the Consolidated Financial Statements, both in the Company’s 2005 Annual Report to Shareholders.

* References in this Annual Report on Form 10-K to material in the Company’s 2005 Annual Report to Shareholders and in the Company’s definitive Proxy Statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2005, mean that such material is incorporated herein by reference; other material in those documents is not deemed to be filed as part of this Annual Report on Form 10-K.

** In this report, the terms “Company” and “Sunoco” are used interchangeably to mean Sunoco, Inc. or collectively, Sunoco, Inc. and its subsidiaries. The use of these terms is for convenience of discussion and is not intended to be a precise description of corporate relationships.

1

Sunoco owns and operates five refineries which are located in Marcus Hook, PA, Philadelphia, PA, Westville, NJ, Toledo, OH and Tulsa, OK. The refineries in Marcus Hook, Philadelphia, Westville and Toledo produce principally fuels and commodity petrochemicals while the refinery in Tulsa emphasizes lubricants production with related fuels production being sold in the wholesale market. The refinery in Westville (also known as the Eagle Point refinery) was acquired in January 2004 (see “Refining and Supply” below).

Sunoco markets gasoline and middle distillates, and offers a broad range of convenience store merchandise through a network of 4,763 retail outlets in 24 states primarily on the East Coast and in the Midwest United States. During April 2004, Sunoco completed the purchase from ConocoPhillips of 340 Mobil^® retail gasoline sites located primarily in Delaware, Maryland, Virginia and Washington D.C. and, in the second quarter of 2003, completed the purchase from a subsidiary of Marathon Ashland Petroleum LLC of 193 Speedway^® retail gasoline sites located primarily in Florida and South Carolina. In 2005, the Company continued its Retail Portfolio Management program to selectively reduce its invested capital in Company-owned or leased sites, while retaining most of the gasoline sales volumes attributable to the divested sites (see “Retail Marketing” below).

Sunoco owns and operates facilities in Philadelphia, PA and Haverhill, OH, which produce phenol and acetone, and in LaPorte, TX, Neal, WV and Bayport, TX, which produce polypropylene. In addition, Sunoco is a joint-venture partner in a facility in Marcus Hook, PA, which upgrades propylene and produces polypropylene. The polypropylene facility in Bayport was acquired in the first quarter of 2003 as part of a transaction in which Sunoco secured a favorable long-term supply of propylene for its Gulf Coast polypropylene business. In September 2004, Sunoco sold its interest in the Mont Belvieu, TX, Belvieu Environmental Fuels (“BEF”) MTBE production facility to Enterprise Products Operating L.P. In addition, a facility in Pasadena, TX, which produces plasticizers, was sold to BASF in January 2004, while a facility in Neville Island, PA was retained and produces plasticizers exclusively for BASF under a three-year tolling agreement (see “Chemicals” below).

Sunoco owns, principally through Sunoco Logistics Partners L.P. (the “Partnership”) (a master limited partnership that is 47.9 percent owned by Sunoco), a geographically diverse and complementary group of pipelines and terminal facilities which transport, terminal and store refined products and crude oil (see “Logistics” below).

Sunoco, through Sun Coke Company and its affiliates (individually and collectively, “Sun Coke”), makes high-quality, blast-furnace coke at its facilities in East Chicago, IN (Indiana Harbor), Vansant, VA (Jewell) and Franklin Furnace, OH (Haverhill), and produces metallurgical coal from mines in Virginia primarily for use at the Jewell cokemaking facility. An additional cokemaking facility, which will be operated by Sun Coke, is currently under construction in Vitória, Brazil. Sunoco will have a joint-venture interest in this facility (see “Coke” below).

The following are separate discussions of Sunoco’s business segments.

Refining and Supply

The Refining and Supply business manufactures petroleum products, including gasoline, middle distillates (mainly jet fuel, heating oil and diesel fuel) and residual fuel oil as well as commodity petrochemicals, including olefins and their derivatives (ethylene, ethylene oxide polymers and refinery-grade propylene) and aromatics and their derivatives (benzene, cyclohexane, toluene and xylene) at the Marcus Hook, Philadelphia, Eagle Point and Toledo refineries, and sells these products to other Sunoco business units and to wholesale and industrial customers. This business also manufactures petroleum and lubricant products at the Tulsa refinery.

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In January 2004, Sunoco completed the purchase of the 150 thousand barrels-per-day Eagle Point refinery and related assets from El Paso Corporation for $250 million, including inventory. In connection with this transaction, Sunoco also assumed certain environmental and other liabilities. Management believes the acquisition of the Eagle Point refinery complements and enhances the Company’s refining operations in the Northeast and enables the capture of significant synergies in Northeast Refining. The related assets acquired include a $40 million cumene facility attributable to Sunoco’s Chemicals business and certain pipeline and other logistics assets associated with the refinery which Sunoco subsequently sold to Sunoco Logistics Partners L.P. for $20 million in March 2004.

The Company’s refinery operations are comprised of Northeast Refining (the Marcus Hook, Philadelphia and Eagle Point refineries) and MidContinent Refining (the Toledo and Tulsa refineries). The following tables set forth information concerning the Company’s refinery operations over the last three years (in thousands of barrels daily and percentages):

2005	Northeast Refining*	Mid- Continent Refining**	Total
Crude Unit Capacity	655.0	245.0	900.0
Crude Inputs as Percent of Crude Unit Rated Capacity	99%	94%	98%
Conversion Capacity***	270.0	102.0	372.0
Conversion Unit Capacity Utilized	100%	107%	101%
Throughputs:
Crude Oil	650.6	230.4	881.0
Other Feedstocks	52.8	6.6	59.4
Total Throughputs	703.4	237.0	940.4
Products Manufactured:
Gasoline	330.5	112.9	443.4
Middle Distillates	242.1	77.4	319.5
Residual Fuel	71.7	4.5	76.2
Petrochemicals	28.6	8.2	36.8
Lubricants	—	13.2	13.2
Other	55.8	30.8	86.6
Total Production	728.7	247.0	975.7
Less Production Used as Fuel in Refinery Operations	36.7	11.9	48.6
Total Production Available for Sale	692.0	235.1	927.1

    * In January 2005, conversion capacity was increased from 265 to 270 thousand barrels per day due to an adjustment in Northeast Refining.

  ** In January 2005, crude unit capacity was increased from 235 to 245 thousand barrels per day and conversion capacity was increased from 96.7 to 102 thousand barrels per day as a result of adjustments in MidContinent Refining.

*** Represents capacity to upgrade lower-value, heavier petroleum products into higher-value, lighter products.

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2004	Northeast Refining*	Mid- Continent Refining**	Total
Crude Unit Capacity	655.0	235.0	890.0
Crude Inputs as Percent of Crude Unit Rated Capacity	97%	95%	97%
Conversion Capacity	265.0	96.7	361.7
Conversion Unit Capacity Utilized	97%	101%	98%
Throughputs:
Crude Oil	633.3	222.4	855.7
Other Feedstocks	52.9	5.9	58.8
Total Throughputs	686.2	228.3	914.5
Products Manufactured:
Gasoline	327.8	114.2	442.0
Middle Distillates	231.5	68.8	300.3
Residual Fuel	69.2	3.8	73.0
Petrochemicals	31.0	7.1	38.1
Lubricants	—	13.6	13.6
Other	51.7	30.3	82.0
Total Production	711.2	237.8	949.0
Less Production Used as Fuel in Refinery Operations	35.6	10.6	46.2
Total Production Available for Sale	675.6	227.2	902.8

* In January 2004, crude unit capacity was increased from 505 to 655 thousand barrels per day and conversion capacity was increased from 210 to 265 thousand barrels per day as a result of the acquisition of the Eagle Point refinery. Throughput and products manufactured data pertaining to the Eagle Point refinery are based on the amounts attributable to the 354-day ownership period (January 13, 2004 – December 31, 2004) divided by 366, the number of days in the year.

** In January 2004, crude unit capacity was increased from 225 to 235 thousand barrels per day as a result of a 10 thousand-barrels-per-day adjustment in MidContinent Refining.

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2003	Northeast Refining	Mid- Continent Refining	Total
Crude Unit Capacity	505.0	225.0	730.0
Crude Inputs as Percent of Crude Unit Rated Capacity	95%	101%	97%
Conversion Capacity	210.0	96.7	306.7
Conversion Unit Capacity Utilized	97%	100%	98%
Throughputs:
Crude Oil	481.7	226.4	708.1
Other Feedstocks	46.8	6.4	53.2
Total Throughputs	528.5	232.8	761.3
Products Manufactured:
Gasoline	261.2	114.4	375.6
Middle Distillates	169.1	67.6	236.7
Residual Fuel	55.7	4.1	59.8
Petrochemicals	20.8	7.1	27.9
Lubricants	—	13.6	13.6
Other	42.1	35.5	77.6
Total Production	548.9	242.3	791.2
Less Production Used as Fuel in Refinery Operations	26.3	10.8	37.1
Total Production Available for Sale	522.6	231.5	754.1

Sunoco meets all of its crude oil requirements through purchases from third parties. There has been an ample supply of crude oil available to meet worldwide refining needs, and Sunoco has been able to supply its refineries with the proper mix and quality of crude oils without disruption. Most of the crude oil processed at Sunoco’s refineries is light-sweet crude oil. The Company believes that ample supplies of light-sweet crude oil will continue to be available. In the second half of 2004, the Company also began processing limited amounts of discounted high-acid sweet crude oils in some of its Northeast refineries. During 2005, approximately 56 thousand barrels per day of such crude oils were processed.

The Philadelphia, Marcus Hook and Eagle Point refineries process crude oils supplied from foreign sources. The Toledo refinery processes domestic and Canadian crude oils as well as crude oils supplied from other foreign sources. The Tulsa refinery processes domestic and foreign-sourced crude oils. The foreign crude oil processed at the Company’s Northeast refineries is delivered utilizing ocean-going tankers and coastal distribution tankers and barges that are independently owned and operated. Approximately 40 percent of the Company’s ocean-going tanker marine transportation requirements pertaining to its Northeast Refining crude supply are met through time charters. Time charter leases for the various marine transportation vessels typically require a fixed-price payment or a fixed-price minimum and a variable component based on spot-market rates and generally contain terms of between three to seven years with renewal and sub-lease options. The cost of the remaining marine transportation requirements reflects spot-market rates.

Approximately 40 percent of Sunoco’s crude oil supply during 2005 came from Nigeria. Some of the crude oil producing areas of this West African country have experienced political and ethnic violence as well as labor disruptions in recent years, which has resulted in the shutdown of a small portion of total Nigerian crude oil production during that time. The lost crude oil production in Nigeria did not have a material impact on Sunoco’s operations, and the Company believes other sources of light-sweet crude oil are available in the event it is unable to obtain crude oil from Nigeria in the future.

5

The following table sets forth information concerning the source of the Company’s crude oil purchases (in thousands of barrels daily):

	2005	2004	2003
Crude Oil Source:
West Africa	611.6	605.9	447.0
Domestic	145.2	138.2	152.9
Canada	61.5	75.0	52.3
North Sea	9.3	41.9	34.3
South and Central America	42.3	1.8	4.6
“Lubes-Extracted” Gasoil/Naphtha Intermediate Feedstock	10.7	6.5	16.6
	880.6	869.3	707.7

Refining and Supply sells fuels through wholesale and industrial channels principally in the Northeast and upper Midwest and sells petrochemicals and lubricants on a worldwide basis. The following table sets forth Refining and Supply’s refined product sales (in thousands of barrels daily):

	2005	2004	2003
To Unaffiliated Customers:
Gasoline	216.7	211.1	153.3
Middle Distillates	294.0	275.2	216.8
Residual Fuel	89.0	80.5	69.5
Petrochemicals	15.4	16.3	11.3
Lubricants	13.3	13.5	13.8
Other	33.6	47.5	44.3
	662.0	644.1	509.0
To Affiliates*	365.3	360.6	333.9
	1,027.3	1,004.7	842.9

  * Includes gasoline and middle distillate sales to Retail Marketing and benzene and refinery-grade propylene sales to Chemicals.

Feedstocks can be moved between refineries in Northeast Refining by barge, truck and rail. In addition, an interrefinery pipeline leased from Sunoco Logistics Partners L.P. enables the transfer of unfinished stocks, including butanes, naphtha, distillate blendstocks and gasoline blendstocks between the Philadelphia and Marcus Hook refineries. Finished products are delivered to customers via the pipeline and terminal network owned and operated by Sunoco Logistics Partners L.P. (see “Logistics” below) as well as by third-party pipelines and barges and by truck and rail.

The Clean Air Act phases in limitations on the sulfur content of gasoline beginning in 2004 and the sulfur content of on-road diesel fuel beginning in mid-2006 (“Tier II”). The rules include banking and trading credit systems, which could provide refiners flexibility until 2006 for the low-sulfur gasoline and until 2010 for the on-road low-sulfur diesel. These rules are expected to have a significant impact on refinery operations, primarily with respect to capital and operating expenditures. The Tier II capital spending is expected to be essentially completed in 2006, while the higher operating costs will be incurred when the low-sulfur fuels are produced. The Company estimates that the total capital outlays to comply with the new Tier II low-sulfur gasoline and on-road diesel fuel requirements will be approximately $750 million. Through year-end 2005, the Company’s Tier II capital spending totaled $637 million. The Company will meet the new gasoline specifications with new gasoline hydrotreaters at the Marcus Hook, Philadelphia, Eagle Point and Toledo refineries. In an effort to limit engineering and construction costs, the Company has built identical gasoline hydrotreaters at each of these four

6

facilities. New on-road diesel specifications will be met with differing facility-specific solutions involving the modification of existing refinery assets in an effort to more efficiently meet the Tier II requirements. Another rule was adopted in May 2004 phasing in limitations on the allowable sulfur content in off-road diesel beginning in mid-2007. This rule is not expected to require significant capital expenditures by Sunoco.

In the fourth quarter of 2005, the Company announced a three-year, $1.9 billion capital program for Refining and Supply, including $775 million for income improvement projects. Refining and Supply has placed a greater emphasis on income improvement projects, which are designed to increase total crude unit capacity to 1.0 million barrels per day, while improving product yields and crude oil and other feedstock processing flexibility. The first phase of this capital program is underway. A $300 million project to expand the capacity of one of the fluid catalytic cracking units at the Philadelphia refinery by 15 thousand barrels per day, resulting in an upgrade of approximately 25 thousand barrels per day of residual fuel production into higher-value gasoline and distillate production, is expected to be completed in early 2007 (the “Philadelphia Project”). Refining and Supply’s capital program also includes a $365 million project to expand the Toledo refinery’s crude unit capacity by 40 thousand barrels per day and its conversion capacity by 24 thousand barrels per day (the “Toledo Project”). This project will also upgrade technology at this facility to improve product yields and feedstock flexibility. The following table sets forth the expected capital outlays for each of these projects by type of capital (in millions of dollars):

	Philadelphia Project		Toledo Project
Income Improvement	$	190	$	180
Base Infrastructure and Turnarounds		40		70
Environmental		70		115
	$	300	$	365

Achievement of expected completion dates for capital projects is subject to the timely receipt of all necessary permits. All planned capital outlay amounts set forth above are in current-year dollars and do not include any anticipated increases attributable to inflation.

During 2005, Refining and Supply completed the construction of a sulfur plant at the Eagle Point refinery at a cost of $36 million. The new unit provides the Company with additional sulfur processing capacity and redundant processing capability to meet new permit compliance requirements. In September 2003, Refining and Supply completed the construction of a sulfur plant at the Marcus Hook refinery at a cost of $50 million.

In January 2005, Refining and Supply exercised its option under a lease agreement with El Paso to purchase a 200-megawatt cogeneration power plant adjacent to the Eagle Point refinery. Refining and Supply operates the plant when favorable market conditions exist. In 2006, Refining and Supply initiated a project to upgrade the facility to enable the use of refinery-produced fuel as a substitute for natural gas to fuel the plant.

In September 2004, Refining and Supply entered into a 15-year product supply agreement with BOC Americas (PGS), Inc. (“BOC”), an affiliate of The BOC Group plc. Under this agreement, Refining and Supply will provide BOC with feedstock and utilities for use by BOC at a hydrogen plant to be constructed by BOC on land leased from Refining and Supply at the Toledo refinery. BOC will utilize the feedstock and utilities to generate hydrogen and steam at the new facility for sale to Refining and Supply and another third party. It is anticipated that this facility will become operational in 2006, at which time the sale and delivery of hydrogen and steam to Refining and Supply for use at its Toledo refinery will commence.

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During 1999, Refining and Supply entered into an agreement with a subsidiary of FPL Energy (“FPL”) to purchase steam from a 750-megawatt, natural gas fired cogeneration power plant or four auxiliary boilers (the “Auxiliary Boilers”) to be constructed, owned and operated by FPL at Sunoco’s Marcus Hook refinery. Construction of the cogeneration plant and Auxiliary Boilers was completed in 2004. In December 2004, Sunoco and FPL agreed to a restructuring of the agreement. Under the restructured terms, FPL surrendered its easement interest in land adjacent to the power plant on which the Auxiliary Boilers were constructed, thereby transferring ownership of the Auxiliary Boilers to Sunoco. FPL operates the Auxiliary Boilers on Sunoco’s behalf. When the cogeneration plant is in operation, Sunoco has the option to purchase steam from that facility at a rate equivalent to that set forth in the original agreement. As part of the restructuring, Sunoco has agreed to a long-term lease of the land on which the cogeneration facility was constructed to FPL and to modify certain terms in the existing agreement for an aggregate cash payment of $48 million, most of which is attributable to prepaid rent. Sunoco received this $48 million payment in January 2005. No gain or loss was recognized in connection with the restructuring.

Retail Marketing

The Retail Marketing business consists of the retail sale of gasoline and middle distillates and the operation of convenience stores in 24 states, primarily on the East Coast and in the Midwest region of the United States. The highest concentrations of outlets are located in Connecticut, Florida, Maryland, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania and Virginia.

The following table sets forth Sunoco’s retail gasoline outlets at December 31, 2005, 2004 and 2003:

	2005	2004	2003
Direct Outlets:
Company Owned or Leased:
Company Operated:
Traditional	118	134	154
Convenience Stores	482	515	578
	600	649	732
Dealer Operated:
Traditional	293	340	287
Convenience Stores	231	223	221
Ultra Service CentersSM	164	184	202
	688	747	710
Total Company Owned or Leased*	1,288	1,396	1,442
Dealer Owned**	544	546	594
Total Direct Outlets	1,832	1,942	2,036
Distributor Outlets	2,931	2,862	2,492
	4,763	4,804	4,528

  * Gasoline and diesel throughput per Company-owned or leased outlet averaged 136.3, 132.6 and 124.4 thousand gallons per month during 2005, 2004 and 2003, respectively.

** Primarily traditional outlets.

Retail Marketing has a portfolio of outlets that differ in various ways including: product distribution to the outlets; site ownership and operation; and types of products and services provided.

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Direct outlets may be operated by Sunoco or by an independent dealer, and are sites at which fuel products are delivered directly to the site by Sunoco’s 132 trucks or by its contract carriers. The Company or an independent dealer owns or leases the property. These sites may be traditional locations that sell almost exclusively fuel products under the Sunoco^® and Coastal^® brands or may include APlus^® or Coastal Mart^® convenience stores or Ultra Service Centers^SM that provide automotive diagnosis and repair. Included among Retail Marketing’s outlets at December 31, 2005 were 72 outlets on turnpikes and expressways in Pennsylvania, New Jersey, New York, Ohio and Maryland. Of these outlets, 55 were Company-operated sites providing gasoline, diesel fuel and convenience store merchandise.

Distributor outlets are sites in which the distributor takes delivery at a terminal where branded products are available. Sunoco does not own, lease or operate these locations.

In the second quarter of 2004, Sunoco completed the purchase of 340 retail outlets operated under the Mobil^® brand from ConocoPhillips for $181 million, including inventory. Of the total sites acquired, 50 were owned outright and 62 were subject to long-term leases, with average throughput of approximately 175 thousand gallons per month. The remaining network consisted of contracts to supply 34 dealer-owned and operated locations and 194 branded distributor-owned locations. These outlets, which included 31 sites that are Company-operated and have convenience stores, are located primarily in Delaware, Maryland, Virginia and Washington, D.C. These sites are being re-branded to Sunoco^® gasoline and APlus^® convenience stores over time. In the second quarter of 2003, Sunoco completed the purchase of 193 Speedway^® retail gasoline outlets from a subsidiary of Marathon Ashland Petroleum LLC for $162 million, including inventory. The sites, which are located primarily in Florida and South Carolina, were all Company-operated locations with convenience stores. Of the 193 outlets, Sunoco became lessee for 54 of the sites under long-term lease agreements. The Speedway^® sites were re-branded as Sunoco^® locations during the 2003-2004 period. The Company believes these acquisitions fit its long-term strategy of building a retail and convenience store network designed to provide attractive long-term returns. At December 31, 2005, there were 228 outlets still selling gasoline under the Mobil^® brand.

A Retail Portfolio Management (“RPM”) program is ongoing, which is selectively reducing the Company’s invested capital in Company-owned or leased sites. During the 2003-2006 period, selected sites, including some of the Mobil^® and Speedway^® acquired outlets, are being divested. Most of the sites are being converted to contract dealers or distributors thereby retaining most of the gasoline sales volume attributable to the divested sites within the Sunoco branded business. The Company expects to generate divestment proceeds of approximately $230 million, of which $170 million has been received through 2005 related to the sale of 323 sites. During 2005, 2004 and 2003, net after-tax gains totaling $5, $7 and $8 million, respectively, were recognized in connection with the RPM program. The Company expects the RPM program will generate additional gains in 2006.

In 2003, Sunoco announced its intention to sell its interest in 190 retail sites in Michigan and the southern Ohio markets of Columbus, Dayton and Cincinnati (“Midwest Marketing Divestment Program”). During 2003, 75 Company-owned or leased properties and contracts to supply 23 dealer-owned sites were divested under this program. The cash generated from these divestments totaled $46 million, which represented substantially all of the proceeds from the program. The remaining 92 sites, which were virtually all dealer-owned locations, were converted to distributor outlets in 2004. During 2003, a $9 million after-tax gain was recognized in connection with the Midwest Marketing Divestment Program. Sunoco continues to supply branded gasoline to substantially all of these divested outlets.

During 2004, Sunoco sold its private label consumer and commercial credit card business and related accounts receivable to Citibank. In connection with this divestment, Sunoco received $100 million in cash proceeds, recognized a $2 million after-tax gain on the divestment and established a $2

9

million after-tax accrual for employee terminations and other exit costs. In addition, the two companies signed a seven-year agreement for Citibank to operate and service the Sunoco private label credit card program.

Retail Marketing offers at least three grades of gasoline at its retail locations, including 93, 89 and 87 octanes. In addition, Retail Marketing offers Ultra^® 94, the highest octane premium gasoline commercially available in the United States, at Sunoco^® stations in selected areas in the Northeast and Midwest. Branded fuels sales (including middle distillates) averaged 343.6 thousand barrels per day in 2005 compared to 339.0 thousand barrels per day in 2004 and 316.8 thousand barrels per day in 2003. The increase in branded fuels sales during the 2003-2005 period was largely due to the acquisition of the Mobil^® and Speedway^® retail sites.

Retail Marketing is one of the largest providers of heating products in the eastern United States. In 2005, the Company sold 181 million gallons of these products to approximately 110 thousand customers. Sunoco is also the largest manufacturer and marketer of high performance (racing) gasoline in the United States with approximately 9 million gallons sold during 2005.

The Sunoco^® brand is positioned as a premium brand. Brand improvements in recent years have focused on physical image, customer service and product offerings. In addition, Sunoco believes its brands and high performance gasoline business have benefited from its sponsorship agreement with NASCAR that continues until 2013. Under this agreement, Sunoco^® is the Official Fuel of NASCAR and the exclusive fuel supplier to NASCAR events, and APlus^® is the Official Convenience Store of NASCAR.

Sunoco’s convenience stores are located principally in Florida, Massachusetts, Michigan, New York, Ohio, Pennsylvania and South Carolina. These stores supplement sales of fuel products with a broad mix of merchandise such as groceries, fast foods, beverages and tobacco products. The following table sets forth information concerning Sunoco’s convenience stores:

	2005	2004	2003
Number of Stores (at December 31)	746	757	813
Merchandise Sales (Thousands of Dollars/Store/Month)	$78	$73	$72
Merchandise Margin (Company Operated) (% of Sales)	28.2%	25.6%	24.6%

The Company intends to grow its convenience store business principally through acquisitions and redesign of traditional gasoline outlets.

Chemicals

The Chemicals business manufactures, distributes and markets commodity and intermediate petrochemicals. The chemicals consist of aromatic derivatives (cumene, phenol, acetone, bisphenol-A, and other phenol derivatives) and polypropylene. Cumene is produced at the Philadelphia, PA and Eagle Point refineries; phenol and acetone are produced at facilities in Philadelphia, PA and Haverhill, OH; and polypropylene is produced at facilities in LaPorte, TX, Neal, WV and Bayport, TX, as well as at the Epsilon Products Company, LLC (“Epsilon”) consolidated joint venture in Marcus Hook, PA which also upgrades polymer-grade propylene. In September 2004, Sunoco sold its one-third interest in the Mont Belvieu, TX, Belvieu Environmental Fuels (“BEF”) MTBE production facility to Enterprise Products Operating L.P. (“Enterprise”). In January 2004, a facility in Pasadena, TX, which produces plasticizers, was sold to BASF, while a facility in Neville Island, PA, which also produces plasticizers, now does so exclusively for BASF under a three-year tolling agreement. (See “Refining and Supply” for a discussion of the commodity petrochemicals produced by Refining and Supply at the Marcus Hook, Philadelphia, Eagle Point and Toledo refineries.)

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Effective March 31, 2003, Sunoco formed a limited partnership with Equistar Chemicals, L.P. (“Equistar”) involving Equistar’s ethylene facility in LaPorte, TX. Equistar is a wholly owned subsidiary of Lyondell Chemical Company. In connection with this transaction, Equistar and the partnership entered into a 700 million pounds-per-year, 15-year propylene supply contract with Sunoco. Of this amount, 500 million pounds per year is priced on a cost-based formula that includes a fixed discount that declines over the life of the contract, while the remaining 200 million pounds per year is based on market prices. Sunoco also purchased Equistar’s polypropylene facility in Bayport, TX. Sunoco paid $194 million in cash and borrowed $4 million from the seller to form the partnership and acquire the Bayport facility. Through the partnership, the Company believes it has secured a favorable long-term supply of propylene for its Gulf Coast polypropylene business. Realization of these benefits is largely dependent upon performance by Equistar, which has a credit rating below investment grade. Equistar has not given any indication that it will not perform under its contracts. In the event of nonperformance, Sunoco has collateral and certain other contractual rights under the partnership agreement. The acquisition of the Bayport facility has increased the Company’s polypropylene capacity, complementing and enhancing the Company’s existing polypropylene business and strengthening its market position.

In 2004, Sunoco Chemicals sold its one-third partnership interest in BEF to Enterprise for $15 million in cash, resulting in an $8 million after-tax loss on divestment. In connection with the sale, Sunoco has retained one-third of any liabilities and damages exceeding $300 thousand in the aggregate arising from any claims resulting from the ownership of the assets and liabilities of BEF for the period prior to the divestment date, except for any on-site environmental claims which are retained by Enterprise. During 2003, as a result of various governmental actions which caused a material adverse impact on MTBE industry demand, BEF recorded a write-down of its MTBE production facility to its estimated fair value at that time. Sunoco’s share of this provision amounted to $15 million after tax.

During 2003, Sunoco announced its decision to sell its plasticizer business and recorded a $17 million after-tax charge to write down the assets held for sale to their estimated fair values less costs to sell and to establish accruals for employee terminations and other required exit costs. Sunoco sold this business and related inventory in January 2004 to BASF for approximately $90 million in cash. The sale included the Company’s plasticizer facility in Pasadena, TX. The Company’s Neville Island, PA site was not part of the transaction and now produces plasticizers exclusively for BASF under a three-year tolling agreement. Sunoco also agreed to provide terminalling services at this facility to BASF for a 15-year period. During 2003, Sunoco also temporarily idled a production line at its Haverhill, OH plant, which has the capacity to produce 350 million pounds per year of phenol and 217 million pounds per year of associated acetone.

Sunoco Chemicals has an interest in the Epsilon joint venture which is comprised of its 750 million pounds-per-year polymer-grade propylene operations at the Marcus Hook refinery and the adjacent 750 million pounds-per-year polypropylene plant. The Chemicals business received 100 percent of all cash distributions from the joint venture through June 2004 and is now entitled to 87.5 percent of any cash distributions. This distribution percentage will decline to 65 percent on June 15, 2006 for two years and ultimately decline to 50 percent by 2015. The Chemicals business markets the joint venture’s production under the Sunoco^® name along with the production from its LaPorte, TX, Neal, WV and Bayport, TX polypropylene plants.

Sunoco’s Philadelphia phenol facility has the capacity to produce annually more than one billion pounds of phenol and 700 million pounds of acetone. Under a long-term contract, the Chemicals business supplies Honeywell International Inc. (“Honeywell”) with approximately 745 million pounds of phenol annually at a price based on the market value of cumene feedstock plus an amount approximating other phenol production costs. In the third quarter of 2005, an arbitrator ruled that Sunoco was liable in an arbitration proceeding for breaching the pricing provisions of this contract

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relating to phenol produced at the Philadelphia plant from June 2003 through April 2005. In January 2006, the arbitrator ruled that Sunoco should bill Honeywell based on the pricing formula established in the arbitration until a second arbitration, set to begin in the second quarter of 2006, finalizes pricing for 2005 and beyond (see below). After-tax damages of approximately $56 million, including prejudgment interest, were assessed, of which $16, $28 and $12 million pertained to 2005, 2004 and 2003, respectively. Such damages were recorded as a charge against 2005 earnings and are shown separately as Phenol Supply Contract Dispute under Corporate and Other in the Earnings Profile of Sunoco Businesses. Sunoco is contesting the finding of liability and the determination of damages as well as the arbitrator’s authority to establish 2005 pricing. The phenol supply agreement provides for a reopener for pricing on and after January 1, 2005 and sets forth specific standards for determining such pricing. The parties have been unsuccessful in negotiating the post-2004 price, and a new price will be determined in a second arbitration to be held before a different arbitrator. Sunoco believes the basis for the post-2004 pricing is substantially different from the basis of the award in the first arbitration.

The following table sets forth information concerning petrochemicals production by the Chemicals business (in millions of pounds):

	Capacity at December 31, 2005		Production
			2005	2004	2003
Phenol	2,125	*	1,526	1,539	1,521
Acetone	1,300	*	944	953	943
Bisphenol-A	240		209	187	214
Other Phenol Derivatives	120		76	79	77
Cumene	1,925	**	1,577	1,533	1,005
Polypropylene	2,550		2,224	2,204	2,208
Plasticizers and Related Feedstocks***	—		—	33	748
Propylene	750		655	618	659
Total Production	9,010		7,211	7,146	7,375
Less: Production Used as Feedstocks†			2,468	2,367	2,059
Total Production Available for Sale			4,743	4,779	5,316

    * Includes 350 million pounds per year of phenol capacity and 217 million pounds per year of associated acetone capacity related to a production line in Haverhill, OH, which was temporarily idled in 2003.

  ** In January 2004, cumene capacity increased 610 million pounds as a result of the acquisition of the Eagle Point refinery.

*** Consists of amounts attributable to the plasticizer business, which was divested in January 2004.

    † Includes cumene (used in the manufacture of phenol and acetone), phenol and acetone (used in the manufacture of bisphenol-A) and polymer-grade propylene (used in the manufacture of polypropylene). In addition, prior to the January 2004 divestment of the plasticizer business, included phthalic anhydride and 2-ethylhexanol (used in the manufacture of plasticizers).

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Petrochemical products produced by the Chemicals business are distributed and sold on a worldwide basis with most of the sales made to customers in the United States. The following table sets forth the sale of petrochemicals to third parties by Chemicals (in millions of pounds):

	2005	2004	2003
Phenol and Related Products (including Bisphenol-A)	2,579	2,615	2,629
Polypropylene	2,218	2,239	2,248
Plasticizers and Related Feedstocks*	—	28	591
Other	91	187	173
	4,888	5,069	5,641

* Consists of amounts attributable to the plasticizer business, which was divested in January 2004.

The tables above reflect only volumes manufactured and sold directly by the Chemicals business and the consolidated Epsilon joint venture. Chemicals also manages the third-party chemicals sales for Refining and Supply and a joint venture with Suncor Energy Inc., bringing the total petrochemicals sold under the Sunoco^® name to approximately 7.4 billion pounds in 2005.

Sales made by the Chemicals business during 2005 were distributed through the following channels:

• Phenol and Related Products—Long-term phenol contract sales to Honeywell are used in nylon production. Other phenol contract sales are to large manufacturers of resins and adhesives primarily for use in building products. Large contract sales of acetone are to major customers who manufacture polymers. Other sales of acetone are made to individually smaller customers for use in inks, paints, varnishes and adhesives. Bisphenol-A, manufactured from phenol and acetone, is sold to manufacturers of epoxy resins and polycarbonates; and

• Polypropylene—Sales are made to a diverse group of customers for use in fibers, carpeting, packaging, automotive, furniture and other end-products.

Logistics

The Logistics business operates refined product and crude oil pipelines and terminals and conducts crude oil acquisition and marketing activities primarily in the Northeast, Midwest and South Central regions of the United States. The Logistics business also has an ownership interest in several refined product and crude oil pipeline joint ventures.

In February 2002, the Company contributed a substantial portion of its logistics business to a master limited partnership, Sunoco Logistics Partners L.P., in exchange for a 73.2 percent limited partner interest, a 2 percent general partner interest, incentive distribution rights and a $245 million special distribution, representing the net proceeds from the Partnership’s sale of $250 million 7.25 percent senior notes due 2012. The Partnership concurrently issued 5.75 million limited partnership units, representing a 24.8 percent interest in the Partnership, in an initial public offering at a price of $20.25 per unit. Proceeds from this offering totaled approximately $96 million, net of underwriting discounts and offering expenses.

In the second quarter of 2004, the Partnership issued 3.4 million limited partnership units under its shelf registration statement at a price of $39.75 per unit. Proceeds from the offering, net of underwriting discounts and offering expenses, totaled $129 million. Coincident with the offering, the Partnership redeemed 2.2 million limited partnership units owned by Sunoco for $83 million. The proceeds from the offering were also principally used by the Partnership to finance its acquisitions

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during 2004. In the second quarter of 2005, the Partnership issued an additional 2.8 million limited partnership units under its shelf registration statement at a price of $37.50 per unit. Proceeds from the offering, net of underwriting discounts and offering expenses, totaled approximately $99 million. These proceeds were used to redeem an equal number of limited partnership units owned by Sunoco. In the third quarter of 2005, the Partnership issued an additional 1.6 million limited partnership units under its shelf registration statement at a price of $39.00 per unit. Proceeds from the offering, which totaled approximately $61 million, net of underwriting discounts and offering expenses, were used by the Partnership principally to repay a portion of the borrowings under its revolving credit facility, which had been used to partially fund its $100 million acquisition of a crude oil pipeline system and related storage facilities located in Texas from ExxonMobil (see below). Upon completion of these transactions, Sunoco’s interest in the Partnership, including its 2 percent general partnership interest, decreased to 47.9 percent.

Sunoco is a party in various agreements with the Partnership which require Sunoco to pay for minimum storage and throughput usage of certain Partnership assets. Sunoco also has agreements with the Partnership which establish fees for administrative services provided by Sunoco to the Partnership and provide indemnifications by Sunoco to the Partnership for certain environmental, toxic tort and other liabilities.

Pipeline operations are primarily conducted through the Partnership’s pipelines and also through other pipelines in which the Partnership or Sunoco has an ownership interest. The pipelines are principally common carriers and, as such, are regulated by the Federal Energy Regulatory Commission for interstate movements and by state regulatory agencies for intrastate movements. The tariff rates charged, while regulated by the governing agencies, are generally based upon competition from other pipelines or alternate modes of transportation.

Refined product pipeline operations, located primarily in the Northeast and Midwest, transport gasoline, jet fuel, diesel fuel, home heating oil and other products for Sunoco’s other businesses and for third-party integrated petroleum companies, independent refiners, independent marketers and distributors. Crude oil pipeline operations, located primarily in the South Central United States, transport foreign crude oil received at the Partnership’s Nederland, TX and Marysville, MI terminals and crude oil produced primarily in Oklahoma and Texas to refiners (including Sunoco’s Tulsa and Toledo refineries) or to local trade points.

In August 2005, the Partnership completed the acquisition of a crude oil pipeline system and related storage facilities located in Texas from ExxonMobil for $100 million and, in the fourth quarter of 2005, completed the construction of a $16 million, 20-mile crude oil pipeline connecting these assets to the West Texas Gulf Pipeline, which is 43.8 percent owned by the Partnership. In December 2005, the Partnership also completed the acquisition of an ownership interest in the Mesa Pipeline from Chevron for $5 million, which, coupled with the 7.2 percent interest it acquired from Sunoco, gave it a 37.0 percent ownership interest. In 2004, the Partnership completed the following acquisitions: in March, certain pipeline and other logistics assets that had previously been acquired by Sunoco with the Eagle Point refinery for $20 million; in April, ConocoPhillips’ Baltimore, MD and Manassas, VA refined product terminals for $12 million; in June, an additional one-third interest in the Harbor Pipeline from El Paso Corporation for $7 million; and in November, a refined product terminal located in Columbus, OH from a subsidiary of Certified Oil Company for $8 million. During September 2003, the Partnership acquired an additional 3.1 percent interest in West Shore Pipe Line Company for $4 million, increasing its overall ownership interest in West Shore to 12.3 percent.

In March 2006, the Partnership purchased two separate crude oil pipeline systems and related storage facilities located in Texas, one from Alon USA Energy, Inc. for $68 million and the other from

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Black Hills Energy, Inc. (“Black Hills”) for approximately $41 million. The Black Hills acquisition also includes a lease acquisition marketing business and related inventory.

At December 31, 2005, the Partnership owned and operated 2,857 miles of crude oil pipelines and 1,647 miles of refined product pipelines. In 2005, crude oil and refined product shipments on these pipelines totaled 16.3 and 17.1 billion barrel miles, respectively, as compared to 13.9 and 17.2 billion barrel miles in 2004 and 13.0 and 16.4 billion barrel miles in 2003. These amounts represent 100 percent of the pipeline shipments of these pipelines.

Product terminalling operations include 38 terminals in the Northeast and Midwest that receive refined products from pipelines and distribute them primarily to Sunoco and also to third parties, who in turn make deliveries to end-users such as retail outlets. During 2005, 2004 and 2003, throughput at these product terminals totaled 390, 341 and 283 thousand barrels daily, respectively. Terminalling operations also include an LPG terminal near Detroit, MI, a crude oil terminal complex adjacent to Sunoco’s Philadelphia refinery, ship and barge docks adjacent to Sunoco’s Eagle Point refinery and a refined product terminal adjacent to Sunoco’s Marcus Hook refinery. During 2005, 2004 and 2003, throughput at these other terminals totaled 702, 685 and 479 thousand barrels daily, respectively.

The Partnership’s Nederland, TX terminal provides approximately 12.5 million barrels of storage and provides terminalling throughput capacity exceeding one million barrels per day. Its Gulf Coast location provides local, south central and midwestern refiners access to foreign and offshore domestic crude oil. The facility is also a key link in the distribution system for U.S. government purchases for and sales from the Strategic Petroleum Reserve storage facilities. During 2005, 2004 and 2003, throughput at the Nederland terminal totaled 458, 488 and 442 thousand barrels daily, respectively.

The Partnership’s crude oil pipeline operations in the South Central United States are complemented by crude oil acquisition and marketing operations. During 2005, 2004 and 2003, approximately 186, 187 and 193 thousand barrels daily, respectively, of crude oil were purchased (including exchanges) from third-party leases and approximately 237, 282 and 300 thousand barrels daily, respectively, were purchased in bulk or other exchange transactions. Purchased crude oil is delivered to various trunk pipelines either directly from the wellhead through gathering pipelines or utilizing the Partnership’s fleet of 116 trucks or third-party trucking operations.

Coke

Sun Coke Company, through its affiliates (individually and collectively, “Sun Coke”), operates metallurgical coke plants located in East Chicago, IN (Indiana Harbor), Vansant, VA (Jewell), and Franklin Furnace, OH (Haverhill), and metallurgical coal mines located in Virginia. Aggregate coke production from the plants approximates 2.55 million tons per year. The Indiana Harbor plant produces approximately 1.3 million tons per year, the Jewell plant produces approximately 700 thousand tons per year and the Haverhill plant, which commenced operations in March 2005, produces approximately 550 thousand tons per year. In addition, the Indiana Harbor plant produces heat as a by-product of Sun Coke’s proprietary process that is used by a third party to produce electricity and the Haverhill plant produces steam that is sold to Sunoco’s Chemicals business. These facilities use a proprietary low-cost cokemaking technology, which is environmentally superior to the chemical by-product recovery technology currently used by most other coke producers.

Since 1995, Sunoco has received, in four separate transactions, a total of $724 million in exchange for interests in its Indiana Harbor and Jewell cokemaking operations. Sunoco did not recognize any gain as of the dates of these transactions because the third-party investors were entitled to a preferential return on their investments. The preferential returns are currently equal to 98 percent of

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the cash flows and tax benefits from the respective cokemaking operations during the preferential return periods, which continue until the investors recover their investments and achieve a cumulative annual after-tax return that averages approximately 10 percent. Expense is recognized to reflect the investors’ preferential returns, while income is recognized as coke production and sales generate cash flows and tax benefits, which are allocated to Sunoco and the third-party investors.

Under preexisting tax law, the coke production at Jewell and Indiana Harbor would not be eligible to generate nonconventional fuel tax credits after 2007, which is expected to result in a decline in Sun Coke’s annual income of approximately $12 million on an after-tax basis beginning in 2008. The energy policy legislation enacted in August 2005 includes additional tax credits pertaining to a portion of the coke production at Jewell, all of the production at Haverhill and all future domestic coke plants placed into service by January 1, 2010. The new credits cover a four-year period, effective January 1, 2006 or the date any new facility is placed into service, if later. Beginning in 2006, the new credits attributable to Sun Coke’s existing Jewell and Haverhill facilities are expected to result in an increase in Sun Coke’s annual income of approximately $6 million after tax. However, prior to their expiration dates, all of the tax credits would be phased out, on a ratable basis, if the average annual price of domestic crude oil at the wellhead is within a certain inflation-adjusted price range. (This range was $51.35 to $64.47 per barrel for 2004, the latest year for which the range is available.) The domestic wellhead price averaged $50.26 per barrel for the year ended December 31, 2005. If this annual crude oil price averages at or above the top of the inflation-adjusted range during 2006 or 2007, then it is estimated the corresponding reduction in Sun Coke’s after-tax income would approximate $24 million for each year. The above estimates incorporate increased coke prices resulting from the expiration or any phase out of the tax credits with respect to coke sold under long-term contracts from the Indiana Harbor and Haverhill plants. Sun Coke also could be required to make cash payments to the third-party investors if the tax credit is reduced as a result of increased domestic crude oil prices. However, the Company currently does not believe that any such payments will be required.

The preferential return period for the Jewell operation is projected to end during 2011, while the preferential return period for the Indiana Harbor operation is projected to end during 2007. Due to the difficulty of forecasting operations and tax benefits into the future, the accuracy of these estimates is subject to considerable uncertainty. The estimated lengths of these preferential return periods are based upon Sun Coke’s current expectations of future cash flows and tax benefits, which are impacted by sales volumes and prices, raw material and operating costs, capital expenditure levels and the ability to recognize tax benefits under the current tax law. Higher-than-expected cash flows and tax benefits will shorten the investors’ preferential return periods, while lower-than-expected cash flows and tax benefits will lengthen the periods.

Following the expiration of these preferential return periods, the investor in the Jewell operation will be entitled to a minority interest in the related cash flows and tax benefits amounting to 18 percent, while the investors in the Indiana Harbor operation will be entitled to a minority interest in the related cash flows and tax benefits initially amounting to 34 percent and thereafter declining to 10 percent by 2038.

The following table sets forth information concerning cokemaking and coal mining operations:

	2005	2004	2003
Production (Thousands of Tons):
Coke	2,405	1,965	2,024
Metallurgical Coal	1,252	1,166	1,160
Proven and Probable Metallurgical Coal Reserves at December 31 (Millions of Tons)	103	105	108

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In 2005, 77 percent of Sun Coke’s metallurgical coal production was converted into coke at the Jewell plant, 13 percent was converted into coke at the Indiana Harbor and Haverhill plants and 10 percent was sold in spot market transactions. Those sales are consistent with Sun Coke’s strategy of using its metallurgical coal production principally to supply its Jewell cokemaking operation.

Most of the metallurgical coal used to produce coke at the Indiana Harbor and Haverhill cokemaking operations is purchased from third parties. Sun Coke believes there is an ample supply of metallurgical coal available, and it has been able to supply these facilities without any significant disruption in coke production.

Substantially all coke sales are made pursuant to long-term contracts with affiliates of Mittal Steel USA, Inc. (individually and collectively, “Mittal USA”). Mittal USA has not provided any indication that it will not perform under those contracts. However, in the event of nonperformance, Sun Coke’s results of operations and cash flows may be adversely affected.

Production from the Indiana Harbor plant is sold and delivered principally to Mittal USA’s Indiana Harbor Works steel plant, which is adjacent to the Indiana Harbor coke plant. The coke purchase agreement requires Sun Coke to provide Mittal USA with 1.2 million tons of coke annually on a take-or-pay basis through 2013. Additional production of approximately 100 thousand tons per year is sold either to Mittal USA or to other steel producers. Indiana Harbor also supplies the hot exhaust gas produced at the plant to a contiguous cogeneration plant operated by an independent power producer for use in the generation of electricity. In exchange, the independent power producer reduces the sulfur and particulate content of that hot exhaust gas to acceptable emission levels.

Sun Coke is supplying 550 thousand tons per year of coke from the Haverhill operation to Mittal USA through September 2020. Under the applicable coke supply agreement, coke is being supplied to Mittal USA on a take-or-pay basis through September 2012, and thereafter based upon requirements in excess of Mittal USA’s existing coke production and its other off-take obligations with respect to Sun Coke. Initial coke production from the Haverhill plant began during March 2005. The flue gas produced during the cokemaking process is used to generate low-cost steam that, since April 2005, is being provided to the adjacent chemical manufacturing complex owned and operated by Sunoco’s Chemicals business.

Sun Coke is also supplying Mittal USA with 700 thousand tons per year of coke from the Jewell operation. Under the applicable coke supply agreement, the term of that agreement is concurrent with the term of the Haverhill agreement. Coke is being supplied on a take-or-pay basis through September 2012, and thereafter will be supplied based upon Mittal USA’s requirements in excess of its existing coke production (subject to the Indiana Harbor coke supply agreement).

Under the above agreements, coke production at Jewell through 2007 is sold at fixed prices which escalate semiannually. Beginning in 2008, selling prices for coke at Jewell will consist of a coal charge equal to the cost of the coal multiplied by an adjustment factor (which is expected to exceed coal costs) as well as the pass through of transportation costs, operating costs indexed for inflation and a fixed-price component. Coke selling prices for Indiana Harbor and Haverhill production reflect the pass through of coal costs and transportation costs. Such prices also include an operating cost and fixed-price component.

In August 2004, Sun Coke entered into a series of agreements with two major steel companies (the “Off-takers”) with respect to the development of a 1.7 million tons-per-year cokemaking facility and associated cogeneration power plant in Vitória, Brazil. Those agreements generally include: technology license agreements whereby Sun Coke has licensed its proprietary technology to a project company (the “Project Company”); an engineering and technical services agreement whereby Sun

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Coke is providing engineering and construction-related technical services to the Project Company; an operating agreement whereby a local subsidiary of Sun Coke will operate the cokemaking and water treatment plant facilities for a term of not less than 15 years; and an investment agreement by and among Sun Coke and the Off-takers whereby Sun Coke has acquired an initial one percent equity interest in the Project Company and an option to purchase an additional 19 percent equity interest. Sun Coke expects to exercise this option in 2006 or 2007 for approximately $35 million. The Off-takers will purchase from the Project Company all coke production under long-term agreements, and one of the Off-takers will purchase all of the electricity produced at the cogeneration power plant. Those off-take agreements are still to be negotiated. Construction of the facilities commenced in November 2004, and the facilities are expected to be operational in the fourth quarter of 2006.

Sun Coke is currently discussing other opportunities for developing new heat recovery cokemaking facilities with several domestic and international steel companies. Such cokemaking facilities could be either wholly owned or owned through a joint venture with one or more parties. The steel company customers would be expected to purchase the coke production on a take-or-pay or equivalent basis.

Competition

In all of its operations, Sunoco is subject to competition, both from companies in the industries in which it operates and from products of companies in other industries.

The refining and marketing business is very competitive. Sunoco competes with a number of other domestic refiners and marketers in the eastern half of the United States, with integrated oil companies, with foreign refiners that import products into the United States and with producers and marketers in other industries supplying alternative forms of energy and fuels to satisfy the requirements of the Company’s industrial, commercial and individual consumers.

Profitability in the refining and marketing industry depends largely on refined product margins, which can fluctuate significantly, as well as operating efficiency, product mix, and costs of product distribution and transportation. Certain of Sunoco’s competitors that have larger and more complex refineries may be able to realize lower per-barrel costs or higher margins per barrel of throughput. Several of Sunoco’s principal competitors are integrated national or international oil companies that are larger and have substantially greater resources than Sunoco. Because of their integrated operations and larger capitalization, these companies may be more flexible in responding to volatile industry or market conditions, such as shortages of feedstocks or intense price fluctuations. Refining margins are frequently impacted by sharp changes in crude oil costs, which may not be immediately reflected in product prices.

The refining industry is highly competitive with respect to feedstock supply. Unlike certain of its competitors that have access to proprietary sources of controlled crude oil production available for use at their own refineries, Sunoco obtains substantially all of its crude oil and other feedstocks from unaffiliated sources. Most of the crude oils processed in Sunoco’s refining system are light-sweet crude oils. However, management believes that any potential competitive impact of Sunoco’s inability to process significant quantities of less expensive heavy-sour crude oils will likely be mitigated by: the higher-value product slate obtained from light-sweet crude oils, the lower cost to process light-sweet crude oils, the processing of a limited amount of discounted high-acid sweet crude oils and the continued availability of ample quantities of light-sweet crude oils.

Sunoco also faces strong competition in the market for the sale of retail gasoline and merchandise. Sunoco’s competitors include service stations of large integrated oil companies, independent gasoline service stations, convenience stores, fast food stores, and other similar retail outlets, some of which are

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well-recognized national or regional retail systems. The number of competitors varies depending on the geographical area. It also varies with gasoline and convenience store offerings. This competition is expected to continue. The principal competitive factors affecting Sunoco’s retail marketing operations include site location, product price, selection and quality, appearance and cleanliness, hours of operation, store safety, customer loyalty and brand recognition.

Sunoco competes by pricing gasoline competitively, combining its retail gasoline business with convenience stores that provide a wide variety of products, and using advertising and promotional campaigns. Sunoco believes that it is in a position to compete effectively as a marketer of refined products because of the location of its Northeast and Midwest refineries and retail network which are well integrated with the distribution system owned by Sunoco Logistics Partners L.P., the master limited partnership that is 47.9 percent owned by Sunoco.

Sunoco’s chemical business is largely a commodities business and competes with local, regional, national and international companies, some of which have greater financial, research and development, production and other resources than Sunoco. Although competitive factors may vary among product lines, in general, Sunoco’s competitive position is primarily based on raw material costs, selling prices, product quality, manufacturing technology, access to new markets, proximity to the market and customer service and support. Sunoco’s competitors can be expected in the future to improve technologies, expand capacity, and, in certain product lines, develop and introduce new products. While there can be no assurances of its ability to do so, Sunoco believes that it will have sufficient resources to maintain its current position. Sunoco faces similarly strong competition in the sale of base oil lubricant products.

Logistics operations are very competitive. Generally, pipelines are the lowest cost method for long-haul, overland movement of crude oil and refined products. Therefore, the most significant competitors for large volume shipments in the areas served by the Partnership’s pipelines are other pipelines. However, high capital requirements, environmental considerations and the difficulty in acquiring rights-of-way and related permits make it difficult for other companies to build competing pipelines in areas served by the Partnership’s pipelines. As a result, competing pipelines are likely to be built only in those cases in which strong market demand and attractive tariff rates support additional capacity in an area. In addition, pipeline operations face competition from trucks that deliver product in a number of areas that the Partnership’s pipeline operations serve. While their costs may not be competitive for longer hauls or large volume shipments, trucks compete effectively for incremental and marginal volumes in many areas served by the Partnership’s pipelines. The Partnership’s refined product terminals compete with other independent terminals in regards to price, versatility and services provided. The competition primarily comes from integrated petroleum companies, refining and marketing companies, independent terminal companies and distribution companies with marketing and trading operations.

Cokemaking operations are also highly competitive. Current production from Sunoco’s cokemaking business is largely committed under long-term contracts; therefore, competition mainly impacts its ability to obtain new contracts supporting development of additional production capacity, both in the United States and internationally. The principal competitive factors affecting Sunoco’s cokemaking business include coke quality and price, technology, reliability of supply, proximity to market, access to metallurgical coal, and environmental performance. Competitors include conventional chemical by-product coke oven engineering and construction companies, other merchant coke producers and engineering companies that are attempting to develop heat-recovery cokemaking technology. Most of the world’s coke production capacity is owned by integrated steel companies utilizing conventional chemical by-product coke oven technology. The international merchant coke market is largely supplied by Chinese producers. Sunoco believes it is well-positioned to compete with other coke producers since its proven proprietary technology allows Sunoco to construct coke plants

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that, when compared to other proven technologies, are more environmentally benign, produce consistently higher quality coke, are substantially less costly to build, and require significantly fewer workers to operate.

Research and Development

Sunoco’s research and development activities are currently focused on applied research, process and product development, and engineering and technical services related to chemicals. Sunoco spent $12, $13 and $14 million on research and development activities in 2005, 2004 and 2003, respectively. As of December 31, 2005, approximately 100 scientists, engineers, technicians and support personnel participated in these activities. Sunoco owns or has made application for numerous patents.

Employees

As of December 31, 2005, Sunoco had approximately 13,800 employees compared to approximately 14,200 employees as of December 31, 2004. The decrease is primarily attributable to a decline in the number of Company-operated convenience stores and service stations in connection with the Company’s Retail Portfolio Management program, partially offset by an increase in employees in cokemaking operations, which is due to the commencement of operations at the Haverhill facility in March 2005. Approximately 6,100 of Sunoco’s employees as of December 31, 2005 were employed in Company-operated convenience stores and service stations and in the Company’s heating products business. Approximately 20 percent of Sunoco’s employees were covered by 45 collective bargaining agreements as of December 31, 2005. The collective bargaining agreements have various terms and dates of expiration. In management’s opinion, Sunoco has a good relationship with its employees.

Environmental Matters

Sunoco is subject to extensive and frequently changing federal, state and local laws and regulations, including, but not limited to, those relating to the discharge of materials into the environment or that otherwise deal with the protection of the environment, waste management and the characteristics and composition of fuels. As with the industry generally, compliance with existing and anticipated laws and regulations increases the overall cost of operating Sunoco’s businesses. These laws and regulations have required, and are expected to continue to require, Sunoco to make significant expenditures of both a capital and an expense nature. For additional information regarding Sunoco’s environmental matters, see “Environmental Matters” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2005 Annual Report to Shareholders.

ITEM 1A. RISK FACTORS

Our business faces significant risks. The risks described below may not be the only risks we face. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition, results of operations or prospects could be affected materially and adversely.

Volatility in refined product and chemicals margins could materially affect our business and operating results.

Our profitability depends to a large extent upon the relationship between the price we pay for crude oil and other feedstocks, and the wholesale prices at which we sell our refined products and chemicals. The volatility of prices for crude oil and other feedstocks, refined products and chemicals, and the overall balance of supply and demand for these commodities, could have a significant impact on

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this relationship. Retail marketing margins also have been historically volatile, and vary with wholesale prices, the level of economic activity in our marketing areas and as a result of various logistical factors. In many cases, it is very difficult to increase retail gasoline and chemical prices quickly enough to recover increases in the costs of products being sold. We may experience significant changes in our results of operations also due to variations in the level of refined product imports into the United States, changes in product mix or competition in pricing. In addition, our profit margins may decline as a direct result of unpredictable factors in the global marketplace, many of which are beyond our control, including:

• Cyclical nature of the businesses in which we operate: Refined product inventory levels and demand, crude oil price levels and availability and refinery utilization rates are all cyclical in nature. Historically, both the chemicals industry and the refining industry have experienced periods of inadequate capacity and tight supply, causing prices and profit margins to increase, and periods of excess capacity, resulting in oversupply and declining capacity utilization rates, prices and profit margins. The cyclical nature of these businesses results in volatile profits and cash flows over the business cycle.

• Changes in energy and raw material costs: We purchase large amounts of energy and raw materials for our businesses. The aggregate cost of these purchases represents a substantial portion of our cost of doing business. The prices of energy and raw materials generally follow price trends for crude oil and natural gas, which may be highly volatile and cyclical. Furthermore, across our businesses, there are a limited number of suppliers for some of our raw materials and utilities and, in some cases, the number of sources for and availability of raw materials is specific to the particular geographic region in which a facility is located. Accordingly, if one of these suppliers were unable to meet its obligations under present supply arrangements or were unwilling to sell to us, we could suffer reduced supplies or be forced to incur increased costs for our raw materials.

• Geopolitical instability: Instability in the global economic and political environment can lead to volatility in the costs and availability of energy and raw materials, and in the prices for refined products and chemicals. This may place downward pressure on our results of operations. This is particularly true of developments in and relating to oil-producing countries, including terrorist activities, military conflicts, embargoes, internal instability or actions or reactions of governments in anticipation of, or in response to, such developments.

• Changes in transportation costs: We utilize the services of third parties to transport crude oil and refined products to and from our refineries. The cost of these services is significant and prevailing rates can be very volatile depending on market conditions. Increases in crude oil or refined product transportation rates could result in increased raw material costs or product distribution costs.

It is possible that any, or a combination, of these occurrences could have a material adverse effect on our business or results of operations.

Weather conditions and natural disasters could materially and adversely affect our business and operating results.

The effects of weather conditions and natural disasters can lead to volatility in the costs and availability of energy and raw materials or negatively impact our operations or those of our customers and suppliers, which could have a significant adverse effect on our business and results of operations.

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Our inability to obtain adequate supplies of crude oil could affect our business and future operating results in a materially adverse way.

We meet all of our crude oil requirements through purchases from third parties. Most of the crude oil processed at our refineries is light-sweet crude oil. It is possible that an adequate supply of crude oil or other feedstocks may not be available to our refineries to sustain our current level of refining operations. In addition, our inability to process significant quantities of less-expensive heavy-sour crude oil could be a competitive disadvantage.

We purchase crude oil from different regions throughout the world, including a significant portion from West Africa, particularly Nigeria, and we are subject to the political, geographic and economic risks of doing business with suppliers located in these regions, including:

• trade barriers;

• national and regional labor strikes;

• political unrest;

• increases in duties and taxes; and

• changes in laws and policies governing foreign companies.

Substantially all of these purchases are made in the spot market, or under short-term contracts. In the event that we are unable to obtain crude oil in the spot market, or one or more of our supply arrangements is terminated or cannot be renewed, we may not be able to find alternative sources of supply. In addition, we could experience an interruption of supply or an increased cost to deliver refined products to market if the ability of the pipelines or vessels to transport crude oil or refined products is disrupted because of accidents, governmental regulation or third-party action. If we cannot obtain adequate crude oil volumes of the type and quality we require, or if we are able to obtain such types and volumes only at unfavorable prices, our results of operations could be affected in a materially adverse way.

We are subject to numerous environmental laws and regulations that require substantial expenditures and affect the way we operate, which could affect our business, future operating results or financial position in a materially adverse way.

We are subject to extensive federal, state and local laws and regulations, including those relating to the protection of the environment, waste management, discharge of hazardous materials, and the characteristics and composition of refined products. Certain of these laws and regulations also require assessment or remediation efforts at many of our facilities and at formerly owned or third-party sites. Environmental laws and regulations may impose liability on us for the conduct of third parties, or for actions that complied with applicable requirements when taken, regardless of negligence or fault. Environmental laws and regulations are subject to frequent change, and often become more stringent over time. Of particular significance to us are:

• Methyl Tertiary Butyl Ether, or MTBE, remediation requirements: We currently use, and have used, MTBE in our Northeast U.S. refining and marketing operations to meet the oxygenate requirements for reformulated gasoline. Levels of MTBE and related constituents in groundwater are regulated by various government entities, some of which have banned or are considering a ban or phase-down of the use of MTBE. We have been required to engage in significant remediation activities at our marketing sites. Future costs for environmental remediation activities at our marketing sites will be influenced by the extent of MTBE contamination of groundwater, the cleanup of which is driven by thresholds based on drinking water protection. Though not all groundwater is used for drinking, several states have initiated

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or proposed more stringent MTBE cleanup requirements. Cost increases result directly from extended remedial operations and maintenance on sites that, under prior standards, could otherwise have been completed. Cost increases will also result from installation of additional remedial or monitoring wells and purchase of more expensive equipment because of the presence of MTBE. While actual cleanup costs for specific sites are variable and depend on many of the factors discussed above, expansion of similar MTBE remediation thresholds to additional states or adoption of even more stringent requirements for MTBE remediation would result in further cost increases.

• Limitations on sulfur content of gasoline and on-road diesel fuels: The U.S. Environmental Protection Agency, or EPA, has adopted rules under the Clean Air Act that phase in limitations on the sulfur content of gasoline beginning in 2004 and the sulfur content of on-road diesel fuel beginning in mid-2006. We expect these rules to have a significant impact on us and our operations, primarily on capital and operating expenditures at our refineries. The capital spending to comply with these rules is expected to be essentially completed in 2006, and we will incur higher operating costs as we continue to produce the low-sulfur fuels. We estimate that total capital outlays to comply with these new low-sulfur gasoline and on-road diesel fuel requirements will be approximately $750 million. Capital spending to meet these requirements totaled $637 million through December 31, 2005. In May 2004, the EPA adopted a third rule which will phase in limitations on the allowable sulfur content in off-road diesel fuel beginning in mid-2007. This new rule could have a significant impact on us and our operations.

• National Ambient Air Quality Standards: In 1997, the EPA promulgated new, more stringent National Ambient Air Quality Standards for ozone and fine particles, which has resulted in identification of non-attainment areas throughout the country, including Texas, Pennsylvania, Ohio, New Jersey and West Virginia, where we operate facilities. In 2004, the EPA issued final non-attainment area designations for ozone and fine particles. These standards will result in further controls of nitrogen oxide, sulfur dioxide and volatile organic compound emissions. The EPA has designated certain areas, including Philadelphia and Houston, as “moderate” non-attainment areas for ozone, which would require them to meet the ozone requirements by 2010, before currently mandated federal control programs would take effect. If a region is not able to demonstrate attainment by 2010, there would be more stringent offset requirements, and, if a region cannot submit an approvable State Implementation Plan, there could be a moratorium on new highway projects and imposition of a Federal Implementation Plan, including potentially significant lifestyle changes to bring the region to attainment. Regulatory programs, when established to implement the EPA’s standards, could have an impact on us and our operations. However, while the potential financial impact cannot be reasonably estimated until the EPA promulgates regulatory programs to attain the standards, and the states, as necessary, develop and implement revised State Implementation Plans to respond to the new regulations, it is possible that the new regulations will result in increased costs to us.

• Natural resource damages: Certain federal and state government regulators have undertaken to seek compensation from companies like us for natural resource damages as an adjunct to remediation programs. Because we are involved in a number of remediation sites, a substantial increase in natural resource damage claims could result in substantially increased costs to us.

We also are subject to liabilities resulting from our current and past operations, including legal and administrative proceedings related to product liability, leaks from pipelines and underground storage tanks, premises-liability claims, allegations of exposures of third parties to toxic substances and general environmental claims.

Compliance with current and future environmental laws and regulations likely will require us to make significant expenditures, increasing the overall cost of operating our businesses, including capital

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costs to construct, maintain and upgrade equipment and facilities. Our failure to comply with these laws and regulations could result in substantial fines or penalties against us or orders that could limit our operations and have a material adverse effect on our business or results of operations.

Product liability claims and litigation could adversely affect our business and results of operations.

Product liability is a significant commercial risk. Substantial damage awards have been made in certain jurisdictions against manufacturers and resellers based upon claims for injuries caused by the use of various products.

Along with other refiners, manufacturers and sellers of gasoline, owners and operators of retail gasoline sites, and manufacturers of MTBE, we are a defendant in approximately 60 cases in 16 states involving the manufacture and use of MTBE in gasoline and MTBE contamination in groundwater. The plaintiffs, which include private well owners, water providers and certain governmental authorities, are seeking compensatory damages (and in some cases injunctive relief, punitive damages and attorneys’ fees) for claims relating to the alleged manufacture and distribution of a defective product (MTBE-containing gasoline), and general allegations of groundwater contamination, nuisance, trespass, negligence, failure to warn, violation of environmental laws and deceptive business practices. All of the public water provider cases have been removed to federal court and consolidated for pretrial purposes in the U.S. District Court for the Southern District of New York (MDL 1358). Motions to remand these cases to state court have been denied. Motions to dismiss were denied. Discovery is proceeding in four focus cases. We are the defendant in three of those cases. In addition, several of the private well owner cases are moving forward. We are a focus defendant in two of those cases. To date, insufficient information has been developed about the plaintiffs’ legal theories or the facts that would be relevant to an analysis of potential exposure. Accordingly, we have not been able to comprehensively evaluate our exposure in these cases. There can be no assurance that these or other product liability claims against us would not have a material adverse effect on our business or results of operations.

Federal and state legislation could have a significant impact on market conditions and adversely affect our business and results of operations.

Following the disruption to energy supply that occurred in the Gulf Coast region in connection with Hurricanes Katrina and Rita, federal energy policy legislation is being considered by the U.S. Congress. Any federal or state legislation could have a significant impact on market conditions and could adversely affect our business or results of operations in a material way.

Disputes under long-term contracts could affect our business and future operations in a materially adverse way.

We have numerous long-term contractual arrangements across our businesses which frequently include complex provisions. Interpretation of these provisions may at times lead to disputes with customers and/or suppliers. Unfavorable resolutions of these disputes could have a significant adverse affect on our business and results of operations.

Competition from companies having greater financial and other resources than we do could materially and adversely affect our business and results of operations.

We compete with domestic refiners and marketers in the northeastern United States and on the U.S. Gulf Coast, and with foreign refiners that import products into the United States. In addition, we compete with producers and marketers in other industries that supply alternative forms of energy and

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fuels to satisfy the requirements of our industrial, commercial and individual consumers. Certain of our competitors have larger and more complex refineries, and may be able to realize lower per barrel costs or higher margins per barrel of throughput. Several of our principal competitors are integrated national or international oil companies that are larger and have substantially greater resources than we do. Unlike these competitors, which have access to proprietary sources of controlled crude oil production, we obtain substantially all of our feedstocks from unaffiliated sources. Because of their integrated operations and larger capitalization, these companies may be more flexible in responding to volatile industry or market conditions, such as shortages of crude oil and other feedstocks or intense price fluctuations.

We also face strong competition in the market for the sale of retail gasoline and merchandise. Our competitors include service stations operated by fully integrated major oil companies and other well- recognized national or regional retail outlets, often selling gasoline or merchandise at aggressively competitive prices.

Our chemicals business competes with local, regional, national and international companies, some of which have greater financial, research and development, production and other resources than we do. We also face similarly strong competition in the sale of base oil lubricant products.

The actions of our competitors could lead to lower prices, or reduced margins, for the products we sell which could have an adverse effect on our business or results of operations.

Our operations are subject to operational hazards and unforeseen interruptions for which we may not be adequately insured, and from which we could suffer losses.

Our operations are subject to hazards and risks inherent in refining operations, chemical manufacturing and cokemaking and coal mining operations and the transportation and storage of crude oil, refined products and chemicals. These risks include explosions, fires, spills, adverse weather, natural disasters, mechanical failures, security breaches at our facilities, labor disputes and maritime accidents, any of which could result in loss of life or equipment, business interruptions, environmental pollution, personal injury and damage to our property and that of others. Our refineries, chemical plants, cokemaking and coal mining facilities, pipelines and storage facilities also may be potential targets for terrorist attacks.

We maintain insurance against many, but not all, potential losses or liabilities arising from operating hazards in amounts that we believe to be prudent. As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially, and in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage. For example, insurance carriers now require broad exclusions for losses due to terrorist acts and acts of war. If we were to suffer a significant loss or incur significant liability for which we were not adequately insured, it could have a material adverse effect on our financial position.

If we are unable to complete capital projects at their expected costs and/or in a timely manner, or if the market conditions assumed in our project economics deteriorate, our financial condition, results of operations or cash flows could be materially and adversely affected.

Delays or cost increases related to capital spending programs involving construction of new facilities (or improvements and repairs to our existing facilities) could adversely affect our ability to achieve forecasted internal rates of return and operating results. Delays in making required changes or upgrades to our facilities could subject us to fines or penalties as well as affect our ability to supply

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certain products we make. Such delays or cost increases may arise as a result of unpredictable factors in the marketplace, many of which are beyond our control, including:

• denial or delay in issuing requisite regulatory approvals and/or permits;

• unplanned increases in the cost of construction materials or labor;

• disruptions in transportation of modular components and/or construction materials;

• severe adverse weather conditions, natural disasters or other events (such as equipment malfunctions, explosions, fires or spills) affecting our facilities, or those of vendors and suppliers;

• shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages;

• market-related increases in a project’s debt or equity financing costs; and/or

• nonperformance by, or disputes with, vendors, suppliers, contractors or sub-contractors involved with a project.

Our forecasted internal rates of return are also based upon our projections of future market fundamentals which are not within our control, including changes in general economic conditions, available alternative supply and customer demand.

Any one or more of these factors could have a significant impact on our business. If we were unable to make up the delays associated with such factors or to recover the related costs, or if market conditions change, it could materially and adversely affect our financial position, results of operations or cash flows.

From time to time, our short-term cash needs may exceed our internally generated cash flow, and our business could be materially and adversely affected if we are not able to obtain the necessary funds from financing activities.

We have substantial short-term cash needs. These cash needs are primarily to satisfy working capital requirements, including crude oil purchases which fluctuate with the pricing and sourcing of crude oil. Our crude oil purchases generally have terms that are longer than the terms of our product sales. When the price we pay for crude oil decreases, this typically results in a reduction in cash generated from our operations. Our cash needs also include capital expenditures for base infrastructure, environmental and other regulatory compliance, maintenance turnarounds at our refineries and income improvement projects.

From time to time, our short-term cash requirements may exceed our cash generation. During such periods, we may need to supplement our cash generation with proceeds from financing activities. We cannot assure you that we will be able to obtain the necessary funds from financing activities (or that such funds will be available on favorable terms) to satisfy our short-term cash requirements. Our failure to do so could have a material adverse effect on our business.

We have various credit agreements and other financing arrangements that impose certain restrictions on us and may limit our flexibility to undertake certain types of transactions. If we fail to comply with the terms and provisions of our debt instruments, the indebtedness under them may become immediately due and payable, which could have a material adverse effect on our financial position.

Several of our existing debt instruments and financing arrangements contain customary restrictive covenants that limit our financial flexibility and that of our subsidiaries. Our credit facility

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requires the maintenance of certain financial ratios, satisfaction of certain financial condition tests and, subject to certain exceptions, imposes restrictions on:

• incurrence of additional indebtedness;

• issuance of preferred stock by our subsidiaries;

• incurrence of liens;

• sale and leaseback transactions;

• agreements by our subsidiaries which would limit their ability to pay dividends, make distributions or repay loans or advances to us; and

• fundamental changes, such as certain mergers and dispositions of assets.

Sunoco Logistics Partners L.P., the master limited partnership in which we hold a 47.9 percent interest, has a credit facility that contains similar covenants and also includes limitations on distributions to third-party partnership unit holders and to us. Increased borrowings by this subsidiary will raise the level of our total consolidated net indebtedness, and could restrict our ability to borrow money or otherwise incur additional debt.

If we do not comply with the covenants and other terms and provisions of our credit facilities, we will be required to request a waiver under, or an amendment to, those facilities. If we cannot obtain such a waiver or amendment, or if we fail to comply with the covenants and other terms and provisions of our indentures, we would be in default under our debt instruments, which may cause the indebtedness under them to become immediately due and payable, which could have a material adverse effect on our financial position.

Our ability to meet our debt service obligations depends upon our future performance, which is subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. A portion of our cash flow from operations is needed to pay the principal of, and interest on, our indebtedness and is not available for other purposes. If we are unable to generate sufficient cash flow from operations, we may have to sell assets, refinance all or a portion of our indebtedness or obtain additional financing. We cannot assure you that we will be able to refinance our indebtedness, or that any such refinancing would be available on favorable terms.

Distributions from our subsidiaries may be inadequate to fund our capital needs, make payments on our indebtedness, and pay dividends on our equity securities.

As a holding company, we derive substantially all of our income from, and hold substantially all of our assets through, our subsidiaries. As a result, we depend on distributions of funds from our subsidiaries to meet our capital needs and our payment obligations with respect to our indebtedness. Our operating subsidiaries are separate and distinct legal entities and have no obligation to pay any amounts due with respect to our indebtedness or to provide us with funds for our capital needs or our debt payment obligations, whether by dividends, distributions, loans or otherwise. In addition, provisions of applicable law, such as those restricting the legal sources of dividends, could limit our subsidiaries’ ability to make payments or other distributions to us, or our subsidiaries could agree to contractual restrictions on their ability to make distributions.

Our rights with respect to the assets of any subsidiary and, therefore, the rights of our creditors with respect to those assets are effectively subordinated to the claims of that subsidiary’s creditors. In addition, if we were a creditor of any subsidiary, our rights as a creditor would be subordinate to any security interest in the assets of that subsidiary and any indebtedness of that subsidiary senior to that held by us.

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If we cannot obtain funds from our subsidiaries as a result of restrictions under our debt instruments, applicable laws and regulations, or otherwise, we may not be able to meet our capital needs, pay interest or principal with respect to our indebtedness when due or pay dividends on our equity securities and we cannot assure you that we will be able to obtain the necessary funds from other sources, or on terms that will be acceptable to us.

We may need to use current cash flow to fund our pension and postretirement health care obligations, which could have a significant adverse effect on our financial position.

We have substantial benefit obligations in connection with our noncontributory defined benefit pension plans that provide retirement benefits for about one-half of our employees. We have made contributions to the plans each year since 2002 to improve their funded status, and we expect to make additional contributions to the plans in the future as well. Future adverse changes in the equity markets, or decreases in interest rates, could result in significant charges to the accumulated other comprehensive loss component of shareholders’ equity and additional significant increases in future pension expense and funding requirements. We also have substantial benefit obligations in connection with our postretirement health care plans that provide health care benefits for substantially all of our retirees. These plans are unfunded and the costs are shared by us and our retirees. To the extent that we have to fund our pension and postretirement health care obligations with cash from operations, we may be at a disadvantage to some of our competitors who do not have the same level of retiree obligations that we have.

The financial performance of our coke business is dependent upon customers in the steel industry whose failure to perform under their contracts with us could adversely affect our coke business.

Substantially all of our coke sales are currently made under long-term contracts with two subsidiaries of Mittal Steel USA, Inc. Competition from foreign steelmakers or an economic slowdown could have an adverse impact on the U.S. steel industry. In the event of nonperformance by our steelmaking customers, our results of operations and cash flows may be adversely affected.

A portion of our workforce is unionized, and we may face labor disruptions that could materially and adversely affect our operations.

Approximately 20 percent of our employees, including all hourly workers in our Marcus Hook, Philadelphia and Toledo refineries, are covered by many collective bargaining agreements with various terms and dates of expiration. We cannot assure you that we will not experience a work stoppage in the future as a result of labor disagreements. A labor disturbance at any of our major facilities could have a material adverse effect on our operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 3. LEGAL PROCEEDINGS

Various lawsuits and governmental proceedings arising in the ordinary course of business are pending against the Company, as well as the lawsuits and proceedings discussed below:

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Administrative Proceedings

In June 2005, Sunoco, Inc. (R&M), a subsidiary of Sunoco, Inc., reached a global settlement relating to its refineries with the U.S. Environmental Protection Agency (“EPA”), and the Pennsylvania Department of Environmental Protection (“PADEP”), the City of Philadelphia Office of Air Management Services (“AMS”), the Ohio Environmental Protection Agency (“OEPA”), and the Oklahoma Department of Environmental Quality (“ODEQ”). (See the Company’s Form 10-Q for the quarterly period ended June 30, 2005.) The Consent Decree concerning this settlement was lodged with the U.S. District Court for the Eastern District of Pennsylvania in June 2005. A motion to enter the Consent Decree is pending. Under the Consent Decree, it is anticipated that Sunoco will make capital expenditures of approximately $275 million over an eight-year period in connection with the implementation of environmental improvement projects, will pay civil penalties aggregating $3 million to the EPA and the state and local agencies, and has committed to supplemental environmental projects of approximately $3.9 million. (For additional information see “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Capital Expenditures and Acquisitions” included in the 2005 Annual Report to Shareholders.)

Sun Pipe Line Company, a subsidiary of Sunoco, and other third parties, are shareholders of Mid-Valley Pipeline Company. In June 2005, Mid-Valley Pipeline Company, Sun Pipe Line Company, and Sunoco Pipeline L.P., a subsidiary of Sunoco Logistics Partners L.P. and the operator of Mid-Valley, received a letter from the U.S. Department of Justice, on behalf of the EPA, informing the companies of its intent to pursue court action seeking civil penalties for violations of the Clean Water Act. The violations arise from a release in November 2000 in Louisiana (see the Company’s Form 10-K for the fiscal year ended December 31, 2002) and a release in January 2005 in Kentucky. Penalties are reasonably likely to be in excess of $100,000. In addition, in June 2005, the Kentucky Environmental and Public Protection Cabinet initiated an administrative action against Mid-Valley Pipeline Company, in connection with the January 2005 release in Kentucky, seeking civil penalties and reimbursement of costs in excess of $100,000 (see the Company’s Form 10-Q for the quarterly period ended June 30, 2005).

In January 2004, Sunoco, Inc. and one of its independent dealers received an administrative order and notice of civil administration penalty assessment in excess of $100,000 from the New Jersey Department of Environmental Protection (“NJDEP”) alleging failure to remediate discharges at a service station location in Towaco, NJ and failure to submit and implement a remedial action work plan addendum for the site. (See the Company’s Form 10-K for the fiscal year ended December 31, 2003 and the Company’s Form 10-Q for the quarterly period ended March 31, 2004.) The location was formerly owned by Sunoco and sold to the dealer.

In January 2006, Sunoco, Inc. (R&M) received a demand from EPA and NJDEP for stipulated penalties in excess of $100,000 for failure to meet a deadline for complying with the requirements of New Source Performance Standards under the Clean Air Act for flaring devices at its Eagle Point facility. The deadline was set forth in a Consent Decree entered into in December 2003 prior to Sunoco’s acquisition of the facility.

MTBE Litigation

Sunoco is a defendant in approximately 60 lawsuits in 16 states, which involve the manufacture and use of MTBE in gasoline and MTBE contamination in groundwater. The lawsuits are substantially identical and the plaintiffs are generally private well owners, water providers and governmental authorities alleging that refiners and suppliers of gasoline containing MTBE are responsible for manufacturing and distributing a defective product. Many other refiners and suppliers of gasoline are defendants in some or all of these cases. All of the public water provider cases have been removed to

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federal court and consolidated for pre-trial purposes in the U.S. District Court for the Southern District of New York (MDL 1358). Motions to remand these cases to their respective state courts have been denied. Joint motions to dismiss all or a portion of each of the cases were filed and the judge generally denied defendants’ motions, except for County of Suffolk and Suffolk County Water Authority v. Sunoco, et al., where such motion was denied prior to the consolidation. The cases assert product liability claims as well as causes of action for public and private nuisance, negligence, civil conspiracy, violation of environmental laws, and violation of state deceptive business practices acts. Plaintiffs are seeking compensatory damages, and in some cases injunctive relief, exemplary and punitive damages and attorneys’ fees. The cases include the following:

County of Suffolk and Suffolk County Water Authority v. Sunoco, et al. (Supreme Court of the State of New York, County of Suffolk), was served in January 2003.

County of Nassau v. Sunoco, et al. (Supreme Court of the State of New York, County of New York), was served in October 2003.

Long Island Water Corporation v. Sunoco, et al. (Supreme Court of the State of New York, County of Nassau), was served in October 2003.

Water Authority of Great Neck North v. Sunoco, et al. (Supreme Court of the State of New York, County of Nassau), was served in November 2003.

Water Authority of Western Nassau County v. Sunoco, et al. (Supreme Court of the State of New York, County of New York), was served in November 2003.

Port Washington, NY, et al. v. Sunoco, et al. (Supreme Court of the State of New York, County of Nassau), was served in March 2004.

Incorporated Village of Sands Point v. Sunoco, et al. (Supreme Court of the State of New York, County of Nassau), was served in January 2004.

Hicksville Water District v. Sunoco, et al. (Supreme Court of the State of New York, County of Nassau), was served in April 2004.

Roslyn Water District v. Sunoco, et al. (Supreme Court of the State of New York, County of Nassau), was served in May 2004.

Franklin Square Water District v. Sunoco, et al. (Supreme Court of the State of New York, County of Nassau), was served in April 2004.

Town of Wappinger v. Sunoco, et al. (Supreme Court of the State of New York, County of Duchess), was served in April 2004.

United Water New York, Inc. v. Sunoco, et al. (Supreme Court of the State of New York, County of Rockland), was served in April 2004.

Village of Pawling v. Sunoco, et al. (Supreme Court of the State of New York, County of Duchess), was served in April 2004.

Town of Duxbury, et al. v. Sunoco, et al. (U.S. D. C., District of Massachusetts, E. D.), was served in December 2003.

Escambia County Utilities Authority v. Sunoco, Inc., et al. (Florida Circuit Court for Escambia County), was served in November 2003.

The following cases were brought by private well owners and contain similar allegations and remain in state court:

Armstrong, et al. v. Sunoco, et al. (Supreme Court of the State of New York, County of Orange), was served in June 2003.

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Abrevaya, et al. v. Sunoco, et al. (Supreme Court of the State of New York, County of Orange), was served in November 2003.

Up to this point, for the group of MTBE cases currently pending, there has been insufficient information developed about the plaintiffs’ legal theories or the facts that would be relevant to an analysis of potential exposure. Based on the current law and facts available at this time, Sunoco believes that these cases will not have a material adverse effect on its consolidated financial position.

Many other legal and administrative proceedings are pending or possible against Sunoco from its current and past operations, including proceedings related to commercial and tax disputes, product liability, antitrust, employment claims, leaks from pipelines and underground storage tanks, natural resource damage claims, premises-liability claims, allegations of exposures of third parties to toxic substances (such as benzene or asbestos) and general environmental claims. Although the ultimate outcome of these proceedings cannot be ascertained at this time, it is reasonably possible that some of them could be resolved unfavorably to Sunoco. Management of Sunoco believes that any liabilities that may arise from such proceedings would not be material in relation to Sunoco’s business or consolidated financial position at December 31, 2005.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

Executive Officers of Sunoco, Inc.

Name, Age and Present Position with Sunoco, Inc.	Business Experience During Past Five Years
Terence P. Delaney, 50 Vice President, Investor Relations and Planning	Mr. Delaney was elected to his present position in January 2003. He was Director, Investor Relations and Strategic Planning from April 2000 to January 2003.
Michael H.R. Dingus, 57 Senior Vice President, Sunoco, Inc., and President, Sun Coke Company	Mr. Dingus was elected Senior Vice President, Sunoco, Inc. in January 2002. He was elected a Vice President of Sunoco, Inc. in May 1999 and President, Sun Coke Company in June 1996.
John G. Drosdick, 62 Chairman, Chief Executive Officer and President, Sunoco, Inc., and Chairman of the Board of Directors, Sunoco Partners LLC	Mr. Drosdick was elected Chairman and Chief Executive Officer of Sunoco, Inc. in May 2000. He has been a Director and President of Sunoco, Inc. since December 1996. He was also Chief Operating Officer of Sunoco, Inc. from December 1996 to May 2000. Mr. Drosdick has been Chairman of the Board of Sunoco Partners LLC, a subsidiary of Sunoco, Inc. and the general partner of Sunoco Logistics Partners L.P., since October 2001.
Bruce G. Fischer, 50 Senior Vice President, Sunoco Chemicals	Mr. Fischer was elected to his present position in January 2002. He was Vice President, Sunoco Chemicals from November 2000 to January 2002.

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Name, Age and Present Position with Sunoco, Inc.	Business Experience During Past Five Years
Michael J. Hennigan, 46 Senior Vice President, Supply, Trading, Sales and Transportation	Mr. Hennigan was elected to his present position in February 2006. He was Vice President, Product Trading, Sales and Supply from March 2001 to February 2006 and General Manager, Northeast Refining Wholesale Fuels, Marketing and Product Supply from October 2000 to March 2001.
Thomas W. Hofmann, 54 Senior Vice President and Chief Financial Officer	Mr. Hofmann was elected to his present position in January 2002. He was Vice President and Chief Financial Officer from July 1998 to January 2002.
Vincent J. Kelley, 46 Senior Vice President, Refining	Mr. Kelley was elected to his present position in February 2006. He was Vice President, Northeast Refining from March 2001 to February 2006 and Manager, Philadelphia Refinery from September 2000 to March 2001.
Joseph P. Krott, 42 Comptroller	Mr. Krott was elected to his present position in July 1998.
Michael S. Kuritzkes, 45 Senior Vice President and General Counsel	Mr. Kuritzkes was elected to his present position in January 2003. He was Vice President and General Counsel from May 2000 to January 2003.
Joel H. Maness, 55 Executive Vice President, Refining and Supply	Mr. Maness was elected to his present position in February 2006. He was Senior Vice President, Refining and Supply from September 2001 to February 2006 and Senior Vice President, Sunoco Northeast Refining from November 2000 to September 2001.
Paul A. Mulholland, 53 Treasurer	Mr. Mulholland was elected to his present position in April 2000.
Rolf D. Naku, 55 Senior Vice President, Human Resources and Public Affairs	Mr. Naku was elected to his present position in January 2003. He was Vice President, Human Resources and Public Affairs from May 2000 to January 2003.
Robert W. Owens, 52 Senior Vice President, Marketing	Mr. Owens was elected to his present position in September 2001. He was Senior Vice President, Sunoco Northeast Marketing from May 2000 to September 2001.
Charles K. Valutas, 55 Senior Vice President and Chief Administrative Officer	Mr. Valutas was elected to his present position in May 2000.

32

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table provides a summary of all repurchases by the Company of its common stock during the three-month period ended December 31, 2005:

Period	Total Number Of Shares Purchased (In Thousands)*	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (In Thousands)**	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (In Millions)**
October 2005	—	$	—	—	$	568
November 2005	3,557	$	75.56	3,555	$	299
December 2005	338	$	83.58	—	$	306
Total	3,895	$	76.26	3,555

  * All of the shares repurchased during the three-month period ended December 31, 2005 were acquired pursuant to the repurchase programs that Sunoco publicly announced on September 2, 2004 and on March 3, 2005 (see below), except for 2 thousand shares acquired in November 2005 and 338 thousand shares acquired in December 2005, which were purchased from employees. These shares were acquired in connection with stock swap transactions related to the exercise of stock options and with the settlement of tax withholding obligations arising from payment of common stock unit awards.

** In September 2004, the Company’s Board of Directors (“Board”) approved a $500 million share repurchase program with no stated expiration date. On March 3, 2005, Sunoco publicly announced that its Board approved an additional $500 million share repurchase program with no stated expiration date.

The other information required by this Item is incorporated herein by reference to the Quarterly Financial and Stock Market Information on page 73 of the Company’s 2005 Annual Report to Shareholders.

ITEM 6. SELECTED FINANCIAL DATA

The information required by this Item is incorporated herein by reference to the Selected Financial Data on page 72 of the Company’s 2005 Annual Report to Shareholders.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information required by this Item is incorporated herein by reference to pages 7-39 in the Company’s 2005 Annual Report to Shareholders.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this Item is incorporated herein by reference to the Quantitative and Qualitative Disclosures about Market Risk on page 32 in the Company’s 2005 Annual Report to Shareholders.

33

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following information in the Company’s 2005 Annual Report to Shareholders is incorporated herein by reference: the Report of Independent Registered Public Accounting Firm on Financial Statements on page 42; the Consolidated Financial Statements on pages 43-46; the Notes to Consolidated Financial Statements on pages 47-70; and the Quarterly Financial and Stock Market Information on page 73.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Exchange Act, as of the end of the period covered by this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chairman, Chief Executive Officer and President and the Company’s Senior Vice President and Chief Financial Officer. Based upon that evaluation, the Company’s Chairman, Chief Executive Officer and President and the Company’s Senior Vice President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

Disclosure controls and procedures are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chairman, Chief Executive Officer and President and the Company’s Senior Vice President and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting and assessing the effectiveness of such controls. Management’s Report on Internal Control Over Financial Reporting in the Company’s 2005 Annual Report to Shareholders on page 40 and the Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting in the Company’s 2005 Annual Report to Shareholders on page 41 are incorporated herein by reference.

There have been no changes in the Company’s internal control over financial reporting during the fourth quarter of 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information on directors required by Item 401 of Regulation S-K appearing under the heading “Nominees for the Board of Directors” and the section entitled “Board and Committee Membership,” under the heading “Governance of the Company,” and the information required by Item 405 of Regulation S-K appearing under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive Proxy Statement (“Proxy Statement”), which will be filed with the Securities and Exchange Commission (“SEC”) within 120 days after December 31, 2005, is incorporated herein by reference.

Information concerning the Company’s executive officers appears in Part I of this Annual Report on Form 10-K.

Sunoco, Inc. has a Code of Business Conduct and Ethics (the “Code”), which applies to all officers, directors and employees, including the chief executive officer, the principal financial officer, the principal accounting officer and persons performing similar functions. A copy of the Code can be found on Sunoco’s website (www.SunocoInc.com). It is also available in printed form upon request. Sunoco intends to disclose on its website the nature of any future amendments to and waivers of the Code of Ethics that apply to the chief executive officer, the principal financial officer, the principal accounting officer or persons performing similar functions.

Sunoco’s Corporate Governance Guidelines and the Charters of its Audit, Compensation, Executive, Governance, and Public Affairs Committees are available on its website (www.SunocoInc.com), and are also available in printed form upon request.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 402 of Regulation S-K appearing under the heading “Executive Compensation,” including the sections entitled “Summary Compensation Table,” “Aggregated Option/ SAR Exercises and Year-End Values,” “Option Grant Table,” and “Other Long-Term Incentive Awards,” and under the headings “Other Compensation,” “Pension Plans,” “Severance Plans,” and “Directors’ Compensation,” in the Company’s Proxy Statement, which will be filed with the SEC within 120 days after December 31, 2005, is incorporated herein by reference, except that the Report of the Compensation Committee and the Stock Performance Graph contained in the Proxy Statement are specifically excluded from incorporation by reference herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 403 of Regulation S-K appearing under the heading “Directors’ and Officers’ Ownership of Sunoco Stock” in the Company’s Proxy Statement and the information required by Item 201(d) of Regulation S-K appearing in the section entitled “Equity Compensation Plan Information” under the heading “Governance of the Company” in the Company’s Proxy Statement, which will be filed with the SEC within 120 days after December 31, 2005, is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 404 of Regulation S-K appearing in the section entitled “Certain Relationships and Related Transactions” under the heading “Other Governance Matters” in the Company’s Proxy Statement, which will be filed with the SEC within 120 days after December 31, 2005, is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 9(e) of Schedule 14A appearing in the section entitled “Item 3. Ratification of the Appointment of Ernst & Young LLP as Independent Registered Public Accounting Firm for the Fiscal Year 2006” under the heading “Proposals on Which You May Vote” in the Company’s Proxy Statement, which will be filed with the SEC within 120 days after December 31, 2005, is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)  The following documents are filed as a part of this report:

1.  Consolidated Financial Statements:

The information appearing in the Company’s 2005 Annual Report to Shareholders as described in Item 8 is incorporated herein by reference.

2.  Financial Statement Schedules:

Schedule II—Valuation Accounts is included on page 41 of this Form 10-K. Other schedules are omitted because the required information is shown elsewhere in this report, is not necessary or is not applicable.

3.  Exhibits:

3.(i)	—Articles of Incorporation of Sunoco, Inc., as amended and restated effective as of March 1, 2006.
3.(ii)	—Sunoco, Inc. Bylaws, as amended and restated effective as of March 7, 2002 (incorporated by reference to Exhibit 3.(ii) of the Company’s 2001 Form 10-K filed March 7, 2002, File No. 1-6841).
4	—Instruments defining the rights of security holders of long-term debt of the Company and its subsidiaries are not being filed since the total amount of securities authorized under each such instrument does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company will provide the SEC a copy of any instruments defining the rights of holders of long-term debt of the Company and its subsidiaries upon request.
10.1*	—Sunoco, Inc. Long-Term Performance Enhancement Plan, as amended and restated as of December 3, 2003 (incorporated by reference to Exhibit 10.1 of the Company’s 2003 Form 10-K filed March 5, 2004, File No. 1-6841).
10.2*	—Sunoco, Inc. Long-Term Performance Enhancement Plan II, as amended and restated effective January 1, 2005 (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K dated December 6, 2005, File No. 1-6841).
10.3*	—Sunoco, Inc. Directors’ Deferred Compensation Plan I, as amended and restated effective January 1, 2005 (incorporated by reference to Exhibit 10.9 of the Company’s Current Report on Form 8-K dated December 6, 2005, File No. 1-6841).

36

10.4*	—Sunoco, Inc. Directors’ Deferred Compensation Plan II, adopted effective as of January 1, 2005 (incorporated by reference to Exhibit 10.10 of the Company’s Current Report on Form 8-K dated December 6, 2005, File No. 1-6841).
10.5*	—Sunoco, Inc. Deferred Compensation Plan, as amended effective January 1, 2005 and restated effective July 1, 2005 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated December 6, 2005, File No. 1-6841).
10.6*	—Sunoco, Inc. Pension Restoration Plan, as amended and restated effective January 1, 2005 (incorporated by reference to Exhibit 10.12 of the Company’s Current Report on Form 8-K dated December 6, 2005, File No. 1-6841).
10.7*	—Sunoco, Inc. Savings Restoration Plan, as amended and restated effective January 1, 2005 (incorporated by reference to Exhibit 10.11 of the Company’s Current Report on Form 8-K dated December 6, 2005, File No. 1-6841).
10.8*	—Sunoco, Inc. Executive Incentive Plan, as amended and restated as of March 1, 2006.
10.9*	—Sunoco, Inc. Executive Retirement Plan, as amended and restated effective January 1, 2005 (incorporated by reference to Exhibit 10.13 of the Company’s Current Report on Form 8-K dated December 6, 2005, File No. 1-6841).
10.10*	—Sunoco, Inc. Special Executive Severance Plan, as amended and restated as of February 6, 2003 (incorporated by reference to Exhibit 10.10 of the Company’s 2002 Form 10-K filed March 7, 2003, File No. 1-6841).
10.11*	—Sunoco, Inc. Executive Involuntary Severance Plan, as amended and restated effective January 1, 2005 (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K dated December 6, 2005, File No. 1-6841).
10.12*	—Sunoco, Inc. Retainer Stock Plan for Outside Directors, as amended and restated effective January 1, 2005 (incorporated by reference to Exhibit 10.14 of the Company’s Current Report on Form 8-K dated December 6, 2005, File No. 1-6841).
10.13*	—Form of Amended and Restated Indemnification Agreement, individually entered into between Sunoco, Inc. and various directors, officers and other key employees of the Company (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004 filed May 7, 2004, File No. 1-6841).
10.14*	—The Amended Schedule to the Form of Amended and Restated Indemnification Agreement.
10.15*	—Directors’ Deferred Compensation and Benefits Trust Agreement, by and among Sunoco, Inc., Mellon Trust of New England, N.A. and Towers, Perrin, Forster & Crosby, Inc., amended and restated as of December 23, 2002 (incorporated by reference to Exhibit 10.15 of the Company’s 2004 Form 10-K filed on March 4, 2005, File No. 1-6841).
10.16*	—Amended Schedule 2.1 to the Directors’ Deferred Compensation and Benefits Trust Agreement.

37

10.17*	—Deferred Compensation and Benefits Trust Agreement, by and among Sunoco, Inc., Mellon Trust of New England, N.A. and Towers, Perrin, Forster & Crosby, Inc., amended and restated as of December 23, 2002 (incorporated by reference to Exhibit 10.16 of the Company’s 2004 Form 10-K filed March 4, 2005, File No. 1-6841).
10.18*	—Amended Schedule 2.1 to the Deferred Compensation and Benefits Trust Agreement.
10.19*	—Sunoco, Inc. Director Compensation Summary Sheet.
10.20*	—Sunoco, Inc. Executive Compensation Summary Sheet.
10.21	—Amended and Restated Five-Year Competitive Advance and Revolving Credit Facility Agreement, dated as of August 12, 2005, by and among Sunoco, Inc., as Borrower; the lenders party thereto; JP Morgan Chase Bank, N.A., as Administrative Agent; Bank of America, N.A., as Syndication Agent; and The Bank of Tokyo-Mitsubishi, Ltd., New York Branch, Barclays Bank PLC, and Citibank, N.A., as Co-Documentation Agents (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated August 16, 2005, File No. 1-6841).
10.22	—Omnibus Agreement, dated as of February 8, 2002, among Sunoco, Inc., Sunoco, Inc. (R&M), Sun Pipe Line Company of Delaware, Atlantic Petroleum Corporation, Sunoco Texas Pipe Line Company, Sun Pipe Line Services (Out) LLC, Sunoco Logistics Partners L.P., Sunoco Logistics Partners Operations L.P., and Sunoco Partners LLC (incorporated by reference to Exhibit 10.5 of the 2001 Form 10-K filed by Sunoco Logistics Partners L.P. on April 1, 2002, File No. 1-31219).
10.23	—Amendment No. 2006-1 to Omnibus Agreement, dated as of February 14, 2006, and effective January 1, 2006, by and among Sunoco, Inc., Sunoco, Inc. (R&M), Sun Pipe Line Company of Delaware, Atlantic Petroleum Corporation, Sun Pipe Line Company, Sun Pipe Line Delaware (Out) LLC, Sunoco Logistics Partners L.P., Sunoco Logistics Partners Operations L.P., and Sunoco Partners LLC. (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K of Sunoco Logistics Partners L.P. dated February 17, 2006, File No. 1-31219).
10.24	—Pipelines and Terminals Storage and Throughput Agreement, dated as of February 8, 2002, among Sunoco, Inc. (R&M), Sunoco Logistics Partners L.P., Sunoco Logistics Partners Operations L.P., Sunoco Partners LLC, Sunoco Partners Marketing & Terminals L.P., Sunoco Pipeline L.P., Sunoco Logistics Partners GP LLC, and Sunoco Logistics Partners Operations GP LLC (incorporated by reference to Exhibit 10.6 of the 2001 Form 10-K filed by Sunoco Logistics Partners L.P. on April 1, 2002, File No. 1-31219).
10.25	—Product Supply Agreement between BOC America (PGS), Inc. and Sunoco, Inc. (R&M) dated as of September 20, 2004 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004 filed November 4, 2004, File No. 1-6841).
12	—Statement re Sunoco, Inc. and Subsidiaries Computation of Ratio of Earnings to Fixed Charges for the Year Ended December 31, 2005.
13	—Sunoco, Inc. 2005 Annual Report to Shareholders Financial Section.
14	—Sunoco, Inc. Code of Business Conduct and Ethics.
21	—Subsidiaries of Sunoco, Inc.

38

23	—Consent of Independent Registered Public Accounting Firm.
24.1	—Power of Attorney executed by certain officers and directors of Sunoco, Inc.
24.2	—Certified copy of the resolution authorizing certain officers to sign on behalf of Sunoco, Inc.
31.1	—Certification Pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	—Certification Pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	—Certification Pursuant to Exchange Act Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	—Certification Pursuant to Exchange Act Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* These exhibits constitute the Executive Compensation Plans and Arrangements of the Company.

Note: Copies of each Exhibit to this Form 10-K are available upon request.

39

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SUNOCO, INC.
By	/s/  THOMAS W. HOFMANN
	Thomas W. Hofmann
	Senior Vice President and Chief Financial Officer

Date March 2, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by or on behalf of the following persons on behalf of the registrant and in the capacities indicated on March 2, 2006:

ROBERT J. DARNALL* Robert J. Darnall, Director JOHN G. DROSDICK* John G. Drosdick, Chairman, Chief Executive Officer, President and Director (Principal Executive Officer) URSULA O. FAIRBAIRN* Ursula O. Fairbairn, Director THOMAS P. GERRITY* Thomas P. Gerrity, Director ROSEMARIE B. GRECO* Rosemarie B. Greco, Director THOMAS W. HOFMANN* Thomas W. Hofmann, Senior Vice President and Chief Financial Officer (Principal Financial Officer) JAMES G. KAISER* James G. Kaiser, Director JOSEPH P. KROTT* Joseph P. Krott, Comptroller (Principal Accounting Officer) RICHARD H. LENNY* Richard H. Lenny, Director R. ANDERSON PEW* R. Anderson Pew, Director G. JACKSON RATCLIFFE* G. Jackson Ratcliffe, Director JOHN W. ROWE* John W. Rowe, Director JOHN K. WULFF* John K. Wulff, Director

*By	/s/  THOMAS W. HOFMANN
	Thomas W. Hofmann Individually and as Attorney-in-Fact

40

SUNOCO, INC. AND SUBSIDIARIES

SCHEDULE II—VALUATION ACCOUNTS

For the Years Ended December 31, 2005, 2004 and 2003

(Millions of Dollars)

			Additions
	Balance at Beginning of Period		Charged to Costs and Expenses		Charged To Other Accounts		Deductions		Balance at End of Period
For the year ended December 31, 2005:
Deducted from asset in balance sheet —allowance for doubtful accounts and notes receivable	$	2	$	3	$	—	$	2	$	3
For the year ended December 31, 2004:
Deducted from asset in balance sheet —allowance for doubtful accounts and notes receivable	$	5	$	6	$	—	$	9	$	2
For the year ended December 31, 2003:
Deducted from asset in balance sheet —allowance for doubtful accounts and notes receivable	$	11	$	5	$	—	$	11	$	5

41

EX-3.I

Exhibit 3.(i)

Articles of Incorporation

of Sunoco, Inc.

(Amended and Restated as of March 1, 2006)

Articles of Incorporation of Sunoco, Inc.

First: The name of the Corporation is “Sunoco, Inc.”

Second: The location and post office address of its registered office in this Commonwealth is 1735 Market Street, Philadelphia, Pennsylvania 19103.

Third: The Corporation shall have the power to engage in any lawful act or business permitted under the Act of May 5, 1933 (P.L. 364, as amended), or any applicable successor thereto. The Corporation was incorporated under the provisions of such Act.

Fourth: The total number of shares of capital stock which this Corporation shall have authority to issue is Four Hundred Fifteen Million (415,000,000) to be divided into two classes consisting of Fifteen Million (15,000,000) shares designated as “Cumulative Preference Stock” (hereinafter called “Preference Stock”), without par value, and Four Hundred Million (400,000,000) shares designated as “Common Stock,” (hereinafter called “Common Stock”), $1 par value.

The following is a description of each class of capital stock and a statement of the preferences, qualifications, privileges, limitations, restrictions, and other special or relative rights granted to or imposed upon the shares of each class:

Preference Stock

1. Authority of Board of Directors. Authority is hereby vested in the Board of Directors, by resolution, to divide any or all of the authorized shares of Preference Stock into series and, within the limitations provided by law and this Article Fourth, to fix and determine the designations, preferences, qualifications, privileges, limitations, options, conversion rights, and other special rights of each such series, including but not limited to the right to fix and determine:

(a) the designation of and the number of shares issuable in each such series;

(b) the annual dividend rate, expressed in a dollar amount per share, for each such series;

(c) the right, if any, of the Corporation to redeem shares of any such series, and the terms and conditions on which shares of each such series may be redeemed;

(d) the amounts payable upon shares of each such series in the event of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation;

(e) the sinking fund provisions, if any, for the redemption or purchase of shares of each such series;

(f) the voting rights, if any, for the shares of each such series; provided, however, that the number of votes per share of Preference Stock shall in no event exceed one (1);

(g) the terms and conditions, if any, on which shares of each such series may be converted into shares of stock of this Corporation; provided, however, that shares of Preference Stock shall not be convertible into shares of any class of stock of the Corporation other than Common Stock and shall not be convertible into more than one share of Common Stock, or such greater or lesser number as will reflect the effect of stock dividends, stock splits or stock combinations affecting Common Stock and occurring after May 9, 1980, subject to such terms and conditions, including provision for fractional shares, as the Board of Directors shall authorize;

(h) the stated value per share for each such series; and

(i) any and all such other provisions as may be fixed or determined by the Board of Directors of the Corporation pursuant to Pennsylvania law.

1

2. Parity of Series of Preference Stock and Shares Within Series; Priority of Preference Stock. All shares of the same series of Preference Stock shall be identical with each other share of such series in all respects, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative. Except as determined by the Board of Directors as permitted by the provisions of paragraph 1 hereof, all series of Preference Stock shall rank equally with and be identical in all respects to each other series.

Preference Stock shall rank, as to dividends and upon liquidation, dissolution or winding up, prior to Common Stock and to any other capital stock of the Corporation hereafter authorized, other than capital stock which shall by its terms rank prior to or on a parity with Preference Stock and which shall be authorized pursuant to subparagraph 9(a) hereof.

3. Dividends. Before any dividends (other than dividends payable in stock ranking junior to Preference Stock) on any class or classes of stock of the Corporation ranking junior to Preference Stock as to dividends or upon liquidation shall be declared and set apart for payment or paid, the holders of shares of Preference Stock of each series shall be entitled to receive cash dividends, when and as declared by the Board of Directors at the annual rate, and no more, fixed in the resolution adopted by the Board of Directors providing for the issue of such series. Such dividends shall be payable in cash quarterly, each such quarterly payment to be in respect of the quarterly period ending with the day next preceding the date of such payment (except in the case of the first dividend which shall be in respect of the period beginning with the initial date of issue of such shares and ending with the day next preceding the date of such payment), to holders of Preference Stock of record on the respective dates, not exceeding forty (40) days preceding such quarterly dividend payment dates, fixed for that purpose by the Board of Directors. With respect to each series of Preference Stock, such dividends shall be cumulative from the date or dates of issue of such series, which date or dates may be set by the Board of Directors pursuant to the provisions of paragraph 1 hereof. No dividends shall be declared or paid or set apart for payment on any series of Preference Stock in respect of any quarterly dividend period unless there shall likewise be or have been declared and paid or set apart for payment on all shares of Preference Stock of each other series at the time outstanding like dividends in proportion to the respective annual dividend rates fixed therefor as hereinbefore provided for all quarterly dividend periods coinciding with or ending before such quarterly dividend period. Accruals of dividends shall not bear interest.

4. Redemption. The Corporation, at the option of the Board of Directors, may, at any time permitted by the resolution adopted by the Board of Directors providing for the issue of any series of Preference Stock and at the redemption price or prices stated in said resolution, redeem the whole or any part of the shares of such series at the time outstanding. If at any time less than all of the shares of Preference Stock then outstanding are to be called for redemption, the shares to be redeemed may be selected by lot or by such other equitable method as the Board of Directors in its discretion may determine. Notice of every redemption, stating the redemption date, the redemption price, and the placement of payment thereof, shall be given by mailing a copy of such notice at least thirty (30) days and not more than sixty (60) days prior to the date fixed for redemption to the holders of record of the shares of Preference Stock to be redeemed at their addresses as the same shall appear on the books of the Corporation. The Corporation, upon mailing notice of redemption as aforesaid or upon irrevocably authorizing the bank or trust company hereinafter mentioned to mail such notice, may deposit or cause to be deposited in trust with a bank or trust company in the City of Philadelphia, Commonwealth of Pennsylvania, or in the Borough of Manhattan, City and State of New York, an amount equal to the redemption price of the shares to be redeemed plus any accrued and unpaid dividends thereon, which amount shall be payable to the holders of the shares to be redeemed upon surrender of certificates therefor on or after the date fixed for redemption or prior thereto if so directed by the Board of Directors. Upon such deposit, or if no such deposit is made, then from and after the date fixed for redemption unless the Board of Directors shall default in making payment of the redemption price plus accrued and unpaid dividends upon surrender of certificates as aforesaid, the shares called for redemption shall cease to be

2

outstanding and the holders thereof shall cease to be stockholders with respect to such shares and shall have no interest in or claim against the Corporation with respect to such shares other than the right to receive the redemption price plus accrued and unpaid dividends from such bank or trust company or from the Corporation, as the case may be, without interest thereon, upon surrender of certificates as aforesaid; provided, that conversion rights, if any, of shares called for redemption shall terminate at the close of business on the business day prior to the date fixed for redemption. Any funds so deposited which shall not be required for such redemption because of the exercise of conversion rights subsequent to the date of such deposit shall be returned to the Corporation. In case any holder of shares of Preference Stock which have been called for redemption shall not, within six (6) years after the date of such deposit, have claimed the amount deposited with respect to the redemption thereof, such bank or trust company, upon demand, shall pay over to the Corporation such unclaimed amount and shall thereupon be relieved of all responsibility in respect thereof to such holder, and thereafter such holder shall look only to the Corporation for payment thereof. Any interest which may accrue on funds so deposited shall be paid to the Corporation from time to time.

5. Status of Shares of Preference Stock Redeemed or Acquired. Unless otherwise specifically provided in the resolutions of the Board of Directors authorizing the issue of any series of Preference Stock, shares of any series of Preference Stock which have been redeemed, purchased or acquired by the Corporation by means other than conversion (whether through the operation of a sinking fund or otherwise) shall have the status of authorized and unissued shares of Preference Stock and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of Preference Stock to be created by resolution of the Board of Directors or as part of any other series of Preference Stock. Shares of any series of Preference Stock converted shall not be reissued and the Board of Directors shall take appropriate actions to reflect the conversion of Preference Stock from time to time by effecting reductions in the number of shares of Preference Stock which the Corporation is authorized to issue.

6. Redemption or Acquisition of Preference Stock During Default in Payment of Dividends. If at any time the Corporation shall have failed to pay dividends in full on Preference Stock, thereafter and until dividends in full including all accrued and unpaid dividends on shares of all series of Preference Stock at the time outstanding, shall have been declared and set apart for payment or paid, (i) the Corporation, without the affirmative vote or consent of the holders of at least a majority of the shares of Preference Stock at the time outstanding, voting or consenting separately as a class without regard to series, given in person or by proxy, either in writing or by resolution adopted at a meeting, shall not redeem less than all the shares of Preference Stock at such time outstanding, regardless of series, other than in accordance with paragraph 8 hereof and (ii) neither the Corporation nor any subsidiary shall purchase any shares of Preference Stock except in accordance with a purchase offer made in writing or by publication, as determined by the Board of Directors, in their sole discretion after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series, shall determine (which determination shall be final and conclusive) will result in fair and equitable treatment among the respective series; provided, however, that (iii) unless prohibited by the provisions applicable to any series, the Corporation, to meet the requirements of any sinking fund provision with respect to any series, may use shares of such series acquired by it prior to such failure and then held by it as treasury stock, and (iv) nothing shall prevent the Corporation from completing the purchase or redemption of shares of Preference Stock for which a purchase contract was entered into for any sinking fund purposes or the notice of redemption of which was mailed to the holders thereof, prior to such default.

7. Dividends and Distributions on and Redemption and Acquisition of Junior Classes of Stock. So long as any shares of Preference Stock are outstanding, the Corporation shall not declare or set apart for payment or pay any dividends (other than stock dividends payable on shares of stock ranking junior to Preference Stock) or make any distribution on any other class or classes of stock of the Corporation ranking junior to Preference Stock as to dividends or upon liquidation and shall not redeem, purchase or otherwise acquire, or permit any subsidiary to purchase or otherwise acquire, any shares of any such junior class if at the time of making such declaration, payment, distribution, redemption, purchase or acquisition the Corporation

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shall be in default with respect to any dividend payable on, or any obligation to purchase, shares of any series of Preference Stock; provided, however, that, notwithstanding the foregoing, the Corporation may at any time redeem, purchase or otherwise acquire shares of stock of any such junior class in exchange for, or out of the net cash proceeds from the sale of, other shares of stock of any junior class.

8. Retirement of Shares. If in any case the amounts payable with respect to any obligations to retire shares of Preference Stock are not paid in full in the case of all series with respect to which such obligations exist, the number of shares of the various series to be retired shall be in proportion to the respective amounts which would be payable on account of such obligations if all amounts payable were discharged in full.

9. Action by Corporation Requiring Approval of Preference Stock. The Corporation shall not, without the affirmative vote or consent of the holders of at least 66 2/3% of the number of shares of Preference Stock at the time outstanding, voting or consenting (as the case may be) separately as a class without regard to series, given in person or by proxy, either in writing or by resolution adopted at a meeting:

(a) create any class of stock ranking prior to or on a parity with Preference Stock as to dividends or upon liquidation or increase the authorized number of shares of any such previously authorized class of stock;

(b) alter or change any of the provisions hereof so as adversely to affect the preferences, special rights or powers given to the Preference Stock;

(c) increase the number of shares of Preference Stock which the Corporation is authorized to issue; or

(d) alter or change any of the provisions hereof or of the resolution adopted by the Board of Directors providing for the issue of such series so as adversely to affect the preferences, special rights or powers given to such series.

10. Special Voting Rights. If the Corporation shall have failed to pay, or declare and set apart for payment, dividends on Preference Stock in an aggregate amount equivalent to six (6) full quarterly dividends on all shares of Preference Stock at the time outstanding, the number of Directors of the Corporation shall be increased by two (2) at the first annual meeting of the shareholders of the Corporation held thereafter, and at such meeting and at each subsequent annual meeting until dividends payable for all past quarterly dividend periods on all outstanding shares of Preference Stock shall have been paid, or declared and set apart for payment, in full, the holders of the shares of Preference Stock shall have, in addition to any other voting rights which they otherwise may have, the exclusive and special right, voting separately as a class without regard to series, each share of Preference Stock entitling the holder thereof to one (1) vote per share, to elect two (2) additional members of the Board of Directors to hold office for a term of one (1) year; provided, that the right to vote as a class upon the election of such two (2) additional Directors shall not limit the right of holders of any series of Preference Stock to vote upon the election of all other Directors and upon other matters if and to the extent that such holders are entitled to vote pursuant to the resolution adopted by the Board of Directors pursuant to paragraph 1 hereof, providing for the issue of such series. Upon such payment, or declaration and setting apart for payment, in full, the terms of the two (2) additional Directors so elected shall forthwith terminate, and the number of Directors of the Corporation shall be reduced by two (2) and such voting right of the holders of shares of Preference Stock shall cease, subject to increase in the number of Directors as aforesaid and to revesting of such voting right in the event of each and every additional failure in the payment of dividends in an aggregate amount equivalent to six (6) full quarterly dividends as aforesaid.

11. Liquidation of the Corporation. Upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, Preference Stock shall be preferred as to assets over Common Stock and any

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other class or classes of stock ranking junior to Preference Stock so that the holders of shares of Preference Stock of each series shall be entitled to be paid or to have set apart for payment, before any distribution is made to the holders of Common Stock and any other class or classes of stock ranking junior to Preference Stock, the amount fixed in accordance with paragraph 1 hereof plus an amount equal to all dividends accrued and unpaid up to and including the date fixed for such payment and the holders of Preference Stock shall not be entitled to any other payment.

If upon any such liquidation, dissolution or winding up of the Corporation, its net assets shall be insufficient to permit the payment in full of the respective amounts to which the holders of all outstanding shares of Preference Stock are entitled as above provided, the entire remaining net assets of the Corporation shall be distributed among the holders of Preference Stock in amounts proportionate to the full preferential amounts to which they are respectively entitled.

For the purposes of this paragraph 11, the voluntary sale, lease, exchange or transfer for cash, shares of stock (securities or other consideration) of all or substantially all the Corporation’s property or assets to, or its consolidation or merger with, one or more corporations shall not be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Corporation.

12. Voting Rights. Except as otherwise provided by the provisions of this Article Fourth or by statute or when fixed in accordance with the provisions of paragraph 1 hereof, the holders of shares of Preference Stock shall not be entitled to any voting rights.

13. Definitions. For the purposes of this Article Fourth and of any resolution of the Board of Directors providing for the issue of any series of Preference Stock or of any statement filed with the Secretary of State of the Commonwealth of Pennsylvania (unless otherwise provided in any such resolution or statement):

(a) The term “outstanding,” when used in reference to shares of stock, shall mean issued shares excluding:

(i) shares held by the Corporation or a subsidiary; and

(ii) shares called for redemption if funds for the redemption thereof have been deposited in trust.

(b) Any class or classes of stock of the Corporation shall be deemed to rank:

(i) prior to Preference Stock, either as to dividends or upon liquidation, if the holders of such class or classes shall be entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of Preference Stock;

(ii) on a parity with Preference Stock, either as to dividends or upon liquidation, whether or not the dividend rates or dividend payment dates or the redemption or liquidation prices per share thereof be different from those of Preference Stock, if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority one (1) over the other as between the holders of such class or classes and the holders of Preference Stock; and

(iii) junior to Preference Stock, either as to dividends or upon liquidation, if the rights of the holders of such class or classes shall be subject or subordinate to the rights of the holders of Preference Stock

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in respect of the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be.

(c) The term “subsidiary” as used herein shall mean any corporation 51% or more of the outstanding stock having voting rights of which is at the time owned or controlled directly or indirectly by the Corporation.

SERIES A CUMULATIVE PREFERENCE STOCK

1. Designation. The designation of the series of Preference Stock authorized by this resolution shall be Series A Cumulative Preference Stock (the “Series A Preference Stock”) consisting of 12,500,000 shares.

2. Rank. The Series A Preference Stock shall rank, as to dividends and upon liquidation, dissolution or winding up, prior to the Common Stock and to any other capital stock of the Corporation hereafter authorized, other than capital stock which shall by its terms rank prior to or on a parity with the Series A Preference Stock and which shall be authorized pursuant to paragraph 6(d) hereof. Any class or classes of stock of the Corporation shall be deemed to rank:

(i) prior to Series A Preference Stock, either as to dividends or upon liquidation, if the holders of such class or classes shall be entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of Series A Preference Stock;

(ii) on a parity with Series A Preference Stock, either as to dividends or upon liquidation, whether or not the dividend rates or dividend payment dates or the redemption or liquidation prices per share thereof be different from those of Series A Preference Stock, if the holders of such class or classes shall be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority one (1) over the other as between the holder of such class or classes and the holders of Series A Preference Stock (“Parity Stock”); and

(iii) junior to Series A Preference Stock, either as to dividends or upon liquidation, if the rights of the holders of such class or classes shall be subject or subordinate to the rights of the holders of Series A Preference Stock in respect of the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be (“Junior Stock”).

3. Dividends.

(a) The holders of outstanding shares of the Series A Preference Stock shall be entitled to receive, when and as declared by the Board of Directors, cash dividends accruing at the per share rate of $3.60 per annum (the “Dividend Rate”) and no more, payable in cash quarterly, each such quarterly payment to be in respect of the quarterly period ending with the day next preceding the date of such payment (except in the case of the first dividend which shall be in respect of the period beginning with June 12, 1995 and ending with the day next preceding the date of such payment), to holders of Series A Preference Stock of record on the respective dates, not exceeding forty (40) days preceding such quarterly dividend payment dates, fixed for that purpose by the Board of Directors. Such dividends shall be cumulative from June 12, 1995 and shall accrue daily. Accruals of dividends shall not bear interest. Dividends will be payable on or before each March 13, June 13, September 13 and December 13 (or, if any such day is not a business day, on the next succeeding business day).

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(b) Before any dividends (other than dividends payable in Junior Stock) on any class or classes of stock of the Corporation ranking junior to Series A Preference Stock as to dividends or upon liquidation shall be declared and set apart for payments or paid, the holders of shares of Series A Preference Stock shall be entitled to receive cash dividends, when and as declared by the Board of Directors at the Dividend Rate, and no more. No dividends shall be declared or paid or set apart for payment on the Series A Preference Stock in respect of any quarterly dividend period unless there shall likewise be or have been declared and paid or set apart for payment on all shares of Preference Stock of each other series at the time outstanding like dividends in proportion to the respective annual dividend rates fixed therefor for all quarterly dividend periods coinciding with or ending before such quarterly dividend period.

(c) So long as any shares of Series A Preference Stock are outstanding, the Corporation shall not declare or set apart for payment or pay any dividends (other than stock dividends payable on shares of Junior Stock) or make any distribution on any other class or classes of stock of the Corporation ranking junior to Series A Preference Stock as to dividends or upon liquidation and shall not redeem, purchase or otherwise acquire, or permit any subsidiary to purchase or otherwise acquire, any shares of any such Junior Stock if at the time of making such declaration, payment, distribution, redemption, purchase or acquisition the Corporation shall be in default with respect to any dividend payable on, or any obligation to purchase, shares of Series A Preference Stock; provided, however, that, notwithstanding the foregoing, the Corporation may at any time redeem, purchase or otherwise acquire shares of stock of any such Junior Stock in exchange for, or out of the net cash proceeds from the sale of, other shares of stock of any Junior Stock.

4. Redemptions.

(a) Right to Call for Redemption. At any time and from time to time, the Corporation shall have the right to call, in whole or in part, the outstanding shares of the Series A Preference Stock for redemption, subject to the notice provisions set forth in paragraph (4)(h). On the redemption date (the “Redemption Date”) with respect to any such redemption, the Corporation shall deliver to the holders thereof, in exchange for each such share called for redemption, the following consideration:

(1) in the event such Redemption Date is prior to June 12, 1998 (the “Specified Date”),

(i) a number of shares of Common Stock equal to the Call Price (as defined in paragraph (4)(g)(ii)) in effect on the Redemption Date divided by the Current Market Price of the Common Stock determined as of the second Trading Date immediately preceding the Notice Date, plus

(ii) an amount in cash equal to all accrued and unpaid dividends on such share of Series A Preference Stock to and including the Redemption Date, whether or not declared, out of funds legally available therefor (and dividends shall cease to accrue on such share as of such Redemption Date); and

(2) in the event such Redemption Date is on or after the Specified Date,

(i) shares of Common Stock at the Common Equivalent Rate (determined as provided in this paragraph (4)) in effect on the Redemption Date; plus

(ii) an amount in cash equal to all accrued and unpaid dividends on such share of Series A Preference Stock to and including the Redemption Date, whether or not

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declared, out of funds legally available for the payment of dividends (and dividends shall cease to accrue on such share as of such Redemption Date).

If at any time less than all of the shares of Series A Preference Stock then outstanding are to be called for redemption, the shares to be redeemed may be selected by lot or such other equitable method as the Board of Directors of the Corporation in its discretion may determine.

(b) Redemption or Acquisition of Series A Preference Stock During Default in Payment of Dividends. If at any time the Corporation shall have failed to pay dividends in full on Preference Stock, thereafter and until dividends in full including all accrued and unpaid dividends on shares of all series of Preference Stock at the time outstanding, shall have been declared and set apart for payment or paid, (i) the Corporation, without the affirmative vote or consent of the holders of at least a majority of the shares of Preference Stock at the time outstanding, voting or consenting separately as a class without regard to series, given in person or by proxy, either in writing or by resolution adopted at a meeting, shall not redeem less than all the shares of Preference Stock at such time outstanding, regardless of series, other than in accordance with paragraph 4(f) hereof and (ii) neither the Corporation nor any subsidiary shall purchase any shares of Preference Stock except in accordance with a purchase offer made in writing or by publication, as determined by the Board of Directors, in their sole discretion after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series, shall determine (which determination shall be final and conclusive) will result in fair and equitable treatment among the respective series; provided, however, that (iii) unless prohibited by the provisions applicable to any series, the Corporation, to meet the requirements of any sinking fund provision with respect to any series, may use shares of such series acquired by it prior to such failure and then held by it as treasury stock, and (iv) nothing shall prevent the Corporation from completing the purchase or redemption of shares of Preference Stock for which a purchase contract was entered into for any sinking fund purposes or the notice of redemption of which was mailed to the holders thereof, prior to such default.

(c) Common Equivalent Rate; Adjustments. The Common Equivalent Rate to be used to determine the number of shares of Common Stock to be delivered on the redemption of the Series A Preference Stock in exchange for shares of Common Stock pursuant to paragraph (4)(a)(2) (a “Specified Redemption”) shall be initially two shares of Common Stock for each share of Series A Preference Stock; provided, however, that such Common Equivalent Rate shall be subject to adjustment from time to time as provided below in this paragraph (4)(c). All adjustments to the Common Equivalent Rate shall be calculated to the nearest 1/100th of a share of Common Stock. Such rate as adjusted and in effect at any time is herein called the “Common Equivalent Rate.”

(i) If the Corporation shall do any of the following (an “Adjustment Event”):

(A) pay a dividend or make a distribution with respect to Common Stock in shares of Common Stock,

(B) subdivide, reclassify or split its outstanding shares of Common Stock into a greater number of shares,

(C) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, or

(D) issue by reclassification of its shares of Common Stock any shares of Common Stock other than in a Fundamental Transaction (as defined in paragraph 4(g)(iv)), then the Common Equivalent Rate in effect immediately prior to such Adjustment Event shall be adjusted so that the holder of a share of the Series A Preference Stock shall be entitled to

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receive on the redemption of such share of the Series A Preference Stock, the number of shares of Common Stock that such holder would have owned or been entitled to receive after the happening of the Adjustment Event had such share of the Series A Preference Stock been redeemed pursuant to paragraph 4(a) immediately prior to the record date for such Adjustment Event, if any, or such Adjustment Event. Where the Adjustment Event is a dividend or distribution, the adjustment to the Common Equivalent Rate shall become effective as of the close of business on the record date for determination of stockholders entitled to receive such dividend or distribution; where the Adjustment Event is a subdivision, split, combination or reclassification, the adjustment to the Common Equivalent Rate shall become effective immediately after the effective date of such subdivision, split, combination or reclassification; and any shares of Common Stock issuable in payment of a dividend shall be deemed to have been issued immediately prior to the close of business on the record date for such dividend for purposes of calculating the number of outstanding shares of Common Stock under clauses (ii) and (iii) below. Such adjustment shall be made successively.

(ii) If the Corporation shall, after the date hereof, issue rights or warrants to all holders of its Common Stock entitling them (for a period not exceeding 45 days from the date of such issuance) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price of the Common Stock (determined pursuant to paragraph (4)(c)(v)), on the record date for the determination of stockholders entitled to receive such rights or warrants, then in each case the Common Equivalent Rate shall be adjusted by multiplying the Common Equivalent Rate in effect immediately prior to the date of issuance of such rights or warrants by a fraction (A) the numerator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants, immediately prior to such issuance, plus the number of additional shares of Common Stock offered for subscription or purchase pursuant to such rights or warrants, and (B) the denominator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants, immediately prior to such issuance, plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered for subscription or purchase pursuant to such rights or warrants would purchase at such Current Market Price (determined by multiplying such total number of shares by the exercise price of such rights or warrants and dividing the product so obtained by such Current Market Price). Such adjustment shall become effective as of the close of business on the record date for the determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Common Equivalent Rate shall be readjusted to the Common Equivalent Rate which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made upon the basis of delivery of only the number of shares of Common Stock actually delivered. Such adjustment shall be made successively.

(iii) If the Corporation shall pay a dividend or make a distribution to all holders of its Common Stock of evidences of its indebtedness or other assets (including shares of capital stock of the Corporation (other than Common Stock) but excluding any distributions and dividends referred to in clause (i) above or any cash dividends), or shall issue to all holders of its Common Stock rights or warrants to subscribe for or purchase any of its securities (other than those referred to in clause (ii) above), then in each such case, the Common Equivalent Rate shall be adjusted by multiplying the Common Equivalent Rate in effect on the record date mentioned below by a fraction (A) the numerator of which shall be the Current Market Price of the Common Stock (determined pursuant to paragraph (4)(c)(v)) on the record date for the determination of stockholders entitled to receive such dividend or distribution, and (B) the denominator of which shall be such Current Market Price per share of Common Stock less the fair market value (as determined by the Board of Directors of the Corporation, whose determination shall be conclusive) as of such record date of the portion of the assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, applicable to one share of

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Common Stock. Such adjustment shall become effective on the opening of business on the business day next following the record date for the determination of stockholders entitled to receive such dividend or distribution.

(iv) Anything in this paragraph (4) notwithstanding, the Corporation shall be entitled to make such upward adjustment in the Common Equivalent Rate, in addition to those required by this paragraph (4), as the Corporation in its sole discretion may determine to be advisable, in order that any stock dividends, subdivision of shares, distribution of rights to purchase stock or securities, or a distribution of securities convertible into or exchangeable for stock (or any transaction that could be treated as any of the foregoing transactions pursuant to Section 305 of the Internal Revenue Code of 1986, as amended) hereafter made by the Corporation to its stockholders shall not be taxable. If the Corporation determines that an adjustment to the Common Equivalent Rate should be made pursuant to this paragraph (4)(c)(iv), such adjustment shall be made effective as of such date as the Board of Directors of the Corporation determines. The determination of the Board of Directors of the Corporation as to whether an adjustment to the Common Equivalent Rate should be made pursuant to the foregoing provisions of this paragraph (4)(c)(iv), and, if so, as to what adjustment should be made and when, shall be conclusive, final and binding on the Corporation and all stockholders of the Corporation.

(v) As used in this paragraph (4), the “Current Market Price” of a share of Common Stock on any date shall be, except as otherwise specifically provided, the average of the daily Closing Prices (as defined in paragraph (4)(g)(iii)) for the five consecutive Trading Dates ending on and including the date of determination of the Current Market Price; provided that if the Closing Price of the Common Stock on the Trading Date next following such five-day period (the “next-day closing price”) is less than 95% of such average Closing Price, then the Current Market Price per share of Common Stock on such date of determination will be the next-day closing price; provided, further, that, with respect to any redemption or antidilution adjustment, if any event that results in an adjustment of the Common Equivalent Rate occurs during the period beginning on the first day of the applicable determination period and ending on the applicable redemption date, the Current Market Price as determined pursuant to the foregoing will be appropriately adjusted to reflect the occurrence of such event.

(vi) In any case in which paragraph (4)(c) shall require that an adjustment as a result of any event become effective as of the close of business on the record date and the date fixed for Specified Redemption pursuant to paragraph (4)(a)(2) occurs after such record date, but before the occurrence of such event, the Corporation may in its sole discretion elect to defer the following until after the occurrence of such event: (A) issuing to the holder of any redeemed shares of the Series A Preference Stock the additional shares of Common Stock issuable upon such redemption as a result of such adjustment and (B) paying to such holder any amount in cash in lieu of a fractional share of Common Stock pursuant to paragraph (4)(e).

(vii) Before taking any action which would cause an adjustment to the Common Equivalent Rate that would cause the Corporation to issue shares of Common Stock for consideration below the then par value (if any) of the Common Stock upon redemption of the Series A Preference Stock, the Corporation will take any corporate action that may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Common Equivalent Rate.

(d) Notice of Adjustments. Whenever the Common Equivalent Rate is adjusted as herein provided, the Corporation shall:

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(i) forthwith compute the adjusted Common Equivalent Rate in accordance with this paragraph (4) and prepare a certificate signed by the Chief Executive Officer, the Chief Financial Officer, any Vice President, or the Treasurer of the Corporation setting forth the adjusted Common Equivalent Rate, the method of calculation thereof in reasonable detail and the facts requiring such adjustment and upon which such adjustment is based, which certificate shall be conclusive, final and binding evidence of the correctness of the adjustment, and file such certificate forthwith with the transfer agent or agents for the Series A Preference Stock and the Common Stock; and

(ii) mail a notice stating that the Common Equivalent Rate has been adjusted, the facts requiring such adjustment and upon which such adjustment is based and setting forth the adjusted Common Equivalent Rate to the holders of record of the outstanding shares of the Series A Preference Stock at or prior to the time the Corporation mails an interim statement to its stockholders covering the fiscal quarter during which the facts requiring such adjustment occurred, but in any event within 45 days of the end of such fiscal quarter.

(e) No Fractional Shares. No fractional shares or scrip representing fractional shares of Common Stock shall be issued upon the redemption of any shares of Series A Preference Stock. Instead of any fractional interest in a share of Common Stock which would otherwise be deliverable upon the redemption of a share of Series A Preference Stock, the Corporation shall pay to the holder of such share an amount in cash (computed to the nearest cent) equal to the same fraction of the Current Market Price of the Common Stock determined as of the second Trading Date immediately preceding the relevant Notice Date. If more than one share shall be surrendered for redemption at one time by the same holder, the number of full shares of Common Stock issuable upon redemption thereof shall be computed on the basis of the aggregate number of shares of Series A Preference Stock so surrendered.

(f) Retirement. Shares of Series A Preference Stock which have been redeemed, purchased or acquired by the Corporation (whether through the operation of a sinking fund or otherwise) shall have the status of authorized and unissued shares of Preference Stock and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of Preference Stock to be created by resolution of the Board of Directors or as part of any other series of Preference Stock. If in any case the amounts payable with respect to any obligations to retire shares of Series A Preference Stock and any other series of Preference Stock are not paid in full in the case of all series with respect to which such obligations exist, the number of shares of the various series to be retired shall be in proportion to the respective amounts which would be payable on account of such obligations if all amounts payable were discharged in full.

(g) Definitions. As used in this paragraph 4 or elsewhere herein:

(i) the term “Business Day” shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in the State of New York or the Commonwealth of Pennsylvania are authorized or obligated by law or executive order to close or are closed because of a banking moratorium or otherwise;

(ii) the term “Call Price” shall mean the per share price (payable in shares of Common Stock) at which the Corporation may redeem shares of Series A Preference Stock pursuant to paragraph 4(a)(1)), which shall be initially equal to $84.79952, declining by $.004444 on each day following June 12, 1995 (computed on the basis of a 360-day year of twelve 30-day months) to $80.26664 on April 12, 1998 and equal to $80 thereafter through June 11, 1998, if not sooner redeemed;

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(iii) the term “Closing Price” on any day shall mean the closing sale price regular way (with any relevant due bills attached) on such day, or in case no such sale takes place on such day, the average of the reported closing bid and asked prices regular way (with any relevant due bills attached), in each case on the New York Stock Exchange Consolidated Tape (or any successor composite tape reporting transactions on national securities exchanges), or, if the Common Stock is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading (which shall be the national securities exchange on which the greatest number of shares of Common Stock has been traded during the five consecutive Trading Dates ending on and including the date of determination of the Current Market Price), or, if not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices regular way (with any relevant due bills attached) of the Common Stock on the over-the-counter market on the day in question as reported by the National Association of Securities Dealers Automated Quotation System, or a similarly generally accepted reporting service, or if not so available, as determined in good faith by the Board of Directors on the basis of such relevant factors as the Board of Directors in good faith considers appropriate;

(iv) the term “Fundamental Transaction” shall mean a merger or consolidation of the Corporation, a share exchange, division or conversion of the Corporation’s capital stock or an amendment of the Corporation’s Articles of Incorporation that results in the conversion or exchange of Common Stock into, or the right of the holders thereof to receive, in lieu of or in addition to their shares of Common Stock, other securities or other property (whether of the Corporation or any other entity);

(v) the term “Notice Date” with respect to any notice given by the Corporation in connection with a redemption of any of the Series A Preference Stock shall be the commencement of the mailing of such notice to the holders of the Series A Preference Stock in accordance with paragraph (4)(h);

(vi) the term “Outstanding,” when used in reference to shares of stock, shall mean issued shares excluding:

(A) shares held by the Corporation or a subsidiary; and

(B) shares called for redemption if funds for the redemption thereof have been deposited in trust;

(vii) the term “Subsidiary” as used herein shall mean any corporation 51% or more of the outstanding stock having voting rights of which is at the time owned or controlled directly or indirectly by the Corporation; and

(viii) the term “Trading Date” shall mean a date on which the New York Stock Exchange (or any successor to such Exchange) is open for the transaction of business.

(h) Method of Redemption. Notice of every redemption, stating the redemption date, the redemption price, and the placement of payment thereof, shall be given by mailing a copy of such notice at least thirty (30) days and not more than sixty (60) days prior to the date fixed for redemption to the holders of record of the shares of Series A Preference Stock to be redeemed at their addresses as the same shall appear on the books of the Corporation. The Corporation, upon mailing notice of redemption as aforesaid or upon irrevocably authorizing the bank or trust company hereinafter mentioned to mail such notice, may deposit or cause to be deposited in trust with a bank or trust company in the City of Philadelphia, Commonwealth of Pennsylvania, or in the Borough of Manhattan, City and State of New York, an amount equal to the redemption price of the shares to be redeemed plus any accrued and unpaid dividends thereon, which amount shall be

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payable to the holders of the shares to be redeemed upon surrender of certificates therefor on or after the date fixed for redemption or prior thereto if so directed by the Board of Directors. Upon such deposit, or if no such deposit is made, then from and after the date fixed for redemption unless the Board of Directors shall default in making payment of the redemption price plus accrued and unpaid dividends upon surrender of certificates as aforesaid, the shares called for redemption shall cease to be outstanding and the holders thereof shall cease to be stockholders with respect to such shares and shall have no interest in or claim against the Corporation with respect to such shares other than the right to receive the redemption price plus accrued and unpaid dividends from such bank or trust company or from the Corporation, as the case may be, without interest thereon, upon surrender of certificates as aforesaid. In case any holder of shares of Series A Preference Stock which have been called for redemption shall not, within six (6) years after the date of such deposit, have claimed the amount deposited with respect to the redemption thereof, such bank or trust company, upon demand, shall pay over to the Corporation such unclaimed amount and shall thereupon be relieved of all responsibility in respect thereof to such holder, and thereafter such holder shall look only to the Corporation for payment thereof. Any interest which may accrue on funds so deposited shall be paid to the Corporation from time to time.

(i) Surrender of Certificates; Status. Each holder of shares of Series A Preference Stock to be redeemed shall surrender the certificates evidencing such shares (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and the notice shall so state) to the Corporation at the place designated in the notice of such redemption and shall thereupon be entitled to receive certificates evidencing shares of Common Stock and to receive any other funds payable pursuant to this paragraph (4) following such surrender and following the date of such redemption. In case fewer than all the shares represented by any such surrendered certificate are called for redemption, a new certificate shall be issued at the expense of the Corporation representing the unredeemed shares. If such notice of redemption shall have been given, and if on the date fixed for redemption shares of Common Stock and other funds necessary for the redemption shall have been either set aside by the Corporation separate and apart from its other funds or assets in trust for the account of the holders of the shares to be redeemed (and so as to be and continue to be available therefor) or deposited with a bank or trust company as provided in paragraph (4)(h), then, notwithstanding that the certificates evidencing any shares of Series A Preference Stock so called for redemption shall not have been surrendered, the shares represented thereby so called for redemption shall be deemed no longer outstanding, dividends with respect to the shares so called for redemption shall cease to accrue after the date fixed for redemption, and all rights with respect to the shares so called for redemption shall forthwith after such date cease and terminate, except for the right of the holders to receive the shares of Common Stock and other funds, if any, payable pursuant to this paragraph (4) without interest upon surrender of their certificates therefor.

(j) Dividend Payments. The holders of shares of Series A Preference Stock at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such shares on the corresponding dividend payment date notwithstanding the call for redemption thereof (except that holders of shares called for redemption on a date occurring between such record date and the dividend payment date or on such dividend payment date shall not be entitled to receive such dividend on such dividend payment date but instead will receive accrued and unpaid dividends to such redemption date.)

(k) Payment of Taxes. The Corporation will pay any and all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on the redemption of shares of Series A Preference Stock pursuant to this paragraph (4); provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any registration of transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the registered holder of Series A Preference Stock redeemed or to be redeemed, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.

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5. Liquidation Preference.

(a) Upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the Series A Preference Stock shall be preferred as to assets over Common Stock and any other Junior Stock so that the holder of each share of the Series A Preference Stock shall be entitled to be paid or to have set apart for payment in respect of each such share, before any distribution is made to the holders of Common Stock and any other Junior Stock, a liquidation preference equal to twice the fair market value (as determined by the Board of Directors of the Corporation based on advice of tax counsel in accordance with United States federal income tax principles, which determination shall be conclusive) of a Series A Depositary Share (as defined in the Deposit Agreement dated as of June 13, 1995 between the Corporation and First Chicago Trust Company of New York, as Depositary) on the date of issuance thereof, plus an amount equal to all dividends accrued and unpaid up to and including the date fixed for such payment, and such holder of a share of the Series A Preference Stock shall not be entitled to any other payment. If upon any such liquidation, dissolution or winding up of the Corporation, its net assets shall be insufficient to permit the payment in full of the respective amounts to which the holders of all outstanding shares of the Series A Preference Stock and any outstanding Preference Stock that is Parity Stock are entitled, the entire remaining net assets of the Corporation shall be distributed among the holders of the Series A Preference Stock and any outstanding Preference Stock that is Parity Stock, in amounts proportionate to the full preferential amounts to which they are respectively entitled.

(b) The voluntary sale, lease, exchange or transfer for cash, shares of stock (securities or other consideration) of all or substantially all the Corporation’s property or assets to, or its consolidation or merger with, one or more corporations shall not be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Corporation.

6. Voting Rights.

(a) The holders of record of shares of Series A Preference Stock shall not be entitled to any voting rights except as hereinafter provided in this paragraph (6) or as otherwise provided in the Articles of Incorporation or by statute.

(b) The holders of shares of Series A Preference Stock shall be entitled to vote on all matters submitted to a vote of the holders of the Common Stock, voting together with the holders of the Common Stock (and any other class or series of capital stock of the Corporation entitled to vote together with the Common Stock) as one class. Each share of the Series A Preference Stock shall be entitled to one vote.

(c) (i) If the Corporation shall have failed to pay, or declare and set apart for payment, dividends on Preference Stock in an aggregate amount equivalent to six (6) full quarterly dividends on all shares of Preference Stock at the time outstanding, the number of Directors of the Corporation shall be increased by two (2) at the first annual meeting of the shareholders of the Corporation held thereafter, and at such meeting and at each subsequent annual meeting until dividends payable for all past quarterly dividend periods on all outstanding shares of Preference Stock shall have been paid, or declared and set apart for payment, in full, the holders of the shares of Preference Stock shall have, in addition to any other voting rights which they otherwise may have, the exclusive and special right, voting separately as a class without regard to series, each share of Preference Stock entitling the holder thereof to one (1) vote per share, to elect two (2) additional members of the Board of Directors to hold office for a term of one (1) year; provided, that the right to vote as a class upon the election of such two (2) additional Directors shall not limit the right of holders of the Series A Preference Stock to vote upon the election of all other Directors and upon other matters set forth in paragraph 6(b) above.

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(ii) Upon such payment, or declaration and setting apart for payment, in full, the terms of the two (2) additional Directors so elected shall forthwith terminate, and the number of Directors of the Corporation shall be reduced by two (2) and such voting right of the holders of shares of Preference Stock shall cease, subject to increase in the number of Directors as aforesaid and to revesting of such voting right in the event of each and every additional failure in the payment of dividends in an aggregate amount equivalent to six (6) full quarterly dividends as aforesaid.

(d) The Corporation shall not, without the affirmative vote or consent of the holders of at least 66 2/3% of the number of shares of Preference Stock at the time outstanding, voting or consenting (as the case may be) separately as a class without regard to series, given in person or by proxy, either in writing or by resolution adopted at a meeting:

(i) create any class of stock ranking prior to or on a parity with Preference Stock as to dividends or upon liquidation or increase the authorized number of shares of any such previously authorized class of stock;

(ii) alter or change any of the provisions of the Articles of Incorporation so as to adversely affect the preferences, special rights or powers given to the Preference Stock;

(iii) increase the number of shares of Preference Stock which the Corporation is authorized to issue; or

(iv) alter or change any of the provisions of the Articles of Incorporation or hereof so as to adversely affect the preferences, special rights or powers given to the Series A Preference Stock.

7. Conversion. The Series A Preference Stock shall not have any conversion rights to convert into Common Stock.

8. Fundamental Transactions. Upon the effectiveness of a Fundamental Transaction at any time, each share of Series A Preference Stock shall be entitled to receive consideration per share (i) of the same type as is offered to or to be received by holders of Common Stock pursuant to or in connection with such Fundamental Transaction and (ii) having a fair value equal to the fair value of the Common Stock that each share of Series A Preference Stock would receive if such share of Series A Preference Stock were redeemed by the Company immediately prior to such time in accordance with paragraph 4 hereof.

SERIES B PARTICIPATING CUMULATIVE PREFERENCE STOCK

Section 1. Designation and Number of Shares. The shares of such series shall be designated as “Series B Participating Cumulative Preference Stock” (the “Series B Preference Stock”), and the number of shares constituting such series shall be 1,743,019. Such number of shares of the Series B Preference Stock may be increased or decreased by resolution of the Board of Directors; provided that no decrease shall reduce the number of shares of Series B Preference Stock to a number less than the number of shares then outstanding plus the number of shares issuable upon exercise or conversion of outstanding rights, options or other securities issued by the Corporation.

Section 2. Dividends and Distributions.

(A) The holders of shares of Series B Preference Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable on or before March 13, June 13, September 13 and December 13 (or, if any such day is not a business day, on

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the next succeeding business day) of each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of any share or fraction of a share of Series B Preference Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 and (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends or other distributions and 100 times the aggregate per share amount of all non-cash dividends or other distributions (other than (i) a dividend payable in shares of Common Stock, par value $1.00 per share, of the Corporation (the “Common Stock”)) or (ii) a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series B Preference Stock. If the Corporation shall at any time after February 1, 1996 (the “Rights Declaration Date”) pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision or combination of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series B Preference Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(B) The Corporation shall declare a dividend or distribution on the Series B Preference Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than as described in clauses (i) and (ii) of the first sentence of paragraph (A)); provided that if no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date (or, with respect to the first Quarterly Dividend Payment Date, the period between the first issuance of any share or fraction of a share of Series B Preference Stock and such first Quarterly Dividend Payment Date), a dividend of $1.00 per share on the Series B Preference Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

(C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series B Preference Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series B Preference Stock, unless the date of issue of such shares is on or before the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue and be cumulative from the date of issue of such shares, or unless the date of issue is a date after the record date for the determination of holders of shares of Series B Preference Stock entitled to receive a quarterly dividend and on or before such Quarterly Dividend Payment Date, in which case dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on shares of Series B Preference Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series B Preference Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall not be more than 60 days prior to the date fixed for the payment thereof.

Section 3. Voting Rights. Except as otherwise provided by Article FOURTH of the Articles of Incorporation of the Corporation or by statute, holders of Series B Preference Stock shall have no voting rights, and their consent shall not be required for taking any corporate action.

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Section 4. Certain Restrictions.

(A) Whenever quarterly dividends or other dividends or distributions payable on the Series B Preference Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on outstanding shares of Series B Preference Stock shall have been paid in full, the Corporation shall not:

(i) declare or pay dividends on, or make any other distributions on, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preference Stock;

(ii) declare or pay dividends on, or make any other distributions on, any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preference Stock, except dividends paid ratably on the Series B Preference Stock and all such other parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

(iii) redeem, purchase or otherwise acquire for value any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preference Stock; provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of stock of the Corporation ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series B Preference Stock; or

(iv) redeem, purchase or otherwise acquire for value any shares of Series B Preference Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preference Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of Series B Preference Stock and all such other parity stock upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

(B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for value any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.

Section 5. Reacquired Shares. Any shares of Series B Preference Stock redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Series B Preference Stock without designation as to series and may be reissued as part of a new series of Series B Preference Stock to be created by resolution or resolutions of the Board of Directors as permitted by the Articles of Incorporation or as otherwise permitted under Pennsylvania Law.

Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preference Stock unless, prior thereto, the holders of shares of Series B Preference Stock shall have received $1.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment; provided that the holders of shares of Series B Preference Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of Common Stock, or (2) to the holders of stock

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ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preference Stock, except distributions made ratably on the Series B Preference Stock and all such other parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. If the Corporation shall at any time after the Rights Declaration Date pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision or combination of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series B Preference Stock were entitled immediately prior to such event under the provision clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

Section 7. Consolidation, Merger, etc. If the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash or any other property, then in any such case the shares of Series B Preference Stock shall at the same time be similarly exchanged for or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash or any other property, as the case may be, into which or for which each share of Common Stock is changed or exchanged. If the Corporation shall at any time after the Rights Declaration Date pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision or combination of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series B Preference Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

Section 8. No Redemption. The Series B Preference Stock shall not be redeemable.

Section 9. Rank. The Series B Preference Stock shall rank junior (as to dividends and upon liquidation, dissolution and winding up) to all other series of the Corporation’s preference stock except any series that specifically provides that such series shall rank junior to the Series B Preference Stock.

Section 10. Fractional Shares. Series B Preference Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder’s fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series B Preference Stock.

Common Stock

Each holder of record of Common Stock shall have the right to one (1) vote for each share of Common Stock standing in his name on the books of the Corporation. Except as required by law or as otherwise specifically provided in this Article Fourth, the holders of Preference Stock having voting rights and holders of Common Stock shall vote together as one class.

Preemptive Rights

Neither the holders of Preference Stock nor the holders of Common Stock shall have any preemptive rights, and the Corporation shall have the right to issue and to sell to any person or persons any shares of its capital stock or any option rights or any securities having conversion or option rights, without first offering such shares, rights or securities to any holders of Preference Stock or Common Stock.

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Fifth:

1. The affirmative vote of the holders of not less than 75% of the outstanding shares of “Voting Stock” held by shareholders other than a “Related Person” shall be required for the approval or authorization of any “Business Combination” of the Corporation with any Related Person; provided, however, that the 75% voting requirement shall not be applicable if:

(i) The “Continuing Directors” of the Corporation by at least a two-thirds vote of such Continuing Directors have expressly approved such Business Combination either in advance of or subsequent to such Related Person’s having become a Related Person; or

(ii) The cash or fair market value (as determined by at least two-thirds of the Continuing Directors) of the property, securities or other consideration to be received per share by holders of Voting Stock of the Corporation in the Business Combination is not less than the “Highest Per Share Price” or the “Highest Equivalent Price” paid by the Related Person in acquiring any of its holdings of the Corporation’s Voting Stock.

2. For purposes of this Article FIFTH:

(i) The term “Business Combination” shall mean (a) any merger or consolidation of the Corporation or a subsidiary of the Corporation with or into a Related Person, (b) any sale, lease, exchange, transfer or other disposition, including without limitation a mortgage or any other security device, of all or any “Substantial Part” of the assets either of the Corporation (including without limitation any voting securities of a subsidiary) or of a subsidiary of the Corporation to a Related Person, (c) any merger or consolidation of a Related Person with or into the Corporation or a subsidiary of the Corporation, (d) any sale, lease, exchange, transfer or other disposition, including without limitation a mortgage or other security device, of all or any Substantial Part of the assets of a Related Person to the Corporation or a subsidiary of the Corporation, (e) the issuance of any securities of the Corporation or a subsidiary of the Corporation to a Related Person other than the issuance on a pro rata basis to all holders of shares of the same class pursuant to a stock split or stock dividend, or a distribution of warrants or rights, (f) any recapitalization that would have the effect of increasing the voting power of a Related Person, and (g) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Business Combination.

(ii) The term “Related Person” shall mean and include any individual, corporation, partnership or other person or entity which, together with its “Affiliates” and “Associates” becomes the “Beneficial Owner” of an aggregate of 10% or more of the outstanding Voting Stock of the Corporation, and any Affiliate or Associate of any such individual, corporation, partnership or other person or entity; provided, however, that the term “Related Person” shall not include (1) a person or entity whose acquisition of such aggregate percentage of Voting Stock was approved in advance by two-thirds of the Continuing Directors or (2) any trustee or fiduciary when acting in such capacity with respect to any employee benefit plan of the Corporation or a wholly owned subsidiary of the Corporation. No person who became a Related Person prior to December 31, 1983 shall be treated as a Related Person for the purpose of voting on any amendment, alteration, change or repeal of this Article FIFTH or voting on any Business Combination to which such Related Person is not a party.

(iii) The term “Substantial Part” shall mean an amount equal to 10% or more of the fair market value as determined by two-thirds of the Continuing Directors of the total consolidated assets of the Corporation and its subsidiaries taken as a whole as of the end of its most recent fiscal year ended prior to the time the determination is being made.

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(iv) The term “Beneficial Owner” shall mean any person (1) who beneficially owns shares of Voting Stock within the meaning ascribed in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on the date of adoption of this Article FIFTH by the shareholders of the Corporation, or (2) who has the right to acquire Voting Shares (whether or not such right is exercisable immediately) pursuant to any agreement, contract, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise.

(v) For purposes of subparagraph l(ii) of this Article FIFTH, the term “other consideration to be received” shall include, without limitation, the value per share of Common Stock or other capital stock of the Corporation retained by its existing shareholders as adjusted to give effect to the proposed Business Combination in the event of any Business Combination in which the Corporation is a surviving corporation.

(vi) The term “Voting Stock” shall mean all of the outstanding shares of Common Stock entitled to vote on each matter on which the holders of record of Common Stock shall be entitled to vote, and each reference to a proportion of shares of Voting Stock shall refer to such proportion of the votes entitled to be cast by such shares.

(vii) The term “Continuing Director” shall mean a Director who was a member of the Board of Directors of the Corporation immediately prior to the time that the Related Person involved in a Business Combination became a Related Person. As to any person who became a Related Person prior to December 31, 1983, a Continuing Director shall mean a Director who was a member of the Board of Directors on December 31, 1983.

(viii) A Related Person shall be deemed to have acquired a share of the Voting Stock of the Corporation at the time when such Related Person became the Beneficial Owner thereof. With respect to the shares owned by Affiliates, Associates or other persons whose ownership is attributed to a Related Person under the foregoing definition of Related Person, if the price paid by such Related Person for such shares is not determinable by two-thirds of the Continuing Directors, the price so paid shall be deemed to be the higher of (a) the price paid upon the acquisition thereof by the Affiliate, Associate or other person or (b) the market price of the shares in question at the time when the Related Person became the Beneficial Owner thereof.

(ix) The terms “Highest Per Share Price” and “Highest Equivalent Price” as used in this Article FIFTH shall mean the following: If there is only one (1) class of capital stock of the Corporation issued and outstanding, the Highest Per Share Price shall mean the highest price that can be determined to have been paid at any time by the Related Person for any share or shares of that class of capital stock. If there is more than one class of capital stock of the Corporation issued and outstanding, the Highest Equivalent Price shall mean, with respect to each class and series of capital stock of the Corporation, the amount determined by two-thirds of the Continuing Directors, on whatever basis they believe is appropriate, to be the highest per share price equivalent of the highest price that can be determined to have been paid at any time by the Related Person for any share or shares of any class of series of capital stock of the Corporation. In determining the Highest Per Share Price and Highest Equivalent Price, all purchases by the Related Person shall be taken into account regardless of whether the shares were purchased before or after the Related Person became a Related Person. Also, the Highest Per Share Price and the Highest Equivalent Price shall include any brokerage commissions, transfer taxes and soliciting dealers’ fees or other value paid by the Related Person with respect to the shares of capital stock of the Corporation acquired by the Related Person.

(x) The terms “Affiliate” and “Associate” shall have the same meaning as in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as on the date of the adoption of this Article FIFTH by the shareholders of the Corporation.

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3. The provisions set forth in this Article FIFTH may not be amended, altered, changed or repealed in any respect unless such action is approved by the affirmative vote of the holders of not less than 75% of the outstanding shares of Voting Stock of the Corporation at a meeting of the shareholders duly called for the consideration of such amendment, alteration, change or repeal; provided, however, that if there is a Related Person, such action must also be approved by the affirmative vote of the holders of not less than 75% of the outstanding shares of Voting Stock not held by any Related Person.

Sixth: The duration of the Corporation shall be perpetual.

Seventh: The business and affairs of the Corporation shall be managed by a Board of Directors. The number of Directors of the Corporation shall be fixed from time to time by the Bylaws but shall not be fixed at less than five (5). The number of the Directors may be increased or diminished (but not to less than five (5)), as may from time to time be provided in the Bylaws. In case of any increase in the number of Directors the additional Directors shall be elected as may be provided in the Bylaws, either by the Directors or by the shareholders.

The shareholders of the Corporation shall not be entitled to cumulative voting rights in the election of Directors.

Any officer elected or appointed by the Board of Directors may be removed at any time by affirmative vote of a majority of the whole Board of Directors.

The Board of Directors, by the affirmative vote of a majority of the whole Board, may appoint from the Directors an Executive Committee, of which a majority shall constitute a quorum, and to such extent as shall be provided in the Bylaws such Committee shall have and may exercise all or any of the powers of the Board of Directors, including the power to cause the seal of the Corporation to be affixed to all papers that may require it.

The Board of Directors, by the affirmative vote of a majority of the whole Board, may appoint any other standing committees, and such standing committees shall have and may exercise such powers as shall be conferred or authorized by the Bylaws.

The Board of Directors shall have power from time to time to fix and to determine and to vary the amount of the working capital of the Corporation and to direct and determine the use and disposition of any surplus or net profits over and above the capital stock paid in.

Subject always to alteration and repeal by the shareholders, and to Bylaws made by the shareholders, the Board of Directors may make Bylaws and from time to time may alter, amend or repeal any Bylaws; and any Bylaws made by the Board of Directors may be so altered or repealed by the shareholders at any annual meeting or at any special meeting, provided notice of such proposed alteration or repeal be included in the notice of the special meeting.

Eighth:

1. Any direct or indirect purchase or other acquisition by the Corporation of any “Equity Security” of any class or series from any “Five Percent Holder”, if such Five Percent Holder has been the “Beneficial Owner” of such security for less than two years prior to the earlier of the date of such purchase or any agreement in respect thereof at a price in excess of the “Fair Market Value” thereof, shall, except as hereinafter expressly provided, require the affirmative vote of the holders of at least a majority of the “Voting

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Stock” excluding Voting Stock of which such Five Percent Holder is the Beneficial Owner; provided, however, that the foregoing majority voting requirement shall not be applicable with respect to (i) any purchase or other acquisition of an Equity Security made as part of a tender or exchange offer by the Corporation to purchase Equity Securities of the same class made on the same terms to all holders of such security, or (ii) a purchase program effected on the open market and not the result of a privately-negotiated transaction, or (iii) any optional or required redemption of an Equity Security pursuant to the terms of such security.

2. For purposes of this Article EIGHTH:

(i) The term “Equity Security” means an equity security of the Corporation within the meaning ascribed to such term in Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect on January 1, 1985.

(ii) The term “Fair Market Value” means, in the case of any Equity Security, the closing sale price on the trading day immediately preceding the earlier of the date of any purchase subject to Paragraph 1 of this Article EIGHTH, or the date of any agreement in respect thereof (such earlier date, the “Valuation Date”), of a share of such Equity Security on the Composite Tape for New York Stock Exchange Listed Stocks, or, if such security is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such security is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such security is listed, or, if such security is not listed on any such Exchange, the closing bid quotation with respect to such security on the trading day immediately preceding the Valuation Date on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the Fair Market Value on the Valuation Date of such security as determined by the Board of Directors in good faith.

(iii) The term “Person” shall mean any individual, corporation, partnership or other entity and shall include any group comprised of any Person and any other Person with whom such Person or any Affiliate or Associate of such Person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of Voting Stock, and any member of such group.

(iv) The term “Five Percent Holder” shall mean and include any Person which, together with its “Affiliates” and “Associates” becomes the Beneficial Owner of an aggregate of five percent (5%) or more of any class of Voting Stock of the Corporation, and any Affiliate or Associate of any such Person; provided, however, that for purposes of this Article EIGHTH, including, without limitation, Paragraphs 1 and 4 hereof, the term Five Percent Holder shall not include (1) any trustee or fiduciary when acting in such capacity with respect to any employee benefit plan of the Corporation or a wholly owned subsidiary of the Corporation or (2) any Person that would have been a Five Percent Holder on December 31, 1984 if this Article EIGHTH were then in effect.

(v) The terms “Affiliate” and “Associate” shall have the meanings ascribed to them in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on May 3, 1984.

(vi) The term “Beneficial Owner” shall mean any person (1) who beneficially owns shares of Voting Stock within the meaning ascribed in Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on May 3, 1984, or (2) who has the right to acquire Voting Stock (whether or not such right is exercisable immediately) pursuant to any agreement, contract, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise.

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(vii) The term “Voting Stock” shall mean all of the outstanding shares of Common Stock, and the outstanding shares of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation entitled to vote on each matter on which the holders of Common Stock shall be entitled to vote, and each reference to a vote of a proportion of shares of Voting Stock shall refer to such proportion of the votes entitled to be cast by such shares.

(viii) In any determination whether a Person is a Five Percent Holder for purposes of this Article EIGHTH, the relevant class of securities outstanding shall be deemed to comprise all such securities deemed owned by such Person and its Affiliates and Associates through application of Paragraph 2(vi)(2) of this Article EIGHTH, but shall not include any other securities of such class which may be issuable pursuant to any agreement, contract, arrangement or understanding, or upon exercise of conversion rights, exchange rights, warrants or options, or otherwise.

3. The Board of Directors shall have the power to interpret all the provisions of this Article EIGHTH and their application to a particular transaction, including, without limitation, the power to determine (a) whether a Person is a Five Percent Holder, (b) the number of shares of Voting Stock or other Equity Securities of which any Person and its Affiliates and Associates are the Beneficial Owners, (c) whether a Person is an Affiliate or Associate of another, and (d) what is Fair Market Value and whether a price is above Fair Market Value as of a given date. Any such determination made by the Board of Directors shall be conclusive and binding to the fullest extent permitted by law.

4. The provisions set forth in this Article EIGHTH may not be amended, altered, changed or repealed in any respect and no provision inconsistent herewith shall be adopted unless such action is approved by the affirmative vote of the holders of at least 75% of the Voting Stock of the Corporation at any annual meeting of shareholders or at any special meeting duly called for that purpose, provided notice of such amendment, alteration, change or repeal or adoption be included in the notice of the special meeting; provided, however, that if there is a Five Percent Holder such action must also be approved by the affirmative vote of the holders of at least 75% of the Voting Stock excluding Voting Stock of which any Five Percent Holder is the Beneficial Owner.

Ninth:

1. Directors and Officers as Fiduciaries. A Director or Officer of the Corporation shall stand in a fiduciary relation to the Corporation and shall perform his duties as a Director or Officer, including his duties as a member of any committee of the Board upon which he may serve, in good faith, in a manner he reasonably believes to be in the best interests of the Corporation, and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. In performing his duties, a Director or Officer shall be entitled to rely in good faith on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by one or more Officers or employees of the Corporation whom the Director or Officer reasonably believes to be reliable and competent with respect to the matters presented, counsel, public accountants or other persons as to matters that the Director or Officer reasonably believes to be within the professional or expert competence of such person, or a committee of the Board of Directors upon which the Director or Officer does not serve, duly designated in accordance with law, as to matters within its designated authority, which committee the Director or Officer reasonably believes to merit confidence. A Director or Officer shall not be considered to be acting in good faith if he has knowledge concerning the matter in question that would cause his reliance to be unwarranted. Absent breach of fiduciary duty, lack of good faith or self-dealing, actions taken as a Director or Officer of the Corporation or any failure to take any action shall be presumed to be in the best interests of the Corporation.

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2. Personal Liability of Directors. A Director of the Corporation shall not be personally liable, as such, for monetary damages (including without limitation, any judgment, amount paid in settlement, penalty, punitive damages or expense of any nature (including, without limitation, attorneys’ fees and disbursements)) for any action taken, or any failure to take any action, unless (1) the Director has breached the duties of his office or has failed to perform his duties as a Director in good faith, in a manner he reasonably believed to be in the best interests of the Corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances; and (2) the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.

3. Personal Liability of Officers. An Officer of the Corporation shall not be personally liable, as such, to the Corporation or its shareholders for monetary damages (including without limitation, any judgment, amount paid in settlement, penalty, punitive damages or expense of any nature (including, without limitation, attorneys’ fees and disbursements)) for any action taken, or any failure to take any action, unless (1) the Officer has breached the duties of his office or has failed to perform his duties as an Officer in good faith, in a manner he reasonably believed to be in the best interests of the Corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances; and (2) the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.

Tenth: Any record holder of at least ten percent (10%) of the outstanding shares of the Corporation’s Voting Stock shall have the rights to:

(a) call a special meeting of the shareholders; and

(b) to propose an amendment to the Articles by a petition setting forth the proposed amendment, which petition shall be directed to, and filed with, the Board of Directors; subject, however, to all limitations and restrictions which are, or may hereafter be, imposed on, or with respect to, the Corporation’s Voting Stock and/or record holders of the Corporation’s Voting Stock by Pennsylvania statutory law (other than the provisions of Section 2521(a) of the Pennsylvania Business Corporation Law of 1988), these Articles, or the Corporation’s Bylaws. For purposes of this Article TENTH, the term “Voting Stock” shall mean all of the outstanding shares of Common Stock, and the outstanding shares of any class or series of stock having preference over the Common Stock as to dividends or as to liquidation entitled to vote on each matter on which the holders of Common Stock shall be entitled to vote, and reference to a percentage of shares of Voting Stock shall refer to the percentage of votes entitled to be cast by such shares.

Approved and Filed: August 4, 1971

Amended and Restated: March 30, 1990

Amended: December 23, 1992

Amended: May 4, 1995

Amended: June 13, 1995

Amended: February 1, 1996

Amended: November 6, 1998

Amended and Restated: July 8, 2005

Change of Registered Office: July 11, 2005

Amended and Restated: March 1, 2006

Articles of Incorporation

Footnote: all references to gender are denoted as “he.”

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EX-10.8

Exhibit 10.8

SUNOCO, INC.

EXECUTIVE INCENTIVE PLAN

(As Amended and Restated March 1, 2006)

ARTICLE I

Background and Purpose

1.1 Purpose. The purpose of the Executive Incentive Plan is to promote the achievement of the Company’s short-term, targeted business objectives by providing competitive incentive reward opportunities to those employees who can significantly impact the Company’s performance. The Plan enhances the Company’s ability to attract, develop and motivate individuals as members of a talented management team while aligning their interest with those of the shareholders. As described herein, the awards made under the Plan may recognize Company, business unit, team and/or individual performance.

1.2 Effective Date. The initial amended and restated Plan was approved by the shareholders at Sunoco, Inc.’s 2001 Annual Meeting of Shareholders in accordance with Section 162(m) of the Code. The amended and restated version of the Plan to be presented at Sunoco, Inc.’s 2006 Annual Meeting of Shareholders will continue to be effective upon requisite shareholder approval at such meeting. No awards shall be made under this Plan with respect to years after December 31, 2011, unless this date is extended by shareholder approval to a date no later than December 31, 2016.

1.3 Administration. The Committee shall have full power and authority to construe, interpret and administer the Plan and to make rules and regulations subject to the provisions of the Plan. All decisions, actions, determinations or interpretations of the Committee shall be made in its sole discretion and shall be final, conclusive and binding on all parties.

1.4 Eligibility and Participation. Participation in the Plan is limited to Executive Resources Employees and other employees evaluated in positions with Grades 11, 12 and 13 at any time during the Plan Year.

ARTICLE II

Definitions

As used in this Plan, the following terms shall have the meanings herein specified:

2.1 Board of Directors - shall mean the Board of Directors of the Company.

2.2 Business Combination - shall have the meaning provided herein at Section 2.4(c).

2.3 CEO - shall mean the Chief Executive Officer of the Company.

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2.4 Change in Control - shall mean the occurrence of any of the following events:

(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (1) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (2) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that, for purposes of this Section (a), the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any company controlled by, controlling or under common control with the Company, or (D) any acquisition by any entity pursuant to a transaction that complies with Sections (c)(1), (c)(2) and (c)(3) of this definition;

(b) Individuals who, as of September 6, 2001, constitute the Board of Directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors;

(c) Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its subsidiaries (each, a “Business Combination”), in each case unless, following such Business Combination, (1) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding

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voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (3) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board of Directors providing for such Business Combination; or

(d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

2.5 CIC Incentive Award - shall mean the incentive award payable in cash following a Change in Control, as such award is described herein at Article VII.

2.6 CIC Participant - shall mean a Participant described in any of the following:

(a) a Participant who was employed by the Company on the date of the Change in Control and who does not incur a termination for Just Cause before payment of the CIC Incentive Award;

(b) a Participant who was, immediately before the Change in Control, eligible for a prorated award under the provisions of Section 5.2;

(c) a Participant who is a participant in the Company’s Special Executive Severance Plan and incurs a “Qualifying Termination” as defined in such plan before the Change in Control;

(d) a Participant whose employment was terminated by the Company (other than for Just Cause) before the Change in Control, or a Participant who terminated employment for one of the reasons set forth in Sections 2.6(d)(1), (2), and (3) below, if the Participant can demonstrate that

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such termination or circumstance in Section 2.6(d)(1), (2), or (3) below leading to the termination was at the request of a third party with which the Company had entered into negotiations or an agreement with regard to a Change in Control or otherwise occurred in connection with a Change in Control; provided, however, that in either such case, the Change in Control actually occurs within one (1) year following the Employment Termination Date:

(1) the assignment to such Participant of any duties inconsistent in a way significantly adverse to such Participant, with such Participant’s positions, duties, responsibilities and status with the Company immediately prior to the Change in Control, or a significant reduction in the duties and responsibilities held by the Participant immediately prior to the Change in Control, in each case except in connection with such Participant’s termination of employment by the Company for Just Cause; or

(2) a reduction by the Company in the Participant’s combined annual base salary and guideline (target) bonus as in effect immediately prior to the Change in Control; or

(3) the Company requires the Participant to be based anywhere other than the Participant’s present work location or a location within thirty-five (35) miles from the present location; or the Company requires the Participant to travel on Company business to an extent substantially more burdensome than such Participant’s travel obligations during the period of twelve (12) consecutive months immediately preceding the Change in Control;

provided, however, that in the case of a Participant whose employment terminates under this subparagraph (d), such Participant shall not be deemed to be a CIC Participant on the basis of such termination unless the termination occurs within 120 days after the occurrence of the event or events constituting the reason for the termination.

2.7 CIC Short Period - shall mean the portion of the Plan Year from January 1 to the date of the occurrence of a Change in Control.

2.8 Code - shall mean the Internal Revenue Code of 1986, as amended.

2.9 Committee - shall mean the committee appointed to administer this Plan by the Board of Directors of the Company, as constituted from time to time. The Committee shall consist of at least two (2) members of the Board of Directors, each of whom shall meet applicable requirements set forth in the pertinent regulations under Section 16 of the Exchange Act and Section 162(m) of the Code.

2.10 Company - shall mean Sunoco, Inc., a Pennsylvania corporation. The term “Company” shall include any successor to Sunoco, Inc., any subsidiary or affiliate which has adopted the Plan, or a corporation succeeding to the business of Sunoco, Inc., or any subsidiary or affiliate, by merger, consolidation or liquidation or purchase of assets or stock or similar transaction.

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2.11 Exchange Act - shall mean the Securities Exchange Act of 1934, as amended.

2.12 Executive Resources Employee - shall mean any individual who has been designated by the Company as a member of the Company’s Executive Resources group. Generally, such group shall include employees in Grades 14 and above and all other employees subject to Section 16 of the Exchange Act.

2.13 Executive Team - shall mean the senior executives who have significant operating and/or strategic responsibilities for the Company as designated by the CEO.

2.14 Guideline Incentive Award - shall mean the result of the individual Participant’s actual annualized salary multiplied by the guideline percentage, as determined under Article III.

2.15 Incentive Award - shall mean the award granted to a Participant.

2.16 Incumbent Board - shall have the meaning provided herein at Section 2.4(b).

2.17 Just Cause - shall mean, for any Participant who is a participant in the Company’s Special Executive Severance Plan, “Just Cause” as defined in such plan, and for any other Participant:

(a) the willful and continued failure of the Participant to perform substantially the Participant’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness or following notice of employment termination by the Participant pursuant to Section 2.6(c), (d) or (e)), after a written demand for substantial performance is delivered to the Participant by the Board of Directors or any employee of the Company with supervisory authority over the Participant that specifically identifies the manner in which the Board of Directors or such supervising employee believes that the Participant has not substantially performed the Participant’s duties, or

(b) the willful engaging by the Participant in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company.

2.18 Outstanding Company Common Stock - shall have the meaning provided herein at Section 2.4(a).

2.19 Outstanding Company Voting Securities - shall have the meaning provided herein at Section 2.4(a).

2.20 Participant - shall mean a person participating or eligible to participate in the Plan, as determined under Section 1.4.

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2.21 Performance Factor - shall mean:

(a) for a Participant who is one of the top five most highly compensated officers of the Company during the applicable Plan Year: the various payout percentages related to the attainment levels of one or more Performance Goals, as determined by the Committee; and

(b) for a Participant who is not one of the top five most highly compensated officers of the Company during the applicable Plan Year: such payout percentages related to the attainment levels of one or more Performance Goals, as determined by the CEO, or any authorized delegate thereof.

2.22 Performance Goals - shall mean:

(a) for a Participant who is one of the top five most highly compensated officers of the Company during the applicable Plan Year: the objective financial or operating goals established by the Committee in accordance with Section 162(m) of the Code. Such Performance Goals may include specific targeted amounts of, or changes in, revenues; expenses; net income; operating income; equity; return on equity, assets or capital employed; working capital; shareholder return; operating capacity utilized; production or sales volumes; throughput; or other objective criteria; and

(b) for a Participant who is not one of the top five most highly compensated officers of the Company during the applicable Plan Year: such annual financial, operating, or other goals and objectives as may be established from time to time in the sole discretion of the CEO, or any authorized delegate thereof.

Such goals may be applicable to the Company as a whole, to one or more of the Company’s business units or teams, or to an individual Participant in the Plan. Performance Goals may be applied in total or on a per share, per barrel or percentage basis and on an absolute basis or relative to other companies, industries or indices or any combination thereof, as determined by the Committee (in the case of Performance Goals established by the Committee with respect to a Participant who is one of the top five most highly compensated officers of the Company during the applicable Plan Year) or by the CEO, or any authorized delegate thereof (in the case of a Participant who is not one of the top five most highly compensated officers of the Company during the applicable Plan Year).

2.23 Person - shall have the meaning provided herein at Section 2.4(a).

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2.24 Plan - shall mean the Company’s Executive Incentive Plan as amended and restated effective as of March 1, 2006.

2.25 Plan Year - shall mean the performance (calendar) year.

2.26 Pro-rated Bonus Award - for purposes of Section 5.2(a) shall mean an amount equal to the Incentive Award otherwise payable to a Participant for the Plan Year in which the Participant’s initiation of employment with the Company (new hires) or termination of employment with the Company (other than for Just Cause) is effective, multiplied by a fraction, the numerator of which is the number of full and partial months in the applicable Plan Year beginning on the date such Participant’s employment with the Company began or through the date of termination of such Participant’s employment, as applicable, and the denominator of which is twelve (12). For purposes of Section 5.2(b) shall mean an amount of Incentive Award equal to the sum of (i) the Participant’s actual salary on the last day of the final pay period of the Participant’s previous position during the current Plan Year multiplied by the applicable guideline percentage in his or her previous position, multiplied by a fraction, the numerator of which is the number of full and partial months in the applicable Plan Year in which the Participant was in the previous position, and the denominator of which is twelve (12) months, and (ii) the Participant’s actual salary on the last day of the final pay period of the Participant’s new position multiplied by the applicable guideline percentage in his or her new position, multiplied by a fraction, the numerator of which is the number of full and partial months in the applicable Plan Year in which the Participant has been in the new position, and the denominator of which is twelve (12). Pro-rated Bonus Awards shall be determined in accordance with and subject to the provisions of Article III.

ARTICLE III

Determination of Guideline Incentive Awards

3.1 Guideline Percentages. Within the time prescribed by Section 162(m) of the Code, the Committee will establish, in writing, for the applicable Plan Year, the guideline incentive opportunities for Participants as a percentage of actual salary in effect on the last day of the final pay period of the current Plan Year.

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3.2 Guideline Incentive Award. The Guideline Incentive Award is calculated for each Participant by multiplying the individual Participant’s actual salary range in effect on the last day of the final pay period of the Current Plan Year by the applicable guideline percentage established by the Committee.

Actual incentive awards to individual Participants may be greater or lesser than this guideline depending on Company and, as necessary, business unit, team and/or individual Participant performance.

ARTICLE IV

Determination of Incentive Award

4.1 Performance Goals.

(a) Five Most Highly Compensated Officers: For a Participant who is one of the top five most highly compensated officers of the Company during the applicable Plan Year, the amount of any Incentive Award earned will be based upon the attainment of Performance Goals established by the Committee in accordance with Section 162(m) of the Code. Within the time prescribed by Section 162(m) of the Code, the Committee will establish, in writing, the weighted Performance Goals and related Performance Factors for various goal achievement levels for the applicable Plan Year, and will determine the appropriate methodology for including Company, business unit, team and/or individual performance in the Incentive Award computations for such year.

In establishing the weighted Performance Goals, the Committee shall take the necessary steps to insure that the ability to achieve the pre-established goals is uncertain at the time the goals are set. The established written Performance Goals, assigned weights, and Performance Factors shall be written in terms of an objective formula, whereby any third party having knowledge of the relevant Company, business unit, team and/or individual performance results could calculate the amount to be paid. Such Performance Goals may vary by Participant and by award.

(1) Adjustment or Modification of Performance Goals. The Committee, in its discretion (and within the time prescribed by Section 162(m) of the Code), may adjust or modify the calculation of Performance Goals to prevent dilution or enlargement of the rights of Participants:

(i) in the event of, in recognition of, or in anticipation of, any unanticipated, unusual nonrecurring or extraordinary corporate item, transaction, event, or development; or

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(ii) in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions.

Unless otherwise determined by the Committee, if any provision of the Plan or any Incentive Award granted to an individual who is one of the top five most highly compensated officers of the Company hereunder would not comply with Section 162(m) of the Code, such provision or Incentive Award shall be construed or deemed amended to conform to Section 162(m) of the Code.

(2) Determination of Performance Factor. After the end of each Plan Year, the Committee will determine:

(i) the extent to which the Company, business unit and/or team performance goals have been met; and

(ii) the Company, business unit and/or team Performance Factor (each of which may vary from 0% to 200%), appropriate to the level of performance achieved with respect to each Performance Goal.

(b) Other Participants: For a Participant who is not one of the top five most highly compensated officers of the Company during the applicable Plan Year, the amount of any Incentive Award earned will be based upon the attainment of Performance Goals established as provided in this Section 4.1(b). For each Plan Year, the CEO, and if so delegated, other members of the Executive Team will determine the appropriate methodology for including Company, business unit, team and individual performance in the Incentive Award computations for such year. While Company Performance will always be included in the computation, the other factors may or may not be included as deemed appropriate by the Executive Team. The applicable Performance Factors shall be determined as follows:

(1) Determination of Performance Factor Applicable to Company. For each Plan Year, the Compensation Committee shall establish annual Performance Goal(s) for the Company, based on one or more criteria that the Compensation Committee, in its sole discretion, determines to be applicable.

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After the end of each calendar year, the Compensation Committee will determine the extent to which such Performance Goals have been met and the appropriate Company Performance Factor, from 0% to 200%, that is appropriate with the varying levels of performance for each goal.

(2) Determination of Business Unit and Team Performance Factors. The CEO, and if so delegated, other members of the Executive Team shall determine the annual business unit Performance Goal(s) and the applicable levels of performance based on one or more factors. Business unit leaders will establish annual Performance Goal(s) for any teams within their respective business units.

After the end of each calendar year, the CEO, and if so delegated, other members of the Executive Team will determine the extent to which the business unit Performance Goals have been met and the business unit Performance Factor, from 0% to 200%, that is appropriate with the varying levels of performance for each goal. Business unit leaders will similarly evaluate the performance of any teams to determine the appropriate Performance Factor applicable to such team.

4.2 Individual Performance Factors. Incentive Awards under this Plan may be based, in whole or in part, upon the attainment of individual performance objectives or targets. For a Participant who is one of the top five most highly compensated officers of the Company during the applicable Plan Year, the Committee will establish, in writing, individual performance objectives or targets in accordance with Section 162(m) of the Code and Section 4.1 hereof. For all other Participants, the recommended individual performance assessment process is briefly outlined as follows:

(a) Prior to the beginning of each Plan Year or other appropriate time, the Participant and his or her manager will agree on individual performance targets or objectives (which may be related to the Participant’s collaboration on a work team) to be attained during the Plan Year.

(b) Progress toward attainment of such individual targets or objectives will be formally reviewed on a periodic basis.

(c) At the end of the year, the manager will assess the degree to which the individual performance targets or objectives have been achieved, keeping in mind environmental or circumstantial changes that may have affected the original targets or objectives. Specifically, consideration should be given to:

(1) level of contributions relative to peers.

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(2) degree of difficulty of performance targets.

(3) reaction to unanticipated changes in the business environment.

(4) unplanned contributions.

(5) team performance, as appropriate.

(d) While the level of individual performance for the Plan should be based primarily on annual targets and objectives, the performance factors utilized for this program should be consistent with appraisals used for the purposes of salary administration as updated to reflect performance since the last appraisal.

(e) The performance appraisal should be documented in such a way as to identify the performance targets and objectives, the assessment of individual performance against such targets and objectives, and any other significant information to support the recommendation.

(f) The Participant’s individual performance factor should be determined based upon the individual performance assessment as outlined below:

Individual Performance Assessments	Adjustment to Individual Performance Components *
Exceed all performance targets	150% to 200%
Exceed most performance targets	115% to 145%
Met most performance targets	90% to 110%
Met some/few performance targets	50% to 85%
Completely unacceptable performance	0%

* All assessments should be multiples of 5%.

(g) The Participant’s individual performance assessment will be determined by his or her manager and approved by the appropriate member of the Executive Team and, where appropriate, the CEO.

ARTICLE V

Forfeiture and/or Proration of Incentive Award

5.1 Forfeiture. Provided that no Change in Control of the Company has occurred, if a Participant voluntarily terminates his or her employment with the Company (for any reason other than retirement, death, permanent disability, approved leave of absence) prior to December 31 of any

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Plan Year, such Participant will not receive payment of any Incentive Award for such Plan Year. Likewise, a Participant will not receive payment of any Incentive Award for a particular Plan Year if no Change in Control has occurred and the Participant’s employment with the Company is terminated for Just Cause before March 15 of the succeeding calendar year.

5.2 Proration.

(a) A Pro-rated Bonus Award, reflecting participation for a portion of the Plan Year, will be paid to any Participant whose employment status changed during the year as a result of death or permanent disability (as determined by the Committee), or due to retirement, approved leave of absence, or termination at the Company’s request (other than for Just Cause). New hires and part-time employees also will receive a Pro-rated Bonus Award.

(b) If a Participant has a change in level of employment after the beginning of the Plan Year, the Participant will receive a Pro-rated Bonus Award, pro-rated based on the length of time, actual salary and applicable guideline percentage in the previous and new positions, as described in Section 2.26.

(c) Unless otherwise required by applicable law, any Pro-rated Bonus Award payable hereunder will be paid on the date when Incentive Awards are otherwise payable as provided in the Plan.

ARTICLE VI

Timing and Form of Payment

6.1 Timing and Form of Payment.

(a) Certification in Writing. Prior to the payment of any Incentive Award under this Plan, the Committee will certify in writing that the applicable Performance Goals, and any other material terms or conditions of such award, have been satisfied. In making this certification, the Committee will be entitled to rely upon an appropriate officer’s certificate from the Company’s Chief Financial Officer. Upon approval by the Committee of the individual Incentive Awards for the top five most highly compensated officers of the Company and the aggregate amount of all Incentive Awards for the Plan Year, payment of the individual awards will be made in cash less the withholding of appropriate taxes. Payment will be made not later than March 15th of the calendar year following each Plan Year.

12

(b) Negative Discretion. The Committee will have the discretion, by Participant and by grant, to reduce (but not to increase) some or all of the amount of any Incentive Award that would otherwise be payable by reason of the satisfaction of the Performance Goals. In making any such determination, the Committee is authorized to take into account any such factor or factors it determines are appropriate, including but not limited to Company, business unit and individual performance; provided, however, the exercise of such negative discretion with respect to one executive may not be used to increase the amount of any award otherwise payable to another executive.

ARTICLE VII

Change in Control

7.1 Effect of Change in Control. The terms of this Article VII shall immediately become operative, without further action or consent by any person or entity, upon a Change in Control, and once operative shall supersede and control over any other provisions of this Plan.

7.2 Acceleration. The CIC Incentive Award shall be payable in cash within thirty (30) days of after the occurrence of a Change in Control (or as soon as it is practicable to determine the appropriate Performance Factors under Subsection (a) below) to all CIC Participants. Such award shall be calculated according to the terms of the Plan, except as follows:

(a) The applicable Performance Factors shall be determined based upon performance of the Company, business unit and/or team, as the case may be, from January 1 through the end of the most recent quarter (prior to the Change in Control) for which the Company has reported its earnings to the public. Notwithstanding the methodology established by the Committee for the Plan Year, there shall be no adjustment for individual performance factors in the determination of the CIC Incentive Award. If a specified percentage of the Guideline Incentive Award was to be based upon individual performance, such percentage will be adjusted using the weighted average of the Performance Factors applicable to Company and, as necessary, business unit and/or team performance used to determine the non-individual performance components of the CIC Participant’s award.

(b) The amount of the CIC Incentive Award shall be equal to the respective annual Guideline Incentive Award adjusted to reflect the Performance Factors applicable to

13

Company and, as necessary, business unit and/or team performance (calculated in accordance with subsection (a) hereof), multiplied by the number of full and partial months in the CIC Short Period divided by twelve (12). Such result shall be further adjusted to reflect participation for only a portion of the CIC Short Period in accordance with Section 5.2.

(c) Notwithstanding the provisions of Section 8.3 hereof, no action taken by the Committee or the Board of Directors after a Change in Control, or before, but in connection with, a Change in Control, may (1) terminate or reduce the CIC Incentive Award or prospective CIC Incentive Award payable to any Participant in connection with such Change in Control without the express written consent of such Participant, or (2) adversely affect a Participant’s rights under Section 7.3 in connection with such Change in Control.

7.3 Attorney’s Fees. The Company shall pay all reasonable legal fees and related expenses incurred by a Participant in seeking to obtain or enforce payment of the CIC Incentive Award to which such Participant may be entitled under the Plan after a Change in Control; provided, however, that the Participant shall be required to repay any such amounts to the Company to the extent a court of competent jurisdiction issues a final and non-appealable order setting forth the determination that the position taken by the Participant was frivolous or advanced in bad faith.

ARTICLE VIII

Miscellaneous

8.1 Funding of Plan. In a meeting to be held not later than December 31st of each Plan Year, the Committee may determine, by appropriate resolution, an estimate of the amount of monies, if any, that should be set aside for the current Plan Year for payment to Participants in the following calendar year.

8.2 Construction. Nothing in this Plan or in any agreement or other instrument executed pursuant thereto shall be construed as conferring upon any Participant the right to receive executive incentive compensation or to be continued in the employ of the Company and any rights conferred by this Plan may not be transferred, sold, assigned, pledged, anticipated or otherwise disposed of other than by will or intestate laws.

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8.3 Amendment. This Plan may be amended at any time by the Committee and may be terminated in whole or in part at any time by the Board of Directors (except as set forth in Sections 1.2 and 7.2(c)).

15

EX-10.14

Exhibit 10.14

Amended Schedule to the Form

of Amended and Restated Indemnification Agreement

The Indemnification Agreements between Sunoco, Inc. and the directors, executive officers, trustees, fiduciaries, employees or agents named below are identical in all material respects.

Employee	Date of Agreement
Michael J. Colavita	September 2, 2004
John F. Carroll	March 4, 2004
Terence P. Delaney	March 4, 2004
Michael H. R. Dingus	March 4, 2004
John G. Drosdick	March 4, 2004
Bruce G. Fischer	March 4, 2004
Michael J. Hennigan	February 2, 2006
Thomas W. Hofmann	March 4, 2004
Vincent J. Kelley	February 2, 2006
Joseph P. Krott	March 4, 2004
Michael S. Kuritzkes	March 4, 2004
Joel H. Maness	March 4, 2004
Michael J. McGoldrick	March 4, 2004
Ann C. Mulé	March 4, 2004
Paul A. Mulholland	March 4, 2004
Rolf D. Naku	March 4, 2004
Marie A. Natoli	March 3, 2006
Robert W. Owens	March 4, 2004
Alan J. Rothman	March 4, 2004
Ross S. Tippin, Jr.	March 4, 2004
Charles K. Valutas	March 4, 2004
Director	Date of Agreement
Robert J. Darnall	March 4, 2004
Ursula F. Fairbairn	March 4, 2004
Thomas P. Gerrity	March 4, 2004
Rosemarie B. Greco	March 4, 2004
James G. Kaiser	March 4, 2004
Richard H. Lenny	March 4, 2004
R. Anderson Pew	March 4, 2004
G. Jackson Ratcliffe	March 4, 2004
John W. Rowe	March 4, 2004
John K. Wulff	March 8, 2004

EX-10.16

Exhibit 10.16

Schedule 2.1

to the

Directors’ Deferred Compensation and Benefits

Trust Agreement

Benefit Plans and Other Arrangements Subject to Trust

(1) Sunoco, Inc. Directors’ Deferred Compensation Plan I;

(2) Sunoco, Inc. Directors’ Deferred Compensation Plan II;

(3) The entire funding for all the Indemnification Agreements with the directors set forth below shall be Five Million Dollars ($5,000,000.00) in the aggregate upon a Potential Change in Control, and an amount upon a Change in Control calculated on the basis of the Indemnification Agreements with the following directors:

(a) Robert J. Darnall

(b) Ursula O. Fairbairn

(c) Thomas P. Gerrity

(d) Rosemarie B. Greco

(e) James G. Kaiser

(f) Richard H. Lenny

(g) R. Anderson Pew

(h) G. Jackson Ratcliffe

(i) John W. Rowe

(j) John K. Wulff

(4) Benefits payable to former directors of the Company (or their beneficiaries) in pay status as of the date of termination of the Sunoco, Inc. Non-Employee Directors’ Retirement Plan.

EX-10.18

Exhibit 10.18

Schedule 2.1 to the Deferred Compensation and Benefits Trust Agreement

Benefit Plans and Other Arrangements Subject to Trust

(1) Sunoco, Inc. Executive Retirement Plan (“SERP”);

(2) Sunoco, Inc. Deferred Compensation Plan;

(3) Sunoco, Inc. Pension Restoration Plan;

(4) Sunoco, Inc. Savings Restoration Plan.

(5) Sunoco, Inc. Special Executive Severance Plan;

(6) The funding of the Sunoco, Inc. Special Employee Severance Plan necessary to provide benefits in accordance with the terms of such Plan to only those employees then in grades 11 through 13.

(7) The entire funding for all the Indemnification Agreements with the executives set forth below shall be Five Million Dollars ($5,000,000) in the aggregate:

(a)	Michael J. Colavita	(k)	Michael S. Kuritzkes
(b)	John F. Carroll	(l)	Joel H. Maness
(c)	Terence P. Delaney	(m)	Michael J. McGoldrick
(d)	Michael H. R. Dingus	(n)	Ann C. Mulé
(e)	John G. Drosdick	(o)	Paul A. Mulholland
(f)	Bruce G. Fisher	(p)	Rolf D. Naku
(g)	Michael J. Hennigan	(q)	Marie A. Natoli
(h)	Thomas W. Hofmann	(r)	Robert W. Owens
(i)	Vincent J. Kelley	(s)	Alan J. Rothman
(j)	Joseph P. Krott	(t)	Ross S. Tippin, Jr
		(u)	Charles K. Valutas

EX-10.19

Exhibit 10.19

Sunoco, Inc. Director Compensation Summary Sheet

Sunoco’s Board of Directors believes that the compensation program for Sunoco’s independent directors should be designed to attract experienced and highly qualified directors; provide appropriate compensation for their time, efforts, commitment and contributions to Sunoco and Sunoco’s shareholders; and align the interests of the independent directors and Sunoco’s shareholders. The Governance Committee of the Board engages a third-party compensation consultant each year to advise it as to the “best practices” and emerging trends in director compensation. The compensation consultant also benchmarks Sunoco’s director compensation compared to the proxy performance peer group, the oil industry generally and general industry data. Directors are compensated partially in Sunoco common stock or stock equivalents to better align their interests with those of Sunoco’s shareholders. Currently, equity-based compensation represents a substantial portion of the total compensation package. The Chief Executive Officer (“CEO”) is not paid for his services as a director. The following table summarizes the current compensation program for Sunoco’s independent directors.

Type of Compensation	Value
Annual Retainer (Cash Portion)	$	50,000
Annual Retainer (Stock-Based Portion)	$	40,000
Annual Restricted Share Credit under Directors’ Deferred Compensation Plan	$	60,000
TOTAL (excluding Committee Chair Retainer, Committee Chair Fee, and meeting fees)	$	150,000
Annual Retainer for Committee Chair	$	5,000
Committee Chair Fee (per meeting attended for which a director serves as chair)	$	500
Board or Committee Attendance Fee (per meeting attended)1	$	2,000

NOTE TO TABLE:

¹ A fee of $2,000 per day is also paid in cash for special meetings (e.g., strategic planning meetings, facility visits, annual meeting of shareholders).

Directors’ Deferred Compensation Plan I and II: The Directors’ Deferred Compensation Plan I (previously, Directors’ Deferred Compensation Plan) and the Directors’ Deferred Compensation Plan II (“Plan I” and “Plan II”, respectively; collectively the “Plans”) permit independent directors to defer a portion of their compensation. Plan I was amended in response to the American Jobs Creation Act of 2004 and the requirements of Section 409A of the Internal Revenue Code, and covers deferrals of compensation earned before January 1, 2005. No deferrals may be made under Plan I with respect to compensation earned after December 31, 2004. Plan II is effective for deferrals of compensation earned after December 31, 2004. Payments of compensation deferred under the Plans are restricted in terms of the earliest and latest dates that payments may begin. Deferred compensation is designated as share units, cash units, or a combination of both. Cash units accrue interest at a rate based upon Sunoco’s cost of borrowing. A share unit is treated as if it were invested in shares of Sunoco common stock, but it does not have voting rights. If share units are chosen, dividend equivalents are credited in the form of additional share units. Share units are settled in cash, based upon the fair market value of Sunoco common stock at the time of payment. The Plans also provide for the annual crediting of restricted share units, which is a portion of the directors’ compensation package.

Directors’ Retainer Stock Plan: The Retainer Stock Plan for independent directors allows for the payment of a portion of the independent directors’ annual retainer in stock. The retainer is granted to each director after the annual meeting. Any shares issued are restricted, prohibiting the transfer or sale of such shares for one year from the date of issue. The holder of the shares receives quarterly dividend equivalents equal to the dividends declared on the Company’s shares.

Long-Term Performance Enhancement Plan II: The Long-Term Performance Enhancement Plan II provides that stock option awards under the plan may be made to independent directors of the Company. The options generally have a ten-year term and are exercisable two years after the date of grant. The purchase price payable upon exercise of an option will not be less than the fair market value of a share of Sunoco common stock on the date the option is granted. The purchase price may be paid in cash or in shares of common stock. In 2003, the Company discontinued granting stock options to the Company’s independent directors.

The Directors’ Retainer Stock Plan and the Long-Term Performance Enhancement Plan II, which are equity compensation plans, were approved by the shareholders.

Directors’ Deferred Compensation and Benefits Trust: In the event of a change in control, the Directors’ Deferred Compensation and Benefits Trust may be funded to provide the source of funds for the Company to meet its liabilities under certain benefit plans and arrangements, including the Directors’ Deferred Compensation Plans I and II. Assets held by the Trust are subject to the claims of the Company’s general creditors under federal and state law in the event of insolvency.

Business Expenses: The directors are reimbursed for their business expenses related to their attendance at Sunoco meetings, including room, meals and transportation to and from board and committee meetings (e.g., commercial flights, trains, cars and parking). When traveling on Sunoco business, a director may occasionally be accompanied by his or her spouse. At times, a director may travel to and from Sunoco meetings on Sunoco corporate aircraft. Directors are also reimbursed for attendance at qualified third-party director education programs.

Directors’ Stock Ownership Guidelines: Each independent director is expected to own Sunoco common stock with a market value equal to at least five times the total annual retainer. Included in the determination of stock ownership for purposes of these guidelines are all shares beneficially owned and any share units held in the Directors’ Deferred Compensation Plans I and II. New directors are allowed a five-year phase-in period to comply with the guidelines. As of December 31, 2005, all independent directors were in compliance with the guidelines.

Directors’ & Officers’ Indemnification Agreements: Sunoco’s bylaws require that Sunoco indemnify its directors and officers, to the extent permitted by Pennsylvania law, against any costs, expenses (including attorneys’ fees) and other liabilities to which they may become subject by reason of their service to Sunoco. Sunoco has purchased liability insurance for its directors and officers and has entered into indemnification agreements with its directors and certain key executive officers and other management personnel. This insurance and the indemnification agreements supplement the provisions in Sunoco’s Articles of Incorporation which eliminate the potential monetary liability of directors and officers to Sunoco or its shareholders in certain situations as permitted by law.

EX-10.20

Exhibit 10.20

Sunoco, Inc. Executive Compensation Summary Sheet

The following is a summary of the 2006 base salary, annual guideline incentive bonus opportunity under the Executive Incentive Plan, and long-term incentive awards (stock options and performance-based common stock units) under the Long-Term Performance Enhancement Plan II, of the named executive officers of Sunoco, Inc.:

Name/Title	Base Salary		Annual Guideline Incentive Bonus Opportunity Under the Executive Incentive Plan (% of Base Salary)		Stock Options1	Performance- Based Common Stock Units1
John G. Drosdick Chairman, President and Chief Executive Officer	$	1,140,000	120	%	114,000	32,000
Joel H. Maness Executive Vice President, Refining and Supply	$	550,000	75	%	31,200	8,600
Thomas W. Hofmann Senior Vice President and Chief Financial Officer	$	500,000	70	%	25,000	6,860
Robert W. Owens Senior Vice President, Marketing	$	465,750	70	%	23,500	6,460
Bruce G. Fischer Senior Vice President, Sunoco Chemicals	$	414,000	65	%	21,000	5,630
Charles K. Valutas Senior Vice President and Chief Administrative Officer	$	414,000	65	%	21,000	5,630

NOTE TO TABLE:

¹ The stock options and performance-based common stock units awarded for 2006 were granted in December 2005 under the Long-Term Performance Enhancement Plan II.

EX-12

EXHIBIT 12

STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(a)

Sunoco, Inc. and Subsidiaries

(Millions of Dollars, Except Ratio)

	For the Year Ended December 31, 2005
Fixed Charges:
Consolidated interest cost and debt expense	$	94
Interest allocable to rental expense(b)		66
Total	$	160
Earnings:
Consolidated income before income tax expense	$	1,580
Minority interest in net income of subsidiaries having fixed charges		33
Proportionate share of income tax expense of 50 percent-owned-but-not-controlled investees		3
Equity income of less-than-50-percent-owned investees		(14	)
Dividends received from less-than-50-percent-owned investees		14
Fixed charges		160
Interest capitalized		(25	)
Amortization of previously capitalized interest		2
Total	$	1,753
Ratio of Earnings to Fixed Charges		10.96

(a) The consolidated financial statements of Sunoco, Inc. and subsidiaries contain the accounts of all entities that are controlled and variable interest entities for which the Company is the primary beneficiary. Corporate joint ventures and other investees over which the Company has the ability to exercise significant influence that are not consolidated are accounted for by the equity method.

(b) Represents one-third of total operating lease rental expense which is that portion deemed to be interest.

EX-13

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis is management’s analysis of the financial performance of Sunoco, Inc. and subsidiaries (collectively, “Sunoco” or the “Company”) and of significant trends that may affect its future performance. It should be read in conjunction with Sunoco’s consolidated financial statements and related notes. Those statements in Management’s Discussion and Analysis that are not historical in nature should be deemed forward-looking statements that are inherently uncertain. See “Forward-Looking Statements” on page 37 for a discussion of the factors that could cause actual results to differ materially from those projected.

Overview

Sunoco’s profitability is primarily determined by refined product and chemical margins and the reliability and efficiency of its operations. The volatility of crude oil, refined product and chemical prices and the overall supply/demand balance for these commodities have had, and should continue to have, a significant impact on margins and the financial results of the Company.

Throughout most of the 2003-2005 period, refined product margins in Sunoco’s principal refining centers in the Northeast and Midwest were very strong. Such margins benefited from low industry refined product inventory levels, stringent fuel specifications beginning in 2004 related to sulfur reductions in gasoline, supply disruptions in the Gulf Coast in 2005 attributable to Hurricanes Katrina and Rita and strong refined product demand as a result of improving U.S. and global economies which led to reductions in spare industry refining capacity. Chemical margins improved during the 2003-2005 period as chemical prices increased and product demand strengthened as a result of improving U.S. and global economies.

In early 2006, refined product margins have weakened considerably as a result of unseasonably warm weather in the Northeast and a high level of gasoline imports. However, the Company believes the outlook for refined product margins remains favorable for 2006, primarily due to strong global product demand and continued tight refining supply as well as the impact of more stringent fuel specifications. In addition, despite increases in worldwide capacity, the Company believes chemical margins and volumes in 2006 will approximate the levels attained in 2005, assuming economic strength in the U.S. and the rest of the world continues to favorably impact global demand. However, the absolute level of refined product and chemical margins is difficult to predict as they are influenced by these and other extremely volatile factors in the global marketplace, including the effects of weather conditions on product supply and demand.

The Company’s future operating results and capital spending plans will also be impacted by environmental matters (see “Environmental Matters” below).

Strategic Actions

Sunoco is committed to improving its performance and enhancing its shareholder value while, at the same time, maintaining its financial strength and flexibility by continuing to:

• Deliver excellence in health and safety and environmental compliance;

• Increase reliability and realize additional operational improvements from existing assets in each of the Company’s businesses;

• Prudently manage expenses;

• Efficiently manage capital spending with an increasing emphasis on income improvement projects;

• Diversify, upgrade and grow the Company’s asset base through strategic acquisitions and investments;

• Divest assets that do not meet the Company’s return-on-investment criteria;

7

• Optimize the Company’s capital structure; and

• Return cash to the Company’s shareholders through the payment of cash dividends and the purchase of Company common stock.

Sunoco has undertaken the following initiatives as part of this strategy:

• Effective March 31, 2003, the Company invested $198 million to secure a favorable long-term supply of propylene for its Gulf Coast polypropylene business through the formation of a limited partnership with Equistar Chemicals, L.P. (“Equistar”) and to increase its polypropylene capacity through the acquisition of Equistar’s polypropylene facility in Bayport, TX.

• During the second quarter of 2003, Sunoco completed the $162 million purchase from a subsidiary of Marathon Ashland Petroleum LLC (“Marathon”) of 193 Speedway^® retail gasoline sites located primarily in Florida and South Carolina.

• In January 2004, Sunoco completed the acquisition from El Paso Corporation of the 150 thousand barrels-per-day Eagle Point refinery and related assets located near the Company’s existing Northeast Refining operations for $250 million, including inventory.

• In January 2004, the Company completed the sale of its plasticizer business to BASF, generating approximately $90 million of cash proceeds.

• In April 2004, Sunoco completed the $181 million purchase from ConocoPhillips of 340 Mobil^® retail outlets located primarily in Delaware, Maryland, Virginia and Washington, D.C.

• During the second quarter of 2004, Sunoco sold its private label consumer and commercial credit card business and related accounts receivable to Citibank, generating $100 million of cash proceeds.

• In September 2004, Sunoco completed the sale of its one-third interest in the Belvieu Environmental Fuels MTBE production facility to Enterprise Products Operating L.P., generating $15 million of cash proceeds.

• In 2004, Sunoco completed a debt restructuring, which reduced its outstanding debt by approximately $100 million and lowered its weighted-average interest rate. Pretax interest expense declined approximately $20 million in 2005 as a result of the debt restructuring.

• In March 2005, Sun Coke commenced cokemaking operations at its 550 thousand tons-per-year Haverhill facility.

• During 2005 and 2004, Sunoco Logistics Partners L.P. (the “Partnership”) issued 7.8 million limited partnership units in a series of public offerings, generating $289 million of net proceeds. Coincident with these offerings, the Partnership redeemed 5.0 million limited partnership units owned by Sunoco for $182 million. As a result of these transactions, Sunoco’s ownership interest in this master limited partnership was reduced from 75.3 percent to 47.9 percent.

• In August 2005, Sunoco Logistics Partners L.P. completed the $100 million purchase from ExxonMobil of a crude oil pipeline system and related storage facilities located in Texas and, in the fourth quarter of 2005, completed the construction of a $16 million, 20-mile crude oil pipeline connecting these assets to the West Texas Gulf Pipeline, which is 43.8 percent owned by the Partnership.

• In March 2006, Sunoco Logistics Partners L.P. completed the purchase of two other crude oil pipeline systems and related storage facilities located in Texas, one from Alon USA Energy, Inc. for $68 million and the other from Black Hills Energy, Inc. for approximately $41 million.

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• During 2005, the Company continued its Retail Portfolio Management program to selectively reduce its invested capital in Company-owned or leased sites, while retaining most of the gasoline sales volumes attributable to the divested sites. During the 2003-2005 period, 323 sites have been divested, with most of the sites converted to contract dealers or distributors, generating $170 million of divestment proceeds. The Company expects to generate approximately $60 million of additional proceeds in 2006 under this program through the divestment/conversion of an additional 75 sites.

• In 2005, construction continued on a 1.7 million tons-per-year cokemaking facility and associated cogeneration power plant in Vitória, Brazil, which is expected to be operational in the fourth quarter of 2006. Sun Coke currently has a one percent interest in this venture and expects to purchase an additional 19 percent interest during 2006 or 2007 for approximately $35 million. Sun Coke will be the operator of the cokemaking facility.

• On August 1, 2005, a two-for-one split of Sunoco’s common stock was effected in the form of a common stock dividend. (Share and per-share data for all periods reflect the effect of the stock split.)

• Effective with the second quarter of 2006, Sunoco increased the quarterly dividend on its common stock to $.25 per share ($1.00 per year), following increases from $.15 per share to $.20 per share in the second quarter of 2005, from $.1375 per share to $.15 per share in the third quarter of 2004 and from $.125 per share to $.1375 per share in the fourth quarter of 2003.

• During 2005, 2004 and 2003, the Company repurchased 6.7, 15.9 and 5.8 million shares, respectively, of its outstanding common stock for $435, $568 and $136 million, respectively. In March 2005, the Company announced that its Board of Directors approved an additional $500 million share repurchase authorization. At December 31, 2005, the Company had a remaining authorization from its Board to purchase up to $306 million of Company common stock. Sunoco expects to continue to purchase Company common stock in the open market from time to time depending on prevailing market conditions and available cash.

For additional information regarding the above actions, see Notes 2, 3, 11, 13, 14 and 18 to the consolidated financial statements.

9

Results of Operations

Earnings Profile of Sunoco Businesses (after tax)

(Millions of Dollars)	2005			2004			2003
Refining and Supply	$	947		$	541		$	261
Retail Marketing		30			68			91
Chemicals		94			94			53
Logistics		22			31			26
Coke		48			40			43
Corporate and Other:
Corporate expenses		(84	)		(67	)		(40	)
Net financing expenses and other		(45	)		(78	)		(99	)
Income tax matters		18			18			—
Midwest marketing divestment program		—			—			9
Phenol supply contract dispute		(56	)		—			—
Asset write-downs and other matters		—			(8	)		(32	)
Debt restructuring		—			(34	)		—
Consolidated net income	$	974		$	605		$	312

Analysis of Earnings Profile of Sunoco Businesses

In 2005, Sunoco earned $974 million, or $7.08 per share of common stock on a diluted basis, compared to $605 million, or $4.04 per share, in 2004 and $312 million, or $2.01 per share, in 2003.

The $369 million increase in net income in 2005 was primarily due to higher margins in Sunoco’s Refining and Supply business ($467 million). Also contributing to the improvement in earnings were higher margins from Sunoco’s Chemicals business ($34 million), higher production of refined products ($41 million), the absence of a loss on early extinguishment of debt in connection with a debt restructuring in 2004 ($34 million) and lower net financing expenses ($33 million). Partially offsetting these positive factors were higher expenses ($124 million), primarily fuel and employee-related charges; a loss associated with a phenol supply contract dispute ($56 million); lower margins in Retail Marketing ($52 million); and lower chemical sales volumes ($13 million).

In 2004, the $293 million increase in net income was primarily due to an increase in margins in Sunoco’s Refining and Supply business ($234 million) and the income contribution from the Eagle Point refinery acquired on January 13, 2004 ($135 million). Also contributing to the improvement were higher production of refined products ($15 million), higher margins from Sunoco’s Chemicals business ($35 million), income attributable to the Mobil^® retail gasoline outlets acquired from ConocoPhillips in April 2004 ($15 million), increased income from the Speedway^® sites acquired from Marathon in June 2003 ($6 million), increased earnings related to the March 2003 propylene supply agreement with Equistar ($12 million), lower net financing expenses ($21 million), a gain related to income tax matters recognized in 2004 ($18 million) and lower provisions for asset write-downs and other matters ($24 million). Partially offsetting these positive factors were higher expenses across the Company ($104 million), primarily fuel, depreciation and employee-related charges, including pension and performance-related incentive compensation; lower non-gasoline income ($9 million); lower margins for retail gasoline ($27 million); an accrual for the estimated liability attributable to retrospective premiums related to certain insurance policies ($10 million); the absence of gains from a retail marketing divestment program in the Midwest ($9 million); the loss on early extinguishment of debt in connection with a debt restructuring ($34 million); and a higher effective income tax rate ($23 million).

10

Refining and Supply

The Refining and Supply business manufactures petroleum products and commodity petrochemicals at its Marcus Hook, Philadelphia, Eagle Point and Toledo refineries and petroleum and lubricant products at its Tulsa refinery and sells these products to other Sunoco businesses and to wholesale and industrial customers. Refining operations are comprised of Northeast Refining (the Marcus Hook, Philadelphia and Eagle Point refineries) and MidContinent Refining (the Toledo and Tulsa refineries).

	2005	2004	2003
Income (millions of dollars)	$947	$541	$261
Wholesale margin* (per barrel):
Total Refining and Supply	$8.65	$6.30	$4.76
Northeast Refining	$8.35	$6.36	$4.63
MidContinent Refining	$9.54	$6.12	$5.05
Throughputs** (thousands of barrels daily):
Crude oil	881.0	855.7	708.1
Other feedstocks	59.4	58.8	53.2
Total throughputs	940.4	914.5	761.3
Products manufactured** (thousands of barrels daily):
Gasoline	443.4	442.0	375.6
Middle distillates	319.5	300.3	236.7
Residual fuel	76.2	73.0	59.8
Petrochemicals	36.8	38.1	27.9
Lubricants	13.2	13.6	13.6
Other	86.6	82.0	77.6
Total production	975.7	949.0	791.2
Less: Production used as fuel in refinery operations	48.6	46.2	37.1
Total production available for sale	927.1	902.8	754.1
Crude unit capacity (thousands of barrels daily) at December 31***	900.0	890.0	730.0
Crude unit capacity utilized	98%	97%	97%
Conversion capacity† (thousands of barrels daily) at December 31	372.0	361.7	306.7
Conversion capacity utilized	101%	98%	98%

* Wholesale sales revenue less related cost of crude oil, other feedstocks, product purchases and terminalling and transportation divided by production available for sale.

** Data pertaining to the Eagle Point refinery for 2004 are based on the amounts attributable to the 354-day ownership period (January 13, 2004 – December 31, 2004) divided by 366, the number of days in the year.

*** Reflects an increase in January 2005 due to a 10 thousand barrels-per-day adjustment in MidContinent Refining and increases in January 2004 due to the acquisition of the 150 thousand barrels-per-day Eagle Point refinery and another 10 thousand barrels-per-day adjustment in MidContinent Refining.

^† Represents capacity to upgrade lower-value, heavier petroleum products into higher-value, lighter products. Reflects increases in January 2005 due to a 5.0 thousand barrels-per-day adjustment in Northeast Refining and a 5.3 thousand barrels-per-day adjustment in MidContinent Refining and an increase in January 2004 as a result of the Eagle Point refinery acquisition.

The Refining and Supply segment results increased $406 million in 2005 largely due to higher realized margins ($467 million) and higher production volumes ($41 million). The higher realized margins reflect strong demand, the effect of supply disruptions on the Gulf Coast due to Hurricanes Katrina and Rita and the use of discounted high-acid crude oils in Northeast Refining. Since mid-2004, Refining and Supply has gradually increased the processing of such crude oils, which averaged approximately 56 thousand barrels per day in 2005. Partially offsetting these factors were higher expenses ($110 million), primarily fuel and employee-related charges.

Refining and Supply segment results increased $280 million in 2004. In addition to a $135 million income contribution from the Eagle Point refinery, the improvement was primarily due to higher realized margins ($234 million) resulting largely from low industry inventory levels, particularly for distillate products, and stronger product demand. Also contributing

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to the increase were higher production volumes ($15 million). Partially offsetting these positive factors were higher expenses ($76 million), including fuel, depreciation and employee-related charges and a higher effective income tax rate ($23 million).

Effective January 13, 2004, Sunoco completed the purchase of the 150 thousand barrels-per-day Eagle Point refinery and related assets from El Paso Corporation for $250 million, including inventory. In connection with this transaction, Sunoco also assumed certain environmental and other liabilities. The Eagle Point refinery is located in Westville, NJ, near the Company’s existing Northeast Refining operations. Management believes the acquisition of the Eagle Point refinery complements and enhances the Company’s refining operations in the Northeast and enables the capture of significant synergies in Northeast Refining. The related assets acquired include certain pipeline and other logistics assets associated with the refinery which Sunoco subsequently sold in March 2004 to Sunoco Logistics Partners L.P., the consolidated master limited partnership that is 47.9 percent owned by Sunoco. (See Note 2 to the consolidated financial statements.)

Retail Marketing

The Retail Marketing business sells gasoline and middle distillates at retail and operates convenience stores in 24 states, primarily on the East Coast and in the Midwest region of the United States.

	2005	2004	2003
Income (millions of dollars)	$30	$68	$91
Retail margin* (per barrel):
Gasoline	$3.39	$4.13	$4.34
Middle distillates	$4.49	$4.40	$4.73
Sales (thousands of barrels daily):
Gasoline	298.3	296.3	276.5
Middle distillates	45.3	42.7	40.3
	343.6	339.0	316.8
Retail gasoline outlets	4,763	4,804	4,528

* Retail sales price less related wholesale price and terminalling and transportation costs per barrel. The retail sales price is the weighted-average price received through the various branded marketing distribution channels.

Retail Marketing segment income decreased $38 million in 2005. Excluding income from the Mobil^® retail sites acquired from ConocoPhillips in April 2004, the decrease in results was primarily due to lower average retail gasoline margins ($52 million) and lower gains attributable to the Retail Portfolio Management program ($2 million), partially offset by lower expenses ($22 million). Income from the Mobil^® sites amounted to $10 and $15 million for 2005 and 2004, respectively.

Retail Marketing segment income decreased $23 million in 2004. Excluding income from the Mobil^® acquired sites as well as from Speedway^® sites acquired from Marathon in June 2003, the decrease in results was primarily due to a lower average retail gasoline margin ($27 million), which was down 0.5 cents per gallon, or 5 percent, versus 2003. Also contributing to the decline were lower gasoline sales volumes ($4 million), lower distillate margins ($3 million) and lower non-gasoline income ($9 million). Partially offsetting these negative factors were the $15 million of income attributable to the Mobil^® sites and a $6 million increase in income attributable to the Speedway^® sites.

During the second quarter of 2004, Sunoco sold its private label consumer and commercial credit card business and related accounts receivable to Citibank. In connection with this divestment, Sunoco received $100 million in cash proceeds, recognized a $2 million after-tax gain on the divestment and established a $2 million after-tax accrual for employee terminations and other exit costs. In addition, the two companies signed a seven-year agreement for Citibank to operate and service the Sunoco private label credit card program.

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In April 2004, Sunoco completed the purchase of 340 retail outlets operated under the Mobil^® brand from ConocoPhillips for $181 million, including inventory. Of the total sites acquired, 50 were owned outright and 62 were subject to long-term leases, with average throughput of approximately 175 thousand gallons per month. The remaining network consisted of contracts to supply 34 dealer-owned and operated locations and 194 branded distributor-owned locations. These outlets, which included 31 sites that are Company-operated and have convenience stores, are located primarily in Delaware, Maryland, Virginia and Washington, D.C. These sites are being re-branded to Sunoco^® gasoline and APlus^® convenience stores over time. In the second quarter of 2003, Sunoco completed the purchase of 193 Speedway^® retail gasoline sites from a subsidiary of Marathon Ashland Petroleum LLC for $162 million, including inventory. The sites, which are located primarily in Florida and South Carolina, were all Company-operated locations with convenience stores. Of the 193 outlets, Sunoco became lessee for 54 of the sites under long-term lease agreements. The Speedway^® sites were re-branded as Sunoco^® locations during the 2003-2004 period. The Company believes these acquisitions fit its long-term strategy of building a retail and convenience store network designed to provide attractive long-term returns. (See Note 2 to the consolidated financial statements.)

A Retail Portfolio Management (“RPM”) program is ongoing, which is selectively reducing the Company’s invested capital in Company-owned or leased sites. During the 2003-2006 period, selected sites, including some of the Mobil^® and Speedway^® acquired outlets, are being divested. Most of the sites are being converted to contract dealers or distributors thereby retaining most of the gasoline sales attributable to the divested sites within the Sunoco branded business. The Company expects to generate divestment proceeds of approximately $230 million, of which $170 million has been received through 2005 related to the sale of 323 sites. During 2005, 2004 and 2003, net after-tax gains totaling $5, $7 and $8 million, respectively, were recognized in connection with the RPM program. The Company expects the RPM program will generate additional gains in 2006.

In 2003, Sunoco announced its intention to sell its interest in 190 retail sites in Michigan and the southern Ohio markets of Columbus, Dayton and Cincinnati (“Midwest Marketing Divestment Program”). During 2003, 75 Company-owned or leased properties and contracts to supply 23 dealer-owned sites were divested under this program. The cash generated from these divestments totaled $46 million, which represented substantially all of the proceeds from the program. The remaining 92 sites, which were virtually all dealer-owned locations, were converted to distributor outlets in 2004. During 2003, a $9 million after-tax gain was recognized in connection with the Midwest Marketing Divestment Program, which is reported separately in Corporate and Other in the Earnings Profile of Sunoco Businesses. Sunoco continues to supply branded gasoline to substantially all of these divested outlets.

Chemicals

The Chemicals business manufactures phenol and related products at chemical plants in Philadelphia, PA and Haverhill, OH; polypropylene at facilities in LaPorte, TX, Neal, WV and Bayport, TX; and cumene at the Philadelphia, PA refinery and the Eagle Point refinery in Westville, NJ. In addition, propylene is upgraded and polypropylene is produced at the Marcus Hook, PA Epsilon Products Company, LLC joint venture facility (“Epsilon”). The Chemicals business also distributes and markets these products. In September 2004, Sunoco sold its one-third interest in its Mont Belvieu, TX Belvieu Environmental Fuels (“BEF”) MTBE production facility to Enterprise Products Operating L.P. (“Enterprise”). In addition, a facility in Pasadena, TX, which produces plasticizers, was sold to BASF in January 2004, while a facility in Neville Island, PA continues to produce plasticizers exclusively for BASF under a three-year tolling agreement.

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	2005	2004	2003
Income (millions of dollars)	$94	$94	$53
Margin* (cents per pound):
All products**	12.1¢	11.0¢	9.5¢
Phenol and related products	10.9¢	9.7¢	8.2¢
Polypropylene**	13.9¢	13.4¢	11.5¢
Sales (millions of pounds):
Phenol and related products	2,579	2,615	2,629
Polypropylene	2,218	2,239	2,248
Plasticizers***	—	28	591
Other	91	187	173
	4,888	5,069	5,641

* Wholesale sales revenue less related cost of feedstocks, product purchases and terminalling and transportation divided by sales volumes.

** The polypropylene and all products margins include the impact of a long-term supply contract entered into on March 31, 2003 with Equistar Chemicals, L.P. (“Equistar”) which is priced on a cost-based formula that includes a fixed discount (see below).

*** The plasticizer business was divested in January 2004 (see below).

Chemicals segment income was unchanged in 2005. The favorable impact of higher margins for both phenol and polypropylene ($34 million) was essentially offset by higher expenses ($19 million), including employee-related charges, and lower sales volumes ($13 million).

During the third quarter of 2005, an arbitrator ruled that Sunoco was liable in an arbitration proceeding for breaching a supply agreement concerning the prices charged to Honeywell International Inc. (“Honeywell”) for phenol produced at Sunoco’s Philadelphia chemical plant from June 2003 through April 2005. In January 2006, the arbitrator ruled that Sunoco should bill Honeywell based on the pricing formula established in the arbitration until a second arbitration, set to begin in the second quarter of 2006, finalizes pricing for 2005 and beyond (see below). After-tax damages of approximately $56 million, including prejudgment interest, were assessed, of which $16, $28 and $12 million pertained to 2005, 2004 and 2003, respectively. Such damages were reported as a charge against 2005 earnings and are shown separately as Phenol Supply Contract Dispute under Corporate and Other in the Earnings Profile of Sunoco Businesses. Sunoco is contesting the finding of liability and the determination of damages as well as the arbitrator’s authority to establish 2005 pricing. The phenol supply agreement provides for a reopener for pricing on and after January 1, 2005 and sets forth specific standards for determining such pricing. The parties have been unsuccessful in negotiating the post-2004 price, and a new price will be determined in a second arbitration to be held before a different arbitrator. Sunoco believes the basis for the post-2004 pricing is substantially different from the basis of the award in the first arbitration. (See Note 2 to the consolidated financial statements.)

Chemicals segment income increased $41 million in 2004 due largely to higher realized margins for both phenol and polypropylene ($35 million) and an increased income contribution associated with the March 2003 propylene supply agreement with Equistar ($12 million). Also contributing to the improvement were higher operating earnings from the BEF joint venture chemical operations divested in 2004 ($6 million). Partially offsetting these positive factors were higher expenses ($9 million), largely natural gas fuel costs.

In 2004, Sunoco sold its one-third partnership interest in BEF to Enterprise for $15 million in cash, resulting in an $8 million after-tax loss on divestment. In connection with the sale, Sunoco has retained one-third of any liabilities and damages exceeding $300 thousand in the aggregate arising from any claims resulting from the ownership of the assets and liabilities of BEF for the period prior to the divestment date, except for any on-site environmental claims which are retained by Enterprise. As a result of various governmental actions which caused a material adverse impact on MTBE industry demand, in 2003, BEF recorded a write-down of its MTBE production facility to its estimated fair value at that time. Sunoco’s share of this provision amounted to $15 million after tax. During

14

2003, Sunoco also announced its decision to sell its plasticizer business and recorded a $17 million after-tax charge to write down the assets held for sale to their estimated fair values less costs to sell and to establish accruals for employee terminations and other required exit costs. Sunoco sold this business and related inventory in January 2004 to BASF for approximately $90 million in cash. The sale included the Company’s plasticizer facility in Pasadena, TX. The Company’s Neville Island, PA site was not part of the transaction and continues to produce plasticizers exclusively for BASF under a three-year tolling agreement. Sunoco also agreed to provide terminalling services at this facility to BASF for a 15-year period. The above items are reported as Asset Write-Downs and Other Matters, which are shown separately in Corporate and Other in the Earnings Profile of Sunoco Businesses. (See Notes 2 and 3 to the consolidated financial statements.)

Effective March 31, 2003, Sunoco formed a limited partnership with Equistar involving Equistar’s ethylene facility in LaPorte, TX. Equistar is a wholly owned subsidiary of Lyondell Chemical Company. In connection with this transaction, Equistar and the partnership entered into a 700 million pounds-per-year, 15-year propylene supply contract with Sunoco. Of this amount, 500 million pounds per year is priced on a cost-based formula that includes a fixed discount that declines over the life of the contract, while the remaining 200 million pounds per year is based on market prices. Sunoco also purchased Equistar’s polypropylene facility in Bayport, TX. Sunoco paid $194 million in cash and borrowed $4 million from the seller to form the partnership and acquire the Bayport facility. Through the partnership, the Company believes it has secured a favorable long-term supply of propylene for its Gulf Coast polypropylene business. Realization of these benefits is largely dependent upon performance by Equistar, which has a credit rating below investment grade. Equistar has not given any indication that it will not perform under its contracts. In the event of nonperformance, Sunoco has collateral and certain other contractual rights under the partnership agreement. The acquisition of the Bayport facility has increased the Company’s polypropylene capacity, complementing and enhancing the Company’s existing polypropylene business and strengthening its market position. (See Note 2 to the consolidated financial statements.)

Logistics

The Logistics business operates refined product and crude oil pipelines and terminals and conducts crude oil acquisition and marketing activities primarily in the Northeast, Midwest and South Central regions of the United States. In addition, the Logistics business has an ownership interest in several refined product and crude oil pipeline joint ventures. Substantially all logistics operations are conducted through Sunoco Logistics Partners L.P., the consolidated master limited partnership that is 47.9 percent owned by Sunoco (see “Capital Resources and Liquidity—Other Cash Flow Information” below).

	2005	2004	2003
Income (millions of dollars)	$22	$31	$26
Pipeline and terminal throughput (thousands of barrels daily)*:
Unaffiliated customers	835	842	827
Affiliated customers	1,666	1,525	1,225
	2,501	2,367	2,052

* Excludes joint-venture operations.

Logistics segment income decreased $9 million in 2005 primarily due to a $5 million after-tax accrual attributable to a pipeline spill in January 2005, a $3 million after-tax charge for environmental remediation activities and asset impairments, a $2 million unfavorable tax adjustment and Sunoco’s reduced ownership in the Partnership subsequent to public offerings in 2005 and 2004. Partially offsetting these negative factors in 2005 were higher earnings from terminalling and Western crude oil pipeline operations. In 2004, Logistics segment income increased $5 million due to the absence of $12 million of after-tax charges recognized in 2003 for litigation associated with two pipeline spills that occurred in

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prior years. Partially offsetting the positive variance in 2004 was the reduction in Sunoco’s ownership interest in the Partnership. During 2005 and 2004, the Partnership issued a total of 7.8 million limited partnership units in a series of public offerings and redeemed 5.0 million limited partnership units owned by Sunoco, thereby reducing Sunoco’s ownership in the Partnership from 75.3 percent to 47.9 percent.

In August 2005, the Partnership completed the acquisition of a crude oil pipeline system and related storage facilities located in Texas from ExxonMobil for $100 million and, in the fourth quarter of 2005, completed the construction of a $16 million, 20-mile crude oil pipeline connecting these assets to the West Texas Gulf Pipeline, which is 43.8 percent owned by the Partnership. In December 2005, the Partnership also completed the acquisition of an ownership interest in the Mesa Pipeline from Chevron for $5 million, which, coupled with the 7.2 percent interest it acquired from Sunoco, gave it a 37.0 percent ownership interest. In 2004, the Partnership completed the following acquisitions: in March, certain pipeline and other logistics assets that had previously been acquired by Sunoco with the Eagle Point refinery for $20 million; in April, ConocoPhillips’ Baltimore, MD and Manassas, VA refined product terminals for $12 million; in June, an additional one-third interest in the Harbor Pipeline from El Paso Corporation for $7 million; and in November, a refined product terminal located in Columbus, OH from a subsidiary of Certified Oil Company for $8 million. During September 2003, the Partnership acquired an additional 3.1 percent interest in West Shore Pipe Line Company for $4 million, increasing its ownership interest in West Shore to 12.3 percent.

In March 2006, Sunoco Logistics Partners L.P. purchased two separate crude oil pipeline systems and related storage facilities located in Texas, one from Alon USA Energy, Inc. for $68 million and the other from Black Hills Energy, Inc. (“Black Hills”) for approximately $41 million. The Black Hills acquisition also includes a lease acquisition marketing business and related inventory.

Coke

The Coke business, through Sun Coke Company and its affiliates (individually and collectively, “Sun Coke”), currently makes high-quality, blast-furnace coke at its Indiana Harbor facility in East Chicago, IN, at its Jewell facility in Vansant, VA and at its Haverhill facility in Franklin Furnace, OH, and produces metallurgical coal from mines in Virginia, primarily for use at the Jewell cokemaking facility. In addition, the Indiana Harbor plant produces heat as a by-product that is used by a third party to produce electricity and the Haverhill plant produces steam that is sold to Sunoco’s Chemicals business. An additional cokemaking facility, which will be operated by Sun Coke, is currently under construction in Vitória, Brazil. Sunoco will have a minority interest in this joint venture.

	2005	2004	2003
Income (millions of dollars)	$48	$40	$43
Coke sales (thousands of tons)	2,375	1,953	2,024

Coke segment income increased $8 million in 2005 due primarily to income from the new cokemaking facility in Haverhill, OH, higher coal sales volumes and prices, higher tax benefits from cokemaking operations and higher gains from litigation settlements. Partially offsetting these positive factors were higher business development and other expenses. In 2004, Coke segment income decreased $3 million due largely to lower tax benefits from cokemaking operations, partially offset by a favorable litigation settlement recognized in 2004.

The Coke business has third-party investors in its Jewell and Indiana Harbor cokemaking operations, which are currently entitled to 98 percent of the cash flows and tax benefits from the respective cokemaking operations during preferential return periods that continue

16

until the investors recover their investments and achieve a cumulative annual after-tax return that averages approximately 10 percent. Expense is recognized to reflect the investors’ preferential returns. Such expense, which is included in Net Financing Expenses and Other under Corporate and Other in the Earnings Profile of Sunoco Businesses, totaled $27, $31 and $36 million after tax in 2005, 2004 and 2003, respectively.

Income is recognized by the Coke business as coke production and sales generate cash flows and tax benefits, which are allocated to Sunoco and the third-party investors. The Coke business’ after-tax income attributable to the tax benefits, which primarily consist of nonconventional fuel credits, was $38, $35 and $38 million after tax in 2005, 2004 and 2003, respectively. Under preexisting tax law, the coke production at Jewell and Indiana Harbor would not be eligible to generate nonconventional fuel tax credits after 2007, which is expected to result in a decline in Coke’s annual income of approximately $12 million on an after-tax basis beginning in 2008. The energy policy legislation enacted in August 2005 includes additional tax credits pertaining to a portion of the coke production at Jewell, all of the production at Haverhill and all future domestic coke plants placed into service by January 1, 2010. The new credits cover a four-year period, effective January 1, 2006 or the date any new facility is placed into service, if later. Beginning in 2006, the new credits attributable to Coke’s existing Jewell and Haverhill facilities are expected to result in an increase in Coke’s annual income of approximately $6 million after tax. However, prior to their expiration dates, all of the tax credits would be phased out, on a ratable basis, if the average annual price of domestic crude oil at the wellhead is within a certain inflation-adjusted price range. (This range was $51.35 to $64.47 per barrel for 2004, the latest year for which the range is available.) The domestic wellhead price averaged $50.26 per barrel for the year ended December 31, 2005. If this annual crude oil price averages at or above the top of the inflation-adjusted range during 2006 or 2007, then it is estimated the corresponding reduction in Coke’s after-tax income would approximate $24 million for each year. The above estimates incorporate increased coke prices resulting from the expiration or any phase out of the tax credits with respect to coke sold under long-term contracts from the Indiana Harbor and Haverhill plants. The Company also could be required to make cash payments to the third-party investors if the tax credit is reduced as a result of increased domestic crude oil prices. However, the Company currently does not believe that any such payments would be required. (See Note 13 to the consolidated financial statements.)

The preferential return period for the Jewell operation is projected to end during 2011, while the preferential return period for the Indiana Harbor operation is projected to end during 2007. Due to the difficulty of forecasting operations and tax benefits into the future, the accuracy of these estimates is subject to considerable uncertainty. The estimated lengths of these preferential return periods are based upon the Company’s current expectations of future cash flows and tax benefits, which are impacted by sales volumes and prices, raw material and operating costs, capital expenditure levels and the ability to recognize tax benefits under the current tax law. Higher-than-expected cash flows and tax benefits will shorten the investors’ preferential return periods, while lower-than-expected cash flows and tax benefits will lengthen the periods.

Following the expiration of these preferential return periods, the investor in the Jewell operation will be entitled to a minority interest in the related cash flows and tax benefits amounting to 18 percent, while the investors in the Indiana Harbor operation will be entitled to a minority interest in the related cash flows and tax benefits initially amounting to 34 percent and thereafter declining to 10 percent by 2038.

Substantially all coke sales are made pursuant to long-term contracts with affiliates of Mittal Steel USA, Inc. (individually and collectively, “Mittal USA”). Mittal USA has not provided any indication that it will not perform under those contracts. However, in the event of nonperformance, the Coke business’ results of operations and cash flows may be adversely affected.

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In August 2004, Sun Coke entered into a series of agreements with two major steel companies (the “Off-takers”) with respect to the development of a 1.7 million tons-per-year cokemaking facility and associated cogeneration power plant in Vitória, Brazil. Those agreements generally include: technology license agreements whereby Sun Coke has licensed its proprietary technology to a project company (the “Project Company”); an engineering and technical services agreement whereby Sun Coke is providing engineering and construction-related technical services to the Project Company; an operating agreement whereby a local subsidiary of Sun Coke will operate the cokemaking and water treatment plant facilities for a term of not less than 15 years; and an investment agreement by and among Sun Coke and the Off-takers whereby Sun Coke has acquired an initial one percent equity interest in the Project Company and an option to purchase an additional 19 percent equity interest. Sun Coke expects to exercise this option in 2006 or 2007 for approximately $35 million. The Off-takers will purchase from the Project Company all coke production under long-term agreements, and one of the Off-takers will purchase all of the electricity produced at the cogeneration power plant. Those off-take agreements are still to be negotiated. Construction of the facilities commenced in November 2004 and the facilities are expected to be operational in the fourth quarter of 2006.

Sun Coke is currently discussing other opportunities for developing new heat recovery cokemaking facilities with several domestic and international steel companies. Such cokemaking facilities could be either wholly owned or owned through a joint venture with one or more parties. The steel company customers would be expected to purchase the coke production on a take-or-pay or equivalent basis.

Corporate and Other

Corporate Expenses—Corporate administrative expenses increased $17 million in 2005 primarily due to higher employee-related expenses and a $6 million after-tax accrual for the adoption of a new accounting interpretation related to asset retirement obligations, partially offset by lower accruals for retrospective insurance premiums. In 2004, Corporate administrative expenses increased $27 million largely due to higher employee-related expenses and a $10 million after-tax accrual for retrospective insurance premiums. The higher employee-related expenses in both 2005 and 2004 were primarily due to higher accruals for performance-related incentive compensation.

Net Financing Expenses and Other—Net financing expenses and other decreased $33 million in 2005 in part due to lower interest expense ($9 million) as the savings from the debt restructuring activities that occurred in 2004 were partially offset by higher borrowings at Sunoco Logistics Partners L.P. Higher capitalized interest ($9 million), higher interest income ($8 million) and lower expense attributable to the preferential return of third-party investors in Sunoco’s cokemaking operations ($4 million) also contributed to the decline in net financing expenses and other in 2005. In 2004, net financing expenses and other decreased $21 million primarily due to lower interest expense in part resulting from the debt restructuring activities ($6 million), lower expense attributable to the preferential return of third-party investors in Sunoco’s cokemaking operations ($5 million), a higher effective income tax rate ($6 million) and higher capitalized interest ($5 million). The Company recognized a $34 million after-tax loss in 2004 due to the early extinguishment of the debt, which is reported separately under Corporate and Other in the Earnings Profile of Sunoco Businesses. (See “Financial Condition—Financial Capacity” below and Note 11 to the consolidated financial statements.)

Income Tax Matters—During 2005, Sunoco settled certain federal income tax issues and established a provision for certain state and local tax matters, the net effect of which was to increase net income by $18 million. During 2004, Sunoco settled a dispute concerning the computation of interest on numerous federal income tax issues which increased net income by $18 million. (See Notes 3 and 4 to the consolidated financial statements.)

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Midwest Marketing Divestment Program—During 2003, Sunoco recognized a $9 million after-tax gain from Retail Marketing’s divestment of certain sites in connection with its Midwest Marketing Divestment program. (See Note 2 to the consolidated financial statements.)

Phenol Supply Contract Dispute—During 2005, Sunoco recognized a $56 million after-tax loss associated with Chemicals’ phenol supply contract dispute. (See Notes 2 and 3 to the consolidated financial statements.)

Asset Write-Downs and Other Matters—During 2004, Sunoco sold Chemicals’ one-third interest in BEF and, in connection therewith, recorded an $8 million after-tax loss on divestment.

During 2003, as a result of various governmental actions which caused a material adverse impact on MTBE industry demand, the BEF joint venture recorded a provision to write down its MTBE production facility to its estimated fair value at that time. Sunoco’s share of this provision amounted to $15 million after tax. In 2003, Sunoco also recorded a $17 million after-tax charge to write down Chemicals’ plasticizer assets that were held for sale at December 31, 2003 to their estimated fair values less costs to sell and to establish accruals for employee terminations and other required exit costs.

For a further discussion of the provisions for asset write-downs and other matters, see Notes 2 and 3 to the consolidated financial statements.

Debt Restructuring—In 2004, Sunoco recognized a $34 million after-tax loss from the early extinguishment of debt in connection with a debt restructuring. (See “Financial Condition—Financial Capacity” below and Note 11 to the consolidated financial statements.)

Analysis of Consolidated Statements of Income

Revenues—Total revenues were $33.76 billion in 2005, $25.51 billion in 2004 and $18.02 billion in 2003. The 32 percent increase in 2005 was primarily due to significantly higher refined product and chemical prices. Also contributing to the increase in 2005 were higher refined product sales volumes, in part due to the acquisition of the Mobil^® retail sites from ConocoPhillips in April 2004, higher crude oil sales in connection with the crude oil gathering and marketing activities of the Company’s Logistics operations and higher consumer excise taxes. In 2004, the 42 percent increase was primarily due to significantly higher refined product and chemical prices and to significantly higher refined product sales volumes, largely attributable to the acquisitions of the Mobil^® sites as well as the Eagle Point refinery from El Paso Corporation in January 2004 and the Speedway^® retail sites from Marathon in June 2003. Also contributing to the increase were higher consumer excise taxes and higher crude oil sales in connection with the crude oil gathering and marketing activities of the Company’s Logistics operations.

Costs and Expenses—Total pretax costs and expenses were $32.18 billion in 2005, $24.51 billion in 2004 and $17.52 billion in 2003. The 31 and 40 percent increases in 2005 and 2004, respectively, were primarily due to significantly higher crude oil and refined product acquisition costs. The higher crude oil acquisition costs reflect crude oil price increases and higher crude oil throughputs, while the higher refined product acquisition costs reflect refined product price increases and purchases to supply the Mobil^® retail sites acquired in April 2004 located primarily in Delaware, Maryland, Virginia and Washington, D.C. and the Speedway^® retail sites acquired in June 2003 located primarily in Florida and South Carolina. Also contributing to the increase during the 2003-2005 period were higher consumer excise taxes, higher selling, general and administrative expenses, higher refinery operating costs and higher crude oil costs in connection with the crude oil gathering and marketing activities of the Company’s Logistics operations.

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Financial Condition

Capital Resources and Liquidity

Cash and Working Capital—At December 31, 2005, Sunoco had cash and cash equivalents of $919 million compared to $405 million at December 31, 2004 and $431 million at December 31, 2003 and had a working capital deficit of $523 million compared to $471 million at December 31, 2004 and $73 million at December 31, 2003. The $514 million increase in cash and cash equivalents in 2005 was due to $2,069 million of net cash provided by operating activities (“cash generation”), partially offset by a $1,035 million net use of cash in investing activities and a $520 million net use of cash in financing activities. The $26 million decrease in cash and cash equivalents in 2004 was due to a $1,060 million net use of cash in investing activities and a $713 million net use of cash in financing activities, partially offset by $1,747 million of net cash provided by operating activities. Sunoco’s working capital position is considerably stronger than indicated because of the relatively low historical costs assigned under the LIFO method of accounting for most of the inventories reflected in the consolidated balance sheets. The current replacement cost of all such inventories exceeded their carrying value at December 31, 2005 by $2,304 million. Inventories valued at LIFO, which consist of crude oil as well as petroleum and chemical products, are readily marketable at their current replacement values. Management believes that the current levels of cash and working capital are adequate to support Sunoco’s ongoing operations.

Cash Flows from Operating Activities—In 2005, Sunoco’s cash generation was $2,069 million compared to $1,747 million in 2004 and to $1,000 million in 2003. The $322 million increase in cash generation in 2005 was primarily due to an increase in net income and $48 million of cash proceeds received in connection with a power contract restructuring, partially offset by a decrease in working capital sources pertaining to operating activities and a reduction in noncash charges. The $747 million increase in cash generation in 2004 was primarily due to an increase in net income and an increase in working capital sources pertaining to operating activities. The working capital changes in 2004 included $100 million of proceeds attributable to the sale of the Company’s private label credit card program. Working capital sources in 2003 included a $73 million income tax refund for the 2002 tax year. Increases in crude oil prices typically increase cash generation as the payment terms on Sunoco’s crude oil purchases are generally longer than the terms on product sales. Conversely, decreases in crude oil prices typically result in a decline in cash generation. In both 2005 and 2004, crude oil prices increased, which generated significant cash for Sunoco.

Other Cash Flow Information—Divestment activities also have been a source of cash. During the 2003-2005 period, proceeds from divestments totaled $337 million and related primarily to the divestment of retail gasoline outlets as well as to sales of the Company’s plasticizer business and its one-third partnership interest in BEF.

In the second quarter of 2004, the Partnership issued 3.4 million limited partnership units under its shelf registration statement at a price of $39.75 per unit. Proceeds from the offering, net of underwriting discounts and offering expenses, totaled $129 million. Coincident with the offering, the Partnership redeemed 2.2 million limited partnership units owned by Sunoco for $83 million. The proceeds from the offering also were principally used by the Partnership to finance its acquisitions during 2004. In the second quarter of 2005, the Partnership issued an additional 2.8 million limited partnership units under its shelf registration statement at a price of $37.50 per unit. Proceeds from the offering, net of underwriting discounts and offering expenses, totaled approximately $99 million. These proceeds were used to redeem an equal number of limited partnership units owned by Sunoco. In the third quarter of 2005, the Partnership issued an additional 1.6 million limited partnership units under its shelf registration statement at a price of $39.00 per unit. Proceeds from the offering, which totaled approximately $61 million, net of underwriting discounts and offering expenses, were used by the Partnership principally to repay a portion of the

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borrowings under its revolving credit facility, which had been used to partially fund its $100 million acquisition of the crude oil pipeline system and related storage facilities located in Texas from ExxonMobil. Upon completion of these transactions, Sunoco’s interest in the Partnership, including its 2 percent general partnership interest, decreased to 47.9 percent.

The Partnership, which is included in Sunoco’s consolidated financial statements, distributes to its general and limited partners all available cash (generally cash on hand at the end of each quarter less the amount of cash the general partner determines in its reasonable discretion is necessary or appropriate to: provide for the proper conduct of the Partnership’s business; comply with applicable law, any of the Partnership’s debt instruments or other agreements; pay fees and expenses, including payments to the general partner; or provide funds for distribution to unitholders and to the general partner for any one or more of the next four quarters). The minimum quarterly distribution is $.45 per limited partnership unit. As of December 31, 2005, Sunoco owned 12.06 million limited partnership units consisting of 3.52 million common units and 8.54 million subordinated units. Distributions on Sunoco’s subordinated units are payable only after the minimum quarterly distributions for the common units held by the public and Sunoco, including any arrearages, have been made. The subordinated units convert to common units if certain financial tests related to earning and paying the minimum quarterly distribution for the preceding three consecutive one-year periods have been met. In February 2006 and 2005, when the quarterly cash distributions pertaining to the fourth quarters of 2005 and 2004 were paid, the first two three-year requirements were satisfied. As a result, a total of 5.70 million of Sunoco’s subordinated units have been converted to common units, 2.85 million each in February 2006 and February 2005. If the Partnership continues to make at least the minimum quarterly distributions through the fourth quarter of 2006, all of Sunoco’s remaining 5.69 million subordinated units would be converted to common units by February 2007. During the 2002-2005 period, the Partnership increased its quarterly distribution per unit from the minimum of $.45 to $.7125.

The Partnership’s issuance of common units to the public has resulted in an increase in the value of Sunoco’s proportionate share of the Partnership’s equity as the issuance price per unit exceeded Sunoco’s carrying amount per unit at the time of issuance. The resultant gain to Sunoco on these transactions, which totaled approximately $125 million pretax at December 31, 2005, has been deferred as a component of minority interest in the Company’s consolidated balance sheet as the common units issued do not represent residual interests in the Partnership due to Sunoco’s ownership of the subordinated units. The deferred gain would be recognized in income when Sunoco’s remaining subordinated units convert to common units at which time the common units become the residual interests.

The Partnership acquired interests in various pipelines and other logistics assets during the 2003-2005 period, which were financed with long-term borrowings or from the proceeds from the equity offerings (see “Capital Expenditures and Acquisitions” below). The Partnership intends to implement additional growth opportunities in the future, both within its current system and with third-party acquisitions. The Partnership expects to finance these capital outlays with a combination of long-term borrowings and the issuance of additional limited partnership units to the public to maintain a balanced capital structure. Any issuance of limited partnership units to the public would dilute Sunoco’s ownership interest in the Partnership.

Sunoco has entered into various agreements with the Partnership which require Sunoco to pay for minimum storage and throughput usage of certain Partnership assets. Sunoco’s usage of the various assets during 2005, which generated approximately $145 million of revenue for the Partnership, is expected to exceed the minimum required amounts under these agreements. If, other than as a result of force majeure, Sunoco fails to meet its minimum obligations under these agreements, it would be required to pay the amount of any shortfall to the Partnership. Any such payments would be available as a credit in the

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following year after Sunoco’s minimum obligation for the year had been met. Sunoco’s obligations under these agreements may be reduced or suspended under certain circumstances. Sunoco also has agreements with the Partnership which establish fees for administrative services provided by Sunoco to the Partnership and provide indemnifications by Sunoco to the Partnership for certain environmental, toxic tort and other liabilities.

Financial Capacity—Management currently believes that future cash generation will be sufficient to satisfy Sunoco’s ongoing capital requirements, to fund its pension obligations (see “Pension Plan Funded Status” below) and to pay the current level of cash dividends on Sunoco’s common stock. However, from time to time, the Company’s short-term cash requirements may exceed its cash generation due to various factors including reductions in margins for products sold and increases in the levels of capital spending (including acquisitions) and working capital. During those periods, the Company may supplement its cash generation with proceeds from financing activities.

The Company has a revolving credit facility (the “Facility”) totaling $900 million, which matures in August 2010. The Facility provides the Company with access to short-term financing and is intended to support the issuance of commercial paper, letters of credit and other debt. The Company also can borrow directly from the participating banks under the Facility. The Facility is subject to commitment fees, which are not material. Under the terms of the Facility, Sunoco is required to maintain tangible net worth (as defined in the Facility) in an amount greater than or equal to targeted tangible net worth (targeted tangible net worth being determined by adding $1.125 billion and 50 percent of the excess of net income over share repurchases (as defined in the Facility) for each quarter ended after March 31, 2004). At December 31, 2005, the Company’s tangible net worth was $2.3 billion and its targeted tangible net worth was $1.3 billion. The Facility also requires that Sunoco’s ratio of consolidated net indebtedness, including borrowings of Sunoco Logistics Partners L.P., to consolidated capitalization (as those terms are defined in the Facility) not exceed .60 to 1. At December 31, 2005, this ratio was .17 to 1. At December 31, 2005, the Facility was being used to support $103 million of floating-rate notes due in 2034.

Sunoco Logistics Partners L.P. has a revolving credit facility, which was scheduled to mature in November 2009. In December 2005, the facility was amended to increase the amount available under the facility from $250 million to $300 million and to extend its term until November 2010. This facility is available to fund the Partnership’s working capital requirements, to finance acquisitions, and for general partnership purposes. It includes a $20 million distribution sublimit that is available for distributions to third-party unitholders and Sunoco. Amounts outstanding under the facility totaled $107 and $65 million at December 31, 2005 and 2004, respectively. The credit facility contains covenants requiring the Partnership to maintain a ratio of up to 4.75 to 1 of its consolidated total debt to its consolidated EBITDA (each as defined in the credit facility) and an interest coverage ratio (as defined in the credit facility) of at least 3 to 1. At December 31, 2005, the Partnership’s ratio of its consolidated debt to its consolidated EBITDA was 2.9 to 1 and the interest coverage ratio was 5.2 to 1.

Epsilon, the Company’s consolidated joint venture, has a $40 million revolving credit facility that matures in September 2006. The credit facility contains restrictive covenants which, among other things, limit the incurrence of additional debt and the sale of assets by Epsilon. At December 31, 2005, no amounts were outstanding under the credit facility. Any borrowings under this credit facility as well as Epsilon’s $120 million term loan that is also due in September 2006 are guaranteed by Sunoco, Inc.

The following table sets forth Sunoco’s outstanding debt:

	December 31
(Millions of Dollars)	2005		2004
Short-term borrowings	$	—	$	100
Current portion of long-term debt		177		3
Long-term debt		1,234		1,379
Total debt	$	1,411	$	1,482

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In September 2004, the Company repurchased long-term debt with a par value of $352 million through a series of tender offers and open market purchases utilizing the net proceeds from the issuance of $250 million of 4 ⁷/8 percent, 10-year notes under its shelf registration statement (see below) and $154 million of cash. The Company recognized a $34 million after-tax loss in 2004 due to the early extinguishment of this debt, which is reported separately under Corporate and Other in the Earnings Profile of Sunoco Businesses. In November 2004, the Company issued $103 million of 30-year floating-rate notes and used the proceeds to redeem its 7.60 percent environmental industrial revenue bonds that were due in 2024. As a result of the above debt restructuring activities, pretax interest expense declined approximately $20 million in 2005. In March 2004, the Company issued $100 million of commercial paper and used the proceeds to repay its maturing 7 ¹/8 percent notes. The commercial paper was repaid in October 2005. Management believes there is sufficient financial capacity available to pursue strategic opportunities as they arise. In addition, the Company has the option of issuing additional common or preference stock or selling an additional portion of its Sunoco Logistics Partners L.P. common units, and Sunoco Logistics Partners L.P. has the option of issuing additional common units.

The Company has a shelf registration statement that provides the Company with financing flexibility to offer senior and subordinated debt, common and preferred stock, warrants and trust preferred securities. At December 31, 2005, $1,050 million remains available under this shelf registration statement. In the fourth quarter of 2005, Sunoco Logistics Partners L.P. filed a registration statement to replace its existing registration statement, which has $197 million available at December 31, 2005. When the new registration statement becomes effective, the Partnership would be able to sell up to a total of $500 million of debt or common units in primary offerings to the public, and the Company would be able to sell up to a total of five million common units, which represent a portion of its limited partnership interests in the Partnership, in secondary offerings to the public. The amount, type and timing of any future financings under these registration statements will depend upon, among other things, the Company’s and Partnership’s funding requirements, market conditions and compliance with covenants contained in the Company’s and Partnership’s respective debt obligations and revolving credit facilities.

Contractual Obligations—The following table summarizes the Company’s significant contractual obligations:

			Payment Due Dates
(Millions of Dollars)	Total		2006		2007-2008		2009-2010		Thereafter
Total debt:
Principal	$	1,411	$	177	$	13	$	365	$	856
Interest		586		85		156		139		206
Operating leases*		1,135		167		281		196		491
Purchase obligations:
Crude oil, other feedstocks and refined products**		12,677		8,278		1,673		597		2,129
Convenience store items***		935		285		563		87		—
Transportation and distribution		1,325		245		310		238		532
Fuel and utilities		99		78		21		—		—
Obligations supporting financing arrangements†		80		9		17		16		38
Properties, plants and equipment		66		63		3		—		—
Other		188		45		64		34		45
	$	18,502	$	9,432	$	3,101	$	1,672	$	4,297

* Includes $246 million pertaining to lease extension options which are assumed to be exercised.

** Includes feedstocks for chemical manufacturing and coal purchases for cokemaking operations.

*** Actual amounts will vary based upon the number of Company-operated convenience stores and the level of purchases.

^† Represents fixed and determinable obligations to secure wastewater treatment services at the Toledo refinery and coal handling services at the Indiana Harbor cokemaking facility.

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Sunoco’s operating leases include leases for marine transportation vessels, service stations, office space and other property and equipment. Operating leases include all operating leases that have initial noncancelable terms in excess of one year. Approximately 36 percent of the $1,135 million of future minimum annual rentals relates to time charters for marine transportation vessels. Most of these time charters contain terms of between three to seven years with renewal and sublease options. The time charter leases typically require a fixed-price payment or a fixed-price minimum and a variable component based on spot-market rates. In the table above, the variable component of the lease payments has been estimated utilizing the average spot-market prices for the year 2005. The actual variable component of the lease payments attributable to these time charters could vary significantly from the estimates included in the table.

A purchase obligation is an enforceable and legally binding agreement to purchase goods or services that specifies significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Sunoco has various obligations to purchase in the ordinary course of business: crude oil, other feedstocks and refined products; convenience store items; transportation and distribution services, including pipeline and terminal throughput and railroad services; and fuel and utilities. Approximately one quarter of the contractual obligations to purchase crude oil, other feedstocks and refined products reflected in the above table for 2006 relates to spot-market purchases to be satisfied within the first 60-90 days of the year. Sunoco also has contractual obligations supporting financing arrangements of third parties, contracts to acquire or construct properties, plants and equipment, and other contractual obligations, primarily related to services and materials, including commitments to purchase supplies and various other maintenance, systems and communications services. Most of Sunoco’s purchase obligations are based on market prices or formulas based on market prices. These purchase obligations generally include fixed or minimum volume requirements. The purchase obligation amounts in the table above are based on the minimum quantities to be purchased at estimated prices to be paid based on current market conditions. Accordingly, the actual amounts may vary significantly from the estimates included in the table.

Sunoco also has obligations with respect to its defined benefit pension plans and postretirement health care plans (see “Pension Plan Funded Status” below and Note 9 to the consolidated financial statements).

Off-Balance Sheet Arrangements—Sunoco is contingently liable under various arrangements that guarantee debt of third parties aggregating to approximately $7 million at December 31, 2005. At this time, management does not believe that it is likely that the Company will have to perform under any of these guarantees.

A wholly owned subsidiary of the Company, Sunoco Receivables Corporation, Inc., is a party to an accounts receivable securitization facility that terminates in December 2006 under which the subsidiary may sell, on a revolving basis, up to a $200 million undivided interest in a designated pool of certain accounts receivable. No receivables have been sold to third parties under this facility.

Capital Expenditures and Acquisitions

The Company expects capital expenditures to be approximately $2.8 billion over the next three years. Approximately $1.9 billion is anticipated to be spent in Refining and Supply, including $775 million for income improvement projects. Refining and Supply has placed a greater emphasis on income improvement projects, which are designed to increase total crude unit capacity to 1.0 million barrels per day, while improving product yields and crude oil and other feedstock processing flexibility. The first phase of this capital program is underway. A $300 million project to expand the capacity of one of the fluid catalytic cracking units at the Philadelphia refinery by 15 thousand barrels per day, resulting in an upgrade of approximately 25 thousand barrels per day of residual fuel production into higher-value gasoline and distillate production, is expected to be completed in early 2007

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(the “Philadelphia Project”). Refining and Supply’s capital program also includes a $365 million project to expand the Toledo refinery’s crude unit capacity by 40 thousand barrels per day and its conversion capacity by 24 thousand barrels per day (the “Toledo Project”). This project will also upgrade technology at this facility to improve product yields and feedstock flexibility. The following table sets forth the expected capital outlays for each of these projects by type of capital:

(Millions of Dollars)	Philadelphia Project		Toledo Project
Income improvement	$	190	$	180
Base infrastructure and turnarounds		40		70
Environmental		70		115
	$	300	$	365

Achievement of expected completion dates for capital projects is subject to the timely receipt of all necessary permits.

The following table sets forth Sunoco’s planned and actual capital expenditures for additions to properties, plants and equipment. Actual capital expenditures are presented in a manner consistent with the 2006 plan amounts in the table as well as with amounts presented in Sunoco’s consolidated financial statements. The Company’s significant acquisitions (see Note 2 to the consolidated financial statements) are included as footnotes to the table so that total capital outlays for each business unit can be determined.

(Millions of Dollars)	2006 Plan		2005			2004			2003
Refining and Supply	$	616	$	687		$	463	*	$	245
Retail Marketing		139		117			103	**		107	***
Chemicals		84		55			56	*		31	†
Logistics		117		79	††		75	*		39
Coke		15		32			135			5
Consolidated capital expenditures	$	971	$	970		$	832		$	427

* Excludes $250 million acquisition from El Paso Corporation of the Eagle Point refinery and related chemical and logistics assets, which includes inventory. The $250 million purchase price is comprised of $190, $40 and $20 million attributable to Refining and Supply, Chemicals and Logistics, respectively.

** Excludes $181 million acquisition from ConocoPhillips of 340 retail outlets located primarily in Delaware, Maryland, Virginia and Washington, D.C., which includes inventory.

*** Excludes $162 million purchase from a subsidiary of Marathon Ashland Petroleum LLC of 193 retail gasoline sites located primarily in Florida and South Carolina, which includes inventory.

^† Excludes $198 million associated with the formation of a propylene partnership with Equistar Chemicals, L.P. and a related supply contract and the acquisition of Equistar’s Bayport polypropylene facility, which includes inventory.

^†† Excludes $100 million acquisition from ExxonMobil of a crude oil pipeline system and related storage facilities located in Texas and $5 million acquisition from Chevron of an ownership interest in the Mesa Pipeline.

The Company’s 2006 planned capital expenditures consist of $352 million for income improvement projects as well as $293 million for base infrastructure spending, $101 million for turnarounds at the Company’s refineries and $225 million for environmental projects. The $352 million of outlays for income improvement projects consist of $107 million attributable to the Philadelphia Project, $38 million attributable to the Toledo Project, $76 million for other refinery upgrade projects and $131 million for various other income improvement projects, primarily in Chemicals, Retail Marketing and Logistics. The $293 million of base infrastructure spending includes several projects to upgrade Sunoco’s existing asset base. These projects include $34 million for new processing equipment, boilers and reinstrumentation projects at the Company’s refineries and $85 million for additional investments to upgrade Sunoco’s existing retail network and enhance its APlus^® convenience store presence. Base infrastructure spending also includes $14 million for conversion of the Mobil^® sites acquired from ConocoPhillips in 2004 to Sunoco^® branded outlets. The $225 million of environmental spending includes $44 million related to the Philadelphia Project and $91 million to essentially complete the spending to comply with Tier II low-sulfur gasoline and on-road diesel fuel specifications (see “Environmental Matters” below). Through year-end 2005, the Company’s Tier II spending totaled $637 mil - -

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lion. Regarding the capital outlays for environmental projects, in 2005, Sunoco reached a global settlement with the U.S. Environmental Protection Agency and various state and local agencies concerning certain alleged violations at its refineries of various provisions of the Clean Air Act. Under the Consent Decree concerning this settlement, it is anticipated that Sunoco, among other things, will make approximately $275 million of environmental improvement capital expenditures over an eight-year period. Sunoco expects that most of these projects will be consistent with many of the existing or projected strategic capital projects or emission reduction projects already planned for the next several years. All planned capital outlay amounts set forth above are in current-year dollars and do not include any anticipated increases attributable to inflation.

The 2005 capital expenditures consisted of $260 million for base infrastructure and maintenance, $49 million for refinery turnarounds, $404 million to comply with the Tier II low-sulfur gasoline and on-road diesel fuel requirements, $94 million for other environmental projects (which includes $11 million attributable to the Philadelphia Project and $26 million to complete the expansion of the sulfur recovery unit at the Eagle Point refinery) and $163 million for income improvement projects. Base infrastructure spending included $17 million for new processing equipment, boilers and reinstrumentation projects at the Company’s refineries, $78 million for additional investments to upgrade Sunoco’s existing retail network and enhance its APlus^® convenience store presence and $6 million for conversion of the Mobil^® sites acquired from ConocoPhillips to Sunoco^® branded outlets. The income improvement spending consisted of $27 million associated with the Philadelphia Project, $16 million to upgrade the crude oil pipeline and storage facilities in Texas recently acquired from ExxonMobil, $22 million to complete the construction of the Haverhill cokemaking facility and $98 million for various other income improvement projects across the Company.

The 2004 capital expenditures consisted of $248 million for base infrastructure and maintenance, $122 million for refinery turnarounds, $208 million for spending to comply with the Tier II low-sulfur gasoline and on-road diesel fuel requirements, $50 million for other environmental projects and $204 million for income improvement projects. The other environmental spending included $9 million related to the expansion of the sulfur recovery unit at the Eagle Point refinery. The income improvement spending consisted of $128 million towards the construction of the Haverhill cokemaking facility, $45 million for various growth opportunities in the Logistics business, including the acquisition of refined product terminals in Baltimore, MD, Manassas, VA and Columbus, OH and the purchase of an additional one-third interest in the Harbor Pipeline, as well as $31 million for various other income improvement projects across the Company.

The 2003 capital expenditures consisted of $195 million for base infrastructure and maintenance, $88 million for refinery turnarounds, $23 million for spending to comply with the Tier II low-sulfur gasoline and on-road diesel fuel requirements, $91 million for other environmental projects and $30 million for various income improvement projects. The other environmental spending included $50 million related to the construction of a sulfur plant at the Marcus Hook refinery.

Pension Plan Funded Status

The following table sets forth the components of the change in market value of the investments in Sunoco’s defined benefit pension plans:

	December 31
(Millions of Dollars)	2005			2004
Balance at beginning of year	$	1,158		$	1,071
Increase (reduction) in market value of investments resulting from:
Net investment income		92			123
Company contributions		100			95
Plan benefit payments		(154	)		(131	)
Balance at end of year	$	1,196		$	1,158

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The increase in the market value of investments during 2005 was more than offset by an increase in the accumulated benefit obligations that resulted from a decline in the discount rate from 5.75 percent at December 31, 2004 to 5.60 percent at December 31, 2005 and from certain other actuarial assumption changes. As a result, the accumulated other comprehensive loss component of shareholders’ equity related to pensions increased by $25 million at December 31, 2005.

Management currently anticipates making $100 million of voluntary contributions to its funded defined benefit plans in 2006. Management believes any additional contributions to the pension plans can be funded without a significant impact on liquidity. Future changes in the financial markets and/or interest rates could result in additional significant increases or decreases to the accumulated other comprehensive loss component of shareholders’ equity and to future pension expense and funding requirements.

Environmental Matters

General

Sunoco is subject to extensive and frequently changing federal, state and local laws and regulations, including, but not limited to, those relating to the discharge of materials into the environment or that otherwise deal with the protection of the environment, waste management and the characteristics and composition of fuels. As with the industry generally, compliance with existing and anticipated laws and regulations increases the overall cost of operating Sunoco’s businesses, including capital costs to construct, maintain and upgrade equipment and facilities. Existing laws and regulations have required, and are expected to continue to require, Sunoco to make significant expenditures of both a capital and an expense nature. The following table summarizes Sunoco’s expenditures for environmental projects and compliance activities:

(Millions of Dollars)	2005		2004		2003
Pollution abatement capital*	$	498	$	258	$	114
Remediation		50		38		44
Operations, maintenance and administration		192		135		127
	$	740	$	431	$	285

* Capital expenditures for pollution abatement include amounts to comply with the Tier II low-sulfur fuel requirements and the Consent Decree pertaining to certain alleged Clean Air Act violations at the Company’s refineries. Pollution abatement capital outlays are expected to approximate $225 and $137 million in 2006 and 2007, respectively.

Remediation Activities

Laws and regulations result in liabilities and loss contingencies for remediation at Sunoco’s facilities and at third-party or formerly owned sites. Sunoco accrues environmental remediation costs for work at identified sites where an assessment has indicated that cleanup costs are probable and reasonably estimable. Such accruals are undiscounted and are based on currently available information, estimated timing of remedial actions and related inflation assumptions, existing technology and presently enacted laws and regulations. If a range of probable environmental cleanup costs exists for an identified site, FASB Interpretation No. 14, “Reasonable Estimation of the Amount of a Loss,” requires that the minimum of the range be accrued unless some other point in the range is more likely in which case the most likely amount in the range is accrued. Engineering studies, historical experience and other factors are used to identify and evaluate remediation alternatives and their related costs in determining the estimated accruals for environmental remediation activities. Losses attributable to unasserted claims are also reflected in the accruals to the

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extent they are probable of occurrence and reasonably estimable. The accrued liability for environmental remediation is classified in the consolidated balance sheets as follows:

	December 31
(Millions of Dollars)	2005		2004
Accrued liabilities	$	37	$	39
Other deferred credits and liabilities		100		109
	$	137	$	148

The following table summarizes the changes in the accrued liability for environmental remediation activities by category:

(Millions of Dollars)	Refineries			Marketing Sites			Chemicals Facilities			Pipelines and Terminals			Hazardous Waste Sites			Other			Total
At December 31, 2002	$	52		$	72		$	8		$	19		$	5		$	3		$	159
Accruals		—			23			1			6			1			(1	)		30
Payments		(9	)		(22	)		(2	)		(10	)		(1	)		—			(44	)
Other		—			1			—			—			—			—			1
At December 31, 2003	$	43		$	74		$	7		$	15		$	5		$	2		$	146
Accruals		2			20			—			3			2			—			27
Payments		(10	)		(21	)		(1	)		(3	)		(3	)		—			(38	)
Acquisitions and divestments		11			—			(1	)		—			—			—			10
Other		2			1			—			—			—			—			3
At December 31, 2004	$	48		$	74		$	5		$	15		$	4		$	2		$	148
Accruals		2			22			1			6			1			—			32
Payments		(14	)		(25	)		(2	)		(7	)		(2	)		—			(50	)
Other		—			7			(1	)		1			—			—			7
At December 31, 2005	$	36		$	78		$	3		$	15		$	3		$	2		$	137

Total future costs for the environmental remediation activities identified above will depend upon, among other things, the identification of any additional sites, the determination of the extent of the contamination at each site, the timing and nature of required remedial actions, the technology available and needed to meet the various existing legal requirements, the nature and terms of cost-sharing arrangements with other potentially responsible parties, the availability of insurance coverage, the nature and extent of future environmental laws, inflation rates and the determination of Sunoco’s liability at the sites, if any, in light of the number, participation level and financial viability of the other parties. Management believes it is reasonably possible (i.e., less than probable but greater than remote) that additional environmental remediation losses will be incurred. At December 31, 2005, the aggregate of the estimated maximum additional reasonably possible losses, which relate to numerous individual sites, totaled approximately $90 million. However, the Company believes it is very unlikely that it will realize the maximum reasonably possible loss at every site. Furthermore, the recognition of additional losses, if and when they were to occur, would likely extend over many years and, therefore, likely would not have a material impact on the Company’s financial position.

Under various environmental laws, including the Resource Conservation and Recovery Act (“RCRA”) (which relates to solid and hazardous waste treatment, storage and disposal), Sunoco has initiated corrective remedial action at its facilities, formerly owned facilities and third-party sites. At the Company’s major manufacturing facilities, Sunoco has consistently assumed continued industrial use and a containment/remediation strategy focused on eliminating unacceptable risks to human health or the environment. The remediation accruals for these sites reflect that strategy. Accruals include amounts to prevent off-site migration and to contain the impact on the facility property, as well as to address known, discrete areas requiring remediation within the plants. Activities include closure of RCRA solid waste management units, recovery of hydrocarbons, handling of impacted soil, mitigation of surface water impacts and prevention of off-site migration.

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Many of Sunoco’s current terminals are being addressed with the above containment/remediation strategy. At some smaller or less impacted facilities and some previously divested terminals, the focus is on remediating discrete interior areas to attain regulatory closure.

Sunoco owns or operates certain retail gasoline outlets where releases of petroleum products have occurred. Federal and state laws and regulations require that contamination caused by such releases at these sites and at formerly owned sites be assessed and remediated to meet the applicable standards. The obligation for Sunoco to remediate this type of contamination varies, depending on the extent of the release and the applicable laws and regulations. A portion of the remediation costs may be recoverable from the reimbursement fund of the applicable state, after any deductible has been met.

Future costs for environmental remediation activities at the Company’s marketing sites also will be influenced by the extent of MTBE contamination of groundwater, the cleanup of which will be driven by thresholds based on drinking water protection. Though not all groundwater is used for drinking, several states have initiated or proposed more stringent MTBE cleanup requirements. Cost increases result directly from extended remedial operations and maintenance on sites that, under prior standards, could otherwise have been completed. Cost increases will also result from installation of additional remedial or monitoring wells and purchase of more expensive equipment because of the presence of MTBE. While actual cleanup costs for specific sites are variable and depend on many of the factors discussed above, expansion of similar MTBE remediation thresholds to additional states or adoption of even more stringent requirements for MTBE remediation would result in further cost increases.

The accrued liability for hazardous waste sites is attributable to potential obligations to remove or mitigate the environmental effects of the disposal or release of certain pollutants at third-party sites pursuant to the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”) (which relates to releases and remediation of hazardous substances) and similar state laws. Under CERCLA, Sunoco is potentially subject to joint and several liability for the costs of remediation at sites at which it has been identified as a “potentially responsible party” (“PRP”). As of December 31, 2005, Sunoco had been named as a PRP at 39 sites identified or potentially identifiable as “Superfund” sites under federal and state law. The Company is usually one of a number of companies identified as a PRP at a site. Sunoco has reviewed the nature and extent of its involvement at each site and other relevant circumstances and, based upon the other parties involved or Sunoco’s negligible participation therein, believes that its potential liability associated with such sites will not be significant.

Management believes that none of the current remediation locations, which are in various stages of ongoing remediation, is individually material to Sunoco as its largest accrual for any one Superfund site, operable unit or remediation area was less than $4 million at December 31, 2005. As a result, Sunoco’s exposure to adverse developments with respect to any individual site is not expected to be material. However, if changes in environmental regulations occur, such changes could impact multiple Sunoco facilities and formerly owned and third-party sites at the same time. As a result, from time to time, significant charges against income for environmental remediation may occur.

The Company maintains insurance programs that cover certain of its existing or potential environmental liabilities, which programs vary by year, type and extent of coverage. For underground storage tank remediations, the Company can also seek reimbursement through various state funds of certain remediation costs above a deductible amount. For certain acquired properties, the Company has entered into arrangements with the sellers or others that allocate environmental liabilities and provide indemnities to the Company for remediating contamination that occurred prior to the acquisition dates. Some of these environmental indemnifications are subject to caps and limits. No accruals have been recorded for any potential contingent liabilities that will be funded by the prior owners as

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management does not believe, based on current information, that it is likely that any of the former owners will not perform under any of these agreements. Other than the preceding arrangements, the Company has not entered into any arrangements with third parties to mitigate its exposure to loss from environmental contamination. Claims for recovery of environmental liabilities that are probable of realization totaled $22 million at December 31, 2005 and are included principally in deferred charges and other assets in the consolidated balance sheets.

Regulatory Matters

The U.S. Environmental Protection Agency (“EPA”) adopted rules under the Clean Air Act (which relates to emissions of materials into the air) that phase in limitations on the sulfur content of gasoline beginning in 2004 and the sulfur content of on-road diesel fuel beginning in mid-2006 (“Tier II”). The rules include banking and trading credit systems, which could provide refiners flexibility until 2006 for the low-sulfur gasoline and until 2010 for the on-road low-sulfur diesel. These rules are expected to have a significant impact on Sunoco and its operations, primarily with respect to the capital and operating expenditures at its five refineries. The Tier II capital spending is expected to be essentially completed in 2006, while the higher operating costs will be incurred when the low-sulfur fuels are produced. The Company’s estimate of total capital outlays to comply with the Tier II low-sulfur gasoline and on-road diesel fuel requirements is approximately $750 million. Capital spending to meet these requirements totaled $637 million through December 31, 2005. In May 2004, the EPA adopted a third rule which will phase in limitations on the allowable sulfur content in off-road diesel fuel beginning in mid-2007. The off-road diesel rule is not expected to require significant capital expenditures by Sunoco. The ultimate impact of the rules may be affected by such factors as technology selection, the effectiveness of the systems pertaining to banking and trading credits, timing uncertainties created by permitting requirements and construction schedules and any effect on prices created by changes in the level of gasoline and diesel fuel production.

In 1997, the EPA promulgated new, more stringent National Ambient Air Quality Standards (“NAAQS”) for ozone and fine particles, which has resulted in identification of non-attainment areas throughout the country, including Texas, Pennsylvania, Ohio, New Jersey and West Virginia, where Sunoco operates facilities. In 2004, the EPA issued final non-attainment area designations for ozone and fine particles. These standards will result in further controls of nitrogen oxide, sulfur dioxide and volatile organic compound emissions. The EPA has designated certain areas, including Philadelphia and Houston, as “moderate” non-attainment areas for ozone, which would require them to meet the ozone requirements by 2010, before currently mandated federal control programs would take effect. If a region is not able to demonstrate attainment by 2010, there would be more stringent offset requirements, and, if a region cannot submit an approvable State Implementation Plan, there could be a moratorium on new highway projects and imposition of a Federal Implementation Plan, including potentially significant lifestyle changes to bring the region to attainment. However, EPA’s designation of ozone non-attainment areas and the EPA’s rule on state implementation are currently being challenged by the State of Ohio, trade associations and health and environmental groups. In 2005, EPA issued a final rule revoking a previously proposed 1-hour ozone standard and related provisions in favor of a more stringent 8-hour standard. The EPA issued a subsequent rule codifying the revocation of the 1-hour ozone standard for the areas with effective 8-hour ozone non-attainment designations. Both industry and environmental groups have filed lawsuits challenging various provisions of the final rule. In 2005, the EPA also identified 21 counties which, based on 2003-2004 data, now are in attainment of the fine particles standard. Sunoco’s Toledo refinery is within one of these attainment areas. Regulatory programs, when established to implement the EPA’s standards, could have an impact on Sunoco and its operations. However, the potential financial impact cannot be reasonably estimated until the EPA promulgates regulatory programs to attain the standards, and the states, as

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necessary, develop and implement revised State Implementation Plans to respond to the new regulations.

In August 2005, new federal energy policy legislation was enacted. The act set a new renewable fuels mandate for ethanol use and repealed the minimum oxygenate requirements in gasoline (immediately in California and 270 days from the enactment date for the rest of the nation). Sunoco has used MTBE and ethanol as oxygenates in different geographic areas of its refining and marketing system. While no federal ban on MTBE is included in the act, several states (including some in Sunoco’s marketing area) have banned its use in gasoline and a number of other states have passed legislation banning it effective beginning on various dates through 2009. It is expected that additional states will enact similar ban legislation. Following the disruption to energy supply that occurred in the Gulf Coast region in connection with Hurricanes Katrina and Rita, additional federal energy policy legislation is being considered in the U.S. Congress. Federal and state legislation could have a significant impact on market conditions and the profitability of Sunoco and the industry in general.

MTBE Litigation

Sunoco, along with other refiners, manufacturers and sellers of gasoline, owners and operators of retail gasoline sites, and manufacturers of MTBE, are defendants in approximately 60 cases in 16 states involving the manufacture and use of MTBE in gasoline and MTBE contamination in groundwater. Plaintiffs, which include private well owners, water providers and certain governmental authorities, allege that refiners and suppliers of gasoline containing MTBE are responsible for manufacturing and distributing a defective product that contaminates groundwater. Plaintiffs are asserting primarily product liability claims but additional claims are also being asserted including, nuisance, trespass, negligence, violation of environmental laws and deceptive business practices. Plaintiffs are seeking compensatory damages, and in some cases injunctive relief, exemplary and punitive damages and attorneys’ fees. All of the public water provider cases have been removed to federal court and consolidated for pretrial purposes in the U.S. District Court for the Southern District of New York (MDL 1358). Motions to remand these cases to state courts have been denied. Motions to dismiss were denied. Discovery is proceeding in four focus cases. Sunoco is a defendant in three of those cases. In addition, several of the private well owner cases are moving forward. Sunoco is a focus defendant in two of those cases. Up to this point, for the group of MTBE cases currently pending, there has been insufficient information developed about the plaintiffs’ legal theories or the facts that would be relevant to an analysis of potential exposure. Based on the current law and facts available at this time, Sunoco believes that these cases will not have a material adverse effect on its consolidated financial position.

Conclusion

Management believes that the environmental matters discussed above are potentially significant with respect to results of operations or cash flows for any one year. However, management does not believe that such matters will have a material impact on Sunoco’s consolidated financial position or, over an extended period of time, on Sunoco’s cash flows or liquidity.

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Quantitative and Qualitative Disclosures about Market Risk

Commodity and Foreign Exchange Price Risks

Sunoco uses swaps, options, futures, forwards and other derivative instruments to hedge a variety of commodity price risks. Derivative instruments are used from time to time to achieve ratable pricing of crude oil purchases, to convert certain refined product sales to fixed or floating prices, to lock in what Sunoco considers to be acceptable margins for various refined products and to lock in the price of a portion of the Company’s electricity and natural gas purchases or sales. In addition, Sunoco uses derivative contracts from time to time to reduce foreign exchange risk relating to certain export sales denominated in foreign currencies. Sunoco does not hold or issue derivative instruments for trading purposes.

Sunoco is at risk for possible changes in the market value of all of its derivative contracts; however, such risk would be mitigated by price changes in the underlying hedged items. At December 31, 2005, Sunoco had accumulated net derivative deferred losses, before income taxes, of $3 million on its open derivative contracts. Open contracts as of December 31, 2005 vary in duration but do not extend beyond 2006. The potential incremental loss on these derivatives from a hypothetical 10 percent adverse change in the year-end market prices of the underlying commodities that were being hedged by derivative contracts at December 31, 2005 was estimated to be $18 million. This hypothetical loss was estimated by multiplying the difference between the hypothetical and the actual year-end market prices of the underlying commodities by the contract volume amounts.

Sunoco also is exposed to credit risk in the event of nonperformance by derivative counterparties. Management believes this risk is negligible as its counterparties are either regulated by exchanges or are major international financial institutions or corporations with investment-grade credit ratings. (See Note 16 to the consolidated financial statements.)

Interest Rate Risk

Sunoco has market risk exposure for changes in interest rates relating to its outstanding borrowings. Sunoco manages this exposure to changing interest rates through the use of a combination of fixed- and floating-rate debt. Sunoco also has market risk exposure relating to its cash and cash equivalents. At December 31, 2005, the Company had $1,081 million of fixed-rate debt, $330 million of floating-rate debt and $919 million of cash and cash equivalents. The unfavorable impact of a hypothetical 1 percent decrease in interest rates on its cash and cash equivalents would be partially offset by the favorable impact of such a decrease on the floating-rate debt. 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

On July 7, 2005, the Company’s Board of Directors approved a two-for-one split of Sunoco’s common stock to be effected in the form of a stock dividend. The shares were distributed on August 1, 2005 to shareholders 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 proportionally increased in accordance with the terms of those respective agreements and plans. Share and per-share data (except par value) presented for all periods reflect the effect of the stock split.

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The Company has paid cash dividends on a regular quarterly basis since 1904. The Company increased the quarterly dividend paid on common stock from $.125 per share ($.50 per year) to $.1375 per share ($.55 per year) beginning with the fourth quarter of 2003 and then to $.15 per share ($.60 per year) beginning with the third quarter of 2004, to $.20 per share ($.80 per year) beginning with the second quarter of 2005 and to $.25 per share ($1.00 per year) beginning with the second quarter of 2006.

The Company repurchased in 2005, 2004 and 2003, 6.7, 15.9 and 5.8 million shares, respectively, of its common stock for $435, $568 and $136 million, respectively. In March 2005, the Company announced that its Board of Directors had approved an additional $500 million share repurchase authorization. At December 31, 2005, the Company had a remaining authorization from its Board to purchase up to $306 million of Company common stock in the open market from time to time depending on prevailing market conditions and available cash.

Critical Accounting Policies

A summary of the Company’s significant accounting policies is included in Note 1 to the consolidated financial statements. 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 and environmental remediation activities. 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 noncontributory defined benefit pension plans which provide retirement benefits for approximately one-half of its employees. Sunoco also has postretirement benefit plans which provide health care benefits for substantially all of its 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, in 1993, Sunoco implemented a dollar cap on its future contributions for its principal retirement health care benefits plan, which significantly reduces the impact of future cost increases on the estimated postretirement benefit expense and benefit obligation.

The principal assumptions that impact the determination of both expense and benefit obligations for Sunoco’s pension plans are the discount rate, the long-term expected rate of return on plan assets and the rate of compensation increase. The discount rate and the health care cost trend are the principal assumptions that impact the determination of expense and benefit obligations for Sunoco’s postretirement health care plans.

The discount rates used to determine the present value of future pension payments and medical costs are based on a portfolio of high-quality (AA rated) corporate bonds with maturities that reflect the duration of Sunoco’s pension and other postretirement benefit

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obligations. The present values of Sunoco’s future pension and other postretirement obligations were determined using discount rates of 5.60 and 5.50 percent, respectively, at December 31, 2005 and 5.75 and 5.50 percent, respectively, at December 31, 2004. Sunoco’s expense under these plans is determined using the discount rate as of the beginning of the year, which for pension plans was 5.75 percent for 2005, 6.00 percent for 2004, 6.75 percent for 2003, and is 5.60 percent for 2006, and for postretirement plans was 5.50 percent for 2005, 6.00 percent for 2004, 6.75 percent for 2003, and is 5.50 percent for 2006.

The long-term expected rate of return on plan assets was assumed to be 8.50 percent for 2005 and 8.75 percent for 2004 and 2003, while the rate of compensation increase was assumed to be 4.00 percent for each of the last three years. A long-term expected rate of return of 8.25 percent on plan assets and a rate of compensation increase of 4.00 percent will be used to determine Sunoco’s pension expense for 2006. The expected rate of return on plan assets is estimated utilizing a variety of factors including the historical investment return achieved over a long-term period, the targeted allocation of plan assets and expectations concerning future returns in the marketplace for both equity and debt securities. In determining pension expense, the Company applies the expected rate of return to the market-related value of plan assets at the beginning of the year, which is determined using a quarterly average of plan assets from the preceding year. The expected rate of return on plan assets is designed to be a long-term assumption. It generally will differ from the actual annual return which is subject to considerable year-to-year variability. As permitted by existing accounting rules, the Company does not recognize currently in pension expense the difference between the expected and actual return on assets. Rather, the difference is deferred along with other actuarial gains or losses resulting from changes in actuarial assumptions used in accounting for the plans (primarily the discount rate) and differences between actuarial assumptions and actual experience. If such unrecognized gains and losses on a cumulative basis exceed 10 percent of the projected benefit obligation, the excess is amortized into income as a component of pension or postretirement benefits expense over the average remaining service period of plan participants still employed with the Company, which currently is approximately 11 years. At December 31, 2005, the unrecognized net loss for defined benefit and postretirement benefit plans was $493 and $68 million, respectively. For 2005, the pension plan assets generated a return of 8.7 percent, compared to 12.2 percent in 2004 and 24.1 percent in 2003. For the 15-year period ended December 31, 2005, the compounded annual investment return on Sunoco’s pension plan assets was 10.2 percent.

The asset allocation for Sunoco’s pension plans at December 31, 2005 and 2004 and the target allocation of plan assets for 2006, by asset category, are as follows:

		December 31
(In Percentages)	2006 Target*	2005	2004
Asset category:
Equity securities	60%	65%	64%
Debt securities	35	32	32
Other	5	3	4
Total	100%	100%	100%

* These target allocation percentages have been in effect since 1999.

The rate of compensation increase assumption has been indicative of actual increases during the 2003-2005 period.

The initial health care cost trend assumptions used to compute the accumulated postretirement benefit obligation were increases of 11.0 percent, 10.3 percent and 11.4 percent at December 31, 2005, 2004 and 2003, respectively. These trend rates were assumed to decline gradually to 5.5 percent in 2012 and to remain at that level thereafter.

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Set forth below are the estimated increases in pension and postretirement benefits expense and benefit obligations that would occur in 2006 from a change in the indicated assumptions:

(Dollars in Millions)	Change in Rate	Expense		Benefit Obligations*
Pension benefits:
Decrease in the discount rate	.25%	$	4	$	47
Decrease in the long-term expected rate of return on plan assets	.25%	$	3	$	—
Increase in rate of compensation	.25%	$	2	$	11
Postretirement benefits:
Decrease in the discount rate	.25%	$	1	$	9
Increase in the annual health care cost trend rates	1.00%	$	1	$	12

* Represents the projected benefit obligations for defined benefit plans and the accumulated postretirement benefit obligations for postretirement benefit plans.

Long-Lived Assets

The cost of plants and equipment is generally depreciated on a straight-line basis over the estimated useful lives of the assets. Useful lives are based on historical experience and are adjusted when changes in planned use, technological advances or other factors show that a different life would be more appropriate. Changes in useful lives that do not result in the impairment of an asset are recognized prospectively. There have been no significant changes in the useful lives of the Company’s plants and equipment during the 2003-2005 period.

A decision to dispose of an asset may necessitate an impairment review. In this situation, an impairment would be recognized for any excess of the carrying amount of the long-lived asset over its fair value less cost to sell.

Long-lived assets, other than those held for sale, are reviewed for impairment whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable. Such events and circumstances include, among other factors: operating losses; unused capacity; market value declines; technological developments resulting in obsolescence; changes in demand for the Company’s products or in end-use goods manufactured by others utilizing the Company’s products as raw materials; changes in the Company’s business plans or those of its major customers, suppliers or other business partners; changes in competition and competitive practices; uncertainties associated with the United States and world economies; changes in the expected level of environmental capital, operating or remediation expenditures; and changes in governmental regulations or actions. Additional factors impacting the economic viability of long-lived assets are described under “Forward-Looking Statements” below.

A long-lived asset that is not held for sale is considered to be impaired when the undiscounted net cash flows expected to be generated by the asset are less than its carrying amount. Such estimated future cash flows are highly subjective and are based on numerous assumptions about future operations and market conditions. The impairment recognized is the amount by which the carrying amount exceeds the fair market value of the impaired asset. It is also difficult to precisely estimate fair market value because quoted market prices for the Company’s long-lived assets may not be readily available. Therefore, fair market value is generally based on the present values of estimated future cash flows using discount rates commensurate with the risks associated with the assets being reviewed for impairment.

There were no asset impairments during 2005 and 2004. Sunoco had asset impairments totaling $30 million after tax during 2003. The impairments related to the write-down of the Company’s plasticizer assets held for sale to their estimated fair values less costs to sell and the write-down by the Company’s previously one-third-owned BEF joint venture of its MTBE production facility to its estimated fair value. The estimated fair value of the MTBE facility declined in 2003 as a result of the expected reduction in MTBE demand due to

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enacted and anticipated federal and state bans of this gasoline additive. For a further discussion of these asset impairments, see Note 2 to the consolidated financial statements.

Environmental Remediation Activities

Sunoco is subject to extensive and frequently changing federal, state and local laws and regulations, including, but not limited to, those relating to the discharge of materials into the environment or that otherwise relate to the protection of the environment, waste management and the characteristics and composition of fuels. These laws and regulations require environmental assessment and/or remediation efforts at many of Sunoco’s facilities and at formerly owned or third-party sites.

Sunoco’s accrual for environmental remediation activities amounted to $137 million at December 31, 2005. This accrual is for work at identified sites where an assessment has indicated that cleanup costs are probable and reasonably estimable. The accrual is undiscounted and is based on currently available information, estimated timing of remedial actions and related inflation assumptions, existing technology and presently enacted laws and regulations. It is often extremely difficult to develop reasonable estimates of future site remediation costs due to changing regulations, changing technologies and their associated costs, and changes in the economic environment. In the above instances, if a range of probable environmental cleanup costs exists for an identified site, FASB Interpretation No. 14, “Reasonable Estimation of the Amount of a Loss,” requires that the minimum of the range be accrued unless some other point in the range is more likely, in which case the most likely amount in the range is accrued. Engineering studies, historical experience and other factors are used to identify and evaluate remediation alternatives and their related costs in determining the estimated accruals for environmental remediation activities. Losses attributable to unasserted claims are also reflected in the accruals to the extent they are probable of occurrence and reasonably estimable.

Management believes it is reasonably possible (i.e., less than probable but greater than remote) that additional environmental remediation losses will be incurred. At December 31, 2005, the aggregate of the estimated maximum additional reasonably possible losses, which relate to numerous individual sites, totaled approximately $90 million. However, the Company believes it is very unlikely that it will realize the maximum reasonably possible loss at every site. Furthermore, the recognition of additional losses, if and when they were to occur, would likely extend over many years and, therefore, likely would not have a material impact on the Company’s financial position.

Management believes that none of the current remediation locations, which are in various stages of ongoing remediation, is individually material to Sunoco as its largest accrual for any one Superfund site, operable unit or remediation area was less than $4 million at December 31, 2005. As a result, Sunoco’s exposure to adverse developments with respect to any individual site is not expected to be material. However, if changes in environmental regulations occur, such changes could impact several of Sunoco’s facilities and formerly owned and third-party sites at the same time. As a result, from time to time, significant charges against income for environmental remediation may occur.

Under various environmental laws, including the Resource Conservation and Recovery Act (“RCRA”), Sunoco has initiated corrective remedial action at its facilities, formerly owned facilities and third-party sites. At the Company’s major manufacturing facilities, Sunoco has consistently assumed continued industrial use and a containment/remediation strategy focused on eliminating unacceptable risks to human health or the environment. The remediation accruals for these sites reflect that strategy. Accruals include amounts to prevent off-site migration and to contain the impact on the facility property, as well as to address known, discrete areas requiring remediation within the plants. Activities include closure of RCRA solid waste management units, recovery of hydrocarbons, handling of impacted soil, mitigation of surface water impacts and prevention of off-site migration.

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Many of Sunoco’s current terminals are being addressed with the above containment/remediation strategy. At some smaller or less impacted facilities and some previously divested terminals, the focus is on remediating discrete interior areas to attain regulatory closure.

Sunoco owns or operates certain retail gasoline outlets where releases of petroleum products have occurred. Federal and state laws and regulations require that contamination caused by such releases at these sites and at formerly owned sites be assessed and remediated to meet the applicable standards. The obligation for Sunoco to remediate this type of contamination varies, depending on the extent of the release and the applicable laws and regulations. A portion of the remediation costs may be recoverable from the reimbursement fund of the applicable state, after any deductible has been met.

Future costs for environmental remediation activities at the Company’s marketing sites will also be influenced by the extent of MTBE contamination of groundwater, the cleanup of which will be driven by thresholds based on drinking water protection. Though not all groundwater is used for drinking, several states have initiated or proposed more stringent MTBE cleanup requirements. Cost increases result directly from extended remedial operations and maintenance on sites that, under prior standards, could otherwise have been completed. Cost increases will also result from installation of additional remedial or monitoring wells and purchase of more expensive equipment because of the presence of MTBE. While actual cleanup costs for specific sites are variable and depend on many of the factors discussed above, expansion of similar MTBE remediation thresholds to additional states or adoption of even more stringent requirements for MTBE remediation would result in further cost increases.

In summary, total future costs for environmental remediation activities will depend upon, among other things, the identification of any additional sites, the determination of the extent of the contamination at each site, the timing and nature of required remedial actions, the technology available and needed to meet the various existing legal requirements, the nature and terms of cost-sharing arrangements with other potentially responsible parties, the availability of insurance coverage, the nature and extent of future environmental laws, inflation rates and the determination of Sunoco’s liability at the sites, if any, in light of the number, participation level and financial viability of other parties.

New Accounting Pronouncements

For a discussion of recently issued accounting pronouncements requiring adoption subsequent to December 31, 2005, see Note 1 to the consolidated financial statements.

Forward-Looking Statements

Some of the information contained in this Annual Report to Shareholders contains “forward-looking statements” (as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). These forward-looking statements discuss estimates, goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to the Company, based on current beliefs of management as well as assumptions made by, and information currently available to, Sunoco. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “budget,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “scheduled,” “should,” or other similar words, phrases or expressions that convey the uncertainty of future events or outcomes. Although management believes these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate.

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Forward-looking statements involve a number of risks and uncertainties. Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation:

• Changes in refining, marketing and chemical margins;

• Variation in petroleum-based commodity prices and availability of crude oil and feedstock supply or transportation;

• Effects of transportation disruptions;

• Changes in the price differentials between light-sweet and heavy-sour crude oils;

• Changes in the marketplace which may affect supply and demand for Sunoco’s products;

• Changes in competition and competitive practices, including the impact of foreign imports;

• Effects of weather conditions and natural disasters on the Company’s operating facilities and on product supply and demand;

• Age of, and changes in, the reliability, efficiency and capacity of, the Company’s operating facilities or those of third parties;

• Changes in the level of operating expenses;

• Effects of adverse events relating to the operation of the Company’s facilities and to the transportation and storage of hazardous materials (including equipment malfunction, explosions, fires, spills, and the effects of severe weather conditions);

• Changes in the expected level of environmental capital, operating or remediation expenditures;

• Delays and/or costs related to construction, improvements and/or repairs of facilities (including shortages of skilled labor, the issuance of applicable permits and inflation);

• Changes in product specifications;

• Availability and pricing of oxygenates such as MTBE and ethanol;

• Phase-outs or restrictions on the use of MTBE;

• Political and economic conditions in the markets in which the Company, its suppliers or customers operate, including the impact of potential terrorist acts and international hostilities;

• Military conflicts between, or internal instability in, one or more oil producing countries, governmental actions and other disruptions in the ability to obtain crude oil;

• Ability to conduct business effectively in the event of an information systems failure;

• Ability to identify acquisitions, execute them under favorable terms and integrate them into the Company’s existing businesses;

• Ability to enter into joint ventures and other similar arrangements under favorable terms;

• Changes in the availability and cost of debt and equity financing;

• Changes in the credit ratings assigned to the Company’s debt securities or credit facilities;

• Changes in insurance markets impacting costs and the level and types of coverage available;

• Changes in tax laws or their interpretations, including pension funding requirements;

• Changes in financial markets impacting pension expense and funding requirements;

• Risks related to labor relations and workplace safety;

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• Nonperformance by or disputes with major customers, suppliers, dealers, distributors or other business partners;

• General economic, financial and business conditions which could affect Sunoco’s financial condition and results of operations;

• Changes in applicable statutes and government regulations or their interpretations, including those relating to the environment and global warming;

• Claims of the Company’s noncompliance with statutory and regulatory requirements; and

• Changes in the status of, or initiation of new, litigation, arbitration, or other proceedings to which the Company is a party or liability resulting from such litigation, arbitration, or other proceedings, including natural resource damage claims.

The factors identified above are believed to be important factors (but not necessarily all of the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by Sunoco. Other factors not discussed herein could also have material adverse effects on the Company. All forward-looking statements included in this Annual Report to Shareholders are expressly qualified in their entirety by the foregoing cautionary statements. The Company undertakes no obligation to update publicly any forward-looking statement (or its associated cautionary language) whether as a result of new information or future events.

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Management’s Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005. In making this assessment, the Company’s management used the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

Based on this assessment, management believes that, as of December 31, 2005, the Company’s internal control over financial reporting is effective based on the COSO criteria. Ernst & Young LLP, the Company’s independent registered public accounting firm, has issued an audit report on management’s assessment of the Company’s internal control over financial reporting, which appears on page 41.

John G. Drosdick

Chairman, Chief Executive Officer and President

Thomas W. Hofmann

Senior Vice President and Chief Financial Officer

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Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

To the Shareholders and Board of Directors,

Sunoco, Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Sunoco, Inc. and subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). Sunoco, Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Sunoco, Inc. and subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Sunoco, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2005 consolidated financial statements of Sunoco, Inc. and subsidiaries and our report dated February 23, 2006 expressed an unqualified opinion thereon.

Philadelphia, Pennsylvania

February 23, 2006

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Report of Independent Registered Public Accounting Firm on Financial Statements

To the Shareholders and Board of Directors,

Sunoco, Inc.

We have audited the accompanying consolidated balance sheets of Sunoco, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, comprehensive income and shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sunoco, Inc. and subsidiaries at December 31, 2005 and 2004 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Sunoco, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2006 expressed an unqualified opinion thereon.

Philadelphia, Pennsylvania

February 23, 2006

42

Consolidated Statements of Income Sunoco, Inc. and Subsidiaries

(Millions of Dollars and Shares, Except Per-Share Amounts)
For the Years Ended December 31	2005			2004			2003
Revenues
Sales and other operating revenue (including consumer excise taxes)	$	33,754		$	25,468		$	17,969
Interest income		23			10			7
Other income (loss), net (Notes 2, 3 and 4)		(13	)		30			40
		33,764			25,508			18,016
Costs and Expenses
Cost of products sold and operating expenses		28,028			20,734			14,154
Consumer excise taxes		2,588			2,282			1,999
Selling, general and administrative expenses		946			873			752
Depreciation, depletion and amortization		429			409			369
Payroll, property and other taxes		124			118			105
Provision for write-down of assets and other matters (Note 2)		—			—			28
Interest cost and debt expense		94			108			117
Interest capitalized		(25	)		(11	)		(3	)
		32,184			24,513			17,521
Income before income tax expense		1,580			995			495
Income tax expense (Note 4)		606			390			183
Net Income	$	974		$	605		$	312
Earnings Per Share of Common Stock (Note 14):
Basic		$7.13			$4.08			$2.03
Diluted		$7.08			$4.04			$2.01
Weighted-Average Number of Shares Outstanding (Notes 5 and 14):
Basic		136.6			148.2			153.4
Diluted		137.5			149.8			155.0
Cash Dividends Paid Per Share of Common Stock (Note 14)		$.75			$.575			$.5125

(See Accompanying Notes)

43

Consolidated Balance Sheets Sunoco, Inc. and Subsidiaries

(Millions of Dollars)
At December 31	2005			2004
Assets
Current Assets
Cash and cash equivalents	$	919		$	405
Accounts and notes receivable, net		1,754			1,271
Inventories (Note 6)		799			765
Deferred income taxes (Note 4)		215			110
Total Current Assets		3,687			2,551
Investments and long-term receivables (Note 7)		143			115
Properties, plants and equipment, net (Note 8)		5,658			4,966
Prepaid retirement costs (Note 9)		12			11
Deferred charges and other assets (Note 2)		431			436
Total Assets	$	9,931		$	8,079
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	3,014		$	2,109
Accrued liabilities		681			461
Short-term borrowings (Note 10)		—			100
Current portion of long-term debt (Note 11)		177			3
Taxes payable		338			349
Total Current Liabilities		4,210			3,022
Long-term debt (Note 11)		1,234			1,379
Retirement benefit liabilities (Note 9)		563			539
Deferred income taxes (Note 4)		817			755
Other deferred credits and liabilities (Note 12)		409			247
Commitments and contingent liabilities (Note 12)
Minority interests (Note 13)		647			530
Shareholders’ Equity (Notes 14 and 15)
Common stock, par value $1 per share
Authorized—400,000,000 shares; Issued, 2005—279,988,625 shares; Issued, 2004—278,248,876 shares		280			278
Capital in excess of par value		1,587			1,517
Earnings employed in the business		3,766			2,895
Accumulated other comprehensive loss		(192	)		(164	)
Common stock held in treasury, at cost
2005—146,838,655 shares; 2004—139,593,196 shares		(3,390	)		(2,919	)
Total Shareholders’ Equity		2,051			1,607
Total Liabilities and Shareholders’ Equity	$	9,931		$	8,079

(See Accompanying Notes)

44

Consolidated Statements of Cash Flows Sunoco, Inc. and Subsidiaries

(Millions of Dollars)
For the Years Ended December 31	2005			2004			2003
Increases (Decreases) in Cash and Cash Equivalents
Cash Flows from Operating Activities:
Net income	$	974		$	605		$	312
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on phenol supply contract dispute		95			—			—
Provision for asset write-downs and other matters		—			13			51
Loss on early extinguishment of debt		—			53			—
Depreciation, depletion and amortization		429			409			369
Deferred income tax expense		3			123			111
Proceeds from power contract restructuring		48			—			—
Payments in excess of expense for retirement plans		(39	)		(28	)		(45	)
Changes in working capital pertaining to operating activities, net of effect of acquisitions:
Accounts and notes receivable		(466	)		(214	)		(139	)
Inventories		(34	)		(136	)		51
Accounts payable and accrued liabilities		975			771			132
Taxes payable		19			138			131
Other		65			13			27
Net cash provided by operating activities		2,069			1,747			1,000
Cash Flows from Investing Activities:
Capital expenditures		(970	)		(832	)		(427	)
Acquisitions, net of seller financing of $4 in 2003 (Note 2)		(105	)		(431	)		(356	)
Proceeds from divestments		55			200			82
Other		(15	)		3			(20	)
Net cash used in investing activities		(1,035	)		(1,060	)		(721	)
Cash Flows from Financing Activities:
Net proceeds from (repayments of) short-term borrowings		(100	)		100			—
Net proceeds from issuance of long-term debt		99			416			—
Repayments of long-term debt		(70	)		(642	)		(12	)
Premiums paid on early extinguishment of debt		—			(50	)		—
Net proceeds from issuance of Sunoco Logistics Partners L.P. limited partnership units (Note 13)		160			129			—
Cash distributions to investors in cokemaking operations		(38	)		(36	)		(48	)
Cash distributions to investors in Sunoco Logistics Partners L.P.		(28	)		(20	)		(11	)
Cash dividend payments		(103	)		(86	)		(79	)
Purchases of common stock for treasury		(435	)		(568	)		(136	)
Proceeds from issuance of common stock under management incentive and employee option plans		14			52			52
Other		(19	)		(8	)		(4	)
Net cash used in financing activities		(520	)		(713	)		(238	)
Net increase (decrease) in cash and cash equivalents		514			(26	)		41
Cash and cash equivalents at beginning of year		405			431			390
Cash and cash equivalents at end of year	$	919		$	405		$	431

(See Accompanying Notes)

45

Consolidated Statements of Comprehensive Income and Shareholders’ Equity

(Dollars in Millions, Shares in Thousands)													Sunoco, Inc. and Subsidiaries
				Shareholders’ Equity
				Common Stock												Common Stock Held in Treasury
	Comprehensive Income			Number of Shares	Par Value		Capital in Excess of Par Value			Earnings Employed in the Business			Accumulated Other Comprehensive Loss			Shares	Cost
At December 31, 2002				269,521	$	270	$	1,354		$	2,143		$	(195	)	116,643	$	2,178
Net income	$	312		—		—		—			312			—		—		—
Other comprehensive income:
Minimum pension liability adjustment (net of related tax expense of $4)		7		—		—		—			—			7		—		—
Net hedging gains (net of related tax expense of $4)		7		—		—		—			—			7		—		—
Reclassifications of net hedging gains to earnings (net of related tax benefit of $3)		(6	)	—		—		—			—			(6	)	—		—
Cash dividend payments		—		—		—		—			(79	)		—		—		—
Purchases for treasury		—		—		—		—			—			—		5,809		136
Issued under management incentive and employee option plans		—		4,081		4		53			—			—		—		—
Net decrease in equity related to unissued shares under management incentive plans (Note 15)		—		—		—		(1	)		—			—		—		—
Other		—		—		—		9			—			—		388		8
Total	$	320
At December 31, 2003				273,602	$	274	$	1,415		$	2,376		$	(187	)	122,840	$	2,322
Net income	$	605		—		—		—			605			—		—		—
Other comprehensive income:
Minimum pension liability adjustment (net of related tax expense of $12)		24		—		—		—			—			24		—		—
Net hedging gains (net of related tax expense of $5)		10		—		—		—			—			10		—		—
Reclassifications of net hedging gains to earnings (net of related tax benefit of $6)		(11	)	—		—		—			—			(11	)	—		—
Cash dividend payments		—		—		—		—			(86	)		—		—		—
Purchases for treasury		—		—		—		—			—			—		15,910		568
Issued under management incentive and employee option plans		—		4,587		4		68			—			—		—		—
Net increase in equity related to unissued shares under management incentive plans		—		—		—		5			—			—		—		—
Other		—		60		—		29			—			—		843		29
Total	$	628
At December 31, 2004				278,249	$	278	$	1,517		$	2,895		$	(164	)	139,593	$	2,919
Net income	$	974		—		—		—			974			—		—		—
Other comprehensive income:
Minimum pension liability adjustment (net of related tax benefit of $41)		(25	)	—		—		—			—			(25	)	—		—
Net hedging gains (net of related tax expense of $5)		7		—		—		—			—			7		—		—
Reclassifications of net hedging gains to earnings (net of related tax benefit of $7)		(10	)	—		—		—			—			(10	)	—		—
Cash dividend payments		—		—		—		—			(103	)		—		—		—
Purchases for treasury		—		—		—		—			—			—		6,740		435
Issued under management incentive plans		—		1,670		2		31			—			—		—		—
Net increase in equity related to unissued shares under management incentive plans		—		—		—		8			—			—		—		—
Other		—		70		—		31			—			—		506		36
Total	$	946
At December 31, 2005				279,989	$	280	$	1,587		$	3,766		$	(192	)	146,839	$	3,390

(See Accompanying Notes)

46

Notes to Consolidated Financial Statements Sunoco, Inc. and Subsidiaries

1. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements of Sunoco, Inc. and subsidiaries (collectively, “Sunoco” or the “Company”) contain the accounts of all entities that are controlled and variable interest entities for which the Company is the primary beneficiary. Corporate joint ventures and other investees over which the Company has the ability to exercise significant influence that are not consolidated are accounted for by the equity method.

FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” as revised (“FASB Interpretation No. 46”), defines a variable interest entity (“VIE”) as an entity that either has investor voting rights that are not proportional to their economic interests or has equity investors that do not provide sufficient financial resources for the entity to support its activities. FASB Interpretation No. 46 requires a VIE to be consolidated by a company if that company is the primary beneficiary. The primary beneficiary is the company that is subject to a majority of the risk of loss from the VIE’s activities or, if no company is subject to a majority of such risk, the company that is entitled to receive a majority of the VIE’s residual returns.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual amounts could differ from these estimates.

Stock Split

Share and per-share data (except par value) presented for all periods reflect the effect of a two-for-one stock split, which was effected in the form of a common stock dividend distributed on August 1, 2005 (Note 14).

Reclassifications

Certain amounts in the prior years’ financial statements have been reclassified to conform to the current-year presentation.

Revenue Recognition

The Company sells various refined products (including gasoline, middle distillates, residual fuel, petrochemicals and lubricants), coke and coal and also sells crude oil in connection with the crude oil gathering and marketing activities of its logistics operations. In addition, the Company sells a broad mix of merchandise such as groceries, fast foods and beverages at its convenience stores, operates common carrier pipelines through a publicly traded limited partnership, provides terminalling services and provides a variety of car care services at its retail gasoline outlets. Revenues related to the sale of products are recognized when title passes, while service revenues are recognized when services are provided. Title passage generally occurs when products are shipped or delivered in accordance with the terms of the respective sales agreements. In addition, revenues are not recognized until sales prices are fixed or determinable and collectibility is reasonably assured.

Crude oil and refined product exchange transactions, which are entered into primarily to acquire crude oil and refined products of a desired quality or at a desired location, are netted in cost of products sold and operating expenses in the consolidated statements of income. In September 2005, the Emerging Issues Task Force (the “EITF”) completed its deliberations on whether exchange transactions should be reported on a gross or net basis in Issue 04-13, “Accounting for Purchases and Sales of Inventory with the Same Counterparty,” and concluded that they should be reported net in the consolidated statements of income. Accordingly, no adjustment of the amounts included in Sunoco’s consolidated financial statements was required.

Consumer excise taxes on sales of refined products and merchandise are included in both revenues and costs and expenses, with no effect on net income.

Cash Equivalents

Sunoco considers all highly liquid investments with a remaining maturity of three months or less at the time of purchase to be cash equivalents. These cash equivalents consist principally of time deposits and money market investments.

Inventories

Inventories are valued at the lower of cost or market. The cost of crude oil and petroleum and chemical product inventories is determined using the last-in, first-out method (“LIFO”). The cost of materials, supplies and other inventories is determined using principally the average-cost method.

47

Depreciation and Retirements

Plants and equipment are generally depreciated on a straight-line basis over their estimated useful lives. Gains and losses on the disposals of fixed assets are generally reflected in net income.

Impairment of Long-Lived Assets

Long-lived assets held for sale are recorded at the lower of their carrying amount or fair market value less cost to sell. Long-lived assets, other than those held for sale, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An asset is considered to be impaired when the undiscounted estimated net cash flows expected to be generated by the asset are less than its carrying amount. The impairment recognized is the amount by which the carrying amount exceeds the fair market value of the impaired asset.

Goodwill and Intangible Assets

Goodwill, which represents the excess of the purchase price over the fair value of net assets acquired, and indefinite-lived intangible assets are tested for impairment at least annually rather than being amortized. Sunoco determined during the 2003-2005 period that no such assets were impaired. Intangible assets with finite useful lives are amortized over their useful lives in a manner that reflects the pattern in which the economic benefit of the intangible assets is consumed.

Environmental Remediation

Sunoco accrues environmental remediation costs for work at identified sites where an assessment has indicated that cleanup costs are probable and reasonably estimable. Such accruals are undiscounted and are based on currently available information, estimated timing of remedial actions and related inflation assumptions, existing technology and presently enacted laws and regulations. If a range of probable environmental cleanup costs exists for an identified site, the minimum of the range is accrued unless some other point in the range is more likely in which case the most likely amount in the range is accrued.

Maintenance Shutdowns

Maintenance and repair costs in excess of $500 thousand incurred in connection with major maintenance shutdowns are capitalized when incurred and amortized over the period benefited by the maintenance activities.

Derivative Instruments

From time to time, Sunoco uses swaps, options, futures, forwards and other derivative instruments to hedge its exposure to crude oil, petroleum product, electricity and natural gas price volatility and to reduce foreign exchange risk relating to certain export sales denominated in foreign currencies. Such contracts are recognized in the consolidated balance sheets at their fair value. Changes in fair value of derivative contracts that are not hedges are recognized in income as they occur. If the derivative contracts are designated as hedges, depending on their nature, the effective portions of changes in their fair values are either offset in income against the changes in the fair values of the items being hedged or reflected initially as a separate component of shareholders’ equity and subsequently recognized in income when the hedged items are recognized in income. The ineffective portions of changes in the fair values of derivative contracts designated as hedges are immediately recognized in income. Sunoco does not hold or issue derivative instruments for trading purposes.

Minority Interests in Cokemaking Operations

Cash investments by third parties are recorded as an increase in minority interests in the consolidated balance sheets. There is no recognition of any gain at the dates cash investments are made as the third-party investors are entitled to a preferential return on their investments.

Nonconventional fuel credit and other net tax benefits generated by the Company’s cokemaking operations and allocated to third-party investors are recorded as a reduction in minority interests and are included as income in the Coke segment. The investors’ preferential return is recorded as an increase in minority interests and is recorded as expense in the Corporate and Other segment. The net of these two amounts represents a noncash change in minority interests in cokemaking operations, which is recognized in other income (loss), net, in the consolidated statements of income.

Cash payments, representing the distributions of the investors’ share of cash generated by the cokemaking operations, are recorded as a reduction in minority interests.

Stock-Based Compensation

In December 2004, Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), was issued, which revised Statement of Financial Accounting 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. SFAS No. 123R also requires the use of a non-substantive vesting period approach for new share-based payment transactions that vest when an employee becomes retirement eligible as is the case under Sunoco’s share-based awards (i.e., the vesting period cannot exceed the date an employee becomes retirement

48

eligible). The effect will be to accelerate expense recognition compared to the vesting period approach that Sunoco currently uses that reflects the stated vesting period. For the year ending December 31, 2006, the Company currently estimates that its after-tax compensation expense under this provision of SFAS No. 123R will be approximately $5-$10 million higher than it would have been under SFAS No. 123. The future impact of the non-substantive vesting period will be dependent upon the value of future stock-based awards granted to employees who are eligible to retire prior to the normal vesting periods of the awards. Sunoco currently intends to adopt SFAS No. 123R effective January 1, 2006. As Sunoco currently follows the fair value method of accounting prescribed by SFAS No. 123, the other provisions of SFAS No. 123R are not expected to have a significant impact on the Company’s consolidated financial statements.

Asset Retirement Obligations

In March 2005, FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FASB Interpretation No. 47”), was issued. FASB Interpretation No. 47 clarifies that the term “conditional asset retirement obligation” as used in Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations,” (“SFAS No. 143”) refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. FASB Interpretation No. 47 provides that a liability for the fair value of a conditional asset retirement obligation should be recognized if that fair value can be reasonably estimated. FASB Interpretation No. 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. In conjunction with the implementation of FASB Interpretation No. 47 at December 31, 2005, Sunoco recorded an increase in asset retirement obligations of $57 million and a related increase in net properties, plants and equipment of $47 million primarily attributable to product storage tanks at Company facilities. The $10 million cumulative effect of this accounting change ($6 million after tax) has been included in cost of products sold and operating expenses in the 2005 consolidated statement of income. Sunoco did not reflect the $6 million after-tax charge as a cumulative effect of accounting change as it was not material. At December 31, 2005, Sunoco’s liability for asset retirement obligations amounted to $66 million, which included $9 million previously recorded under SFAS No. 143. Sunoco has legal asset retirement obligations for several other assets at its refineries, pipelines and terminals, for which it is not possible to estimate when the obligations will be settled. Consequently, the retirement obligations for these assets cannot be measured at this time.

2. Changes in Business and Other Matters

Acquisitions

Eagle Point Refinery and Related Assets—Effective January 13, 2004, Sunoco completed the purchase of the Eagle Point refinery and related assets from El Paso Corporation (“El Paso”) for $250 million, including inventory. In connection with this transaction, Sunoco also assumed certain environmental and other liabilities. The Eagle Point refinery is located in Westville, NJ, near the Company’s existing Northeast Refining operations. Management believes the acquisition of the Eagle Point refinery complements and enhances the Company’s refining operations in the Northeast and enables the capture of significant synergies in Northeast Refining. The related assets acquired include certain pipeline and other logistics assets associated with the refinery which Sunoco subsequently sold in March 2004 for $20 million to Sunoco Logistics Partners L.P. (the “Partnership”), the consolidated master limited partnership, which is 47.9 percent owned by Sunoco and conducts a substantial portion of the Company’s logistics operations. No gain or loss was recognized on this transaction.

The purchase price has been allocated to the assets acquired and liabilities assumed based on their relative fair market values at the acquisition date. The following is a summary of the effects of the transaction on Sunoco’s consolidated financial position:

(Millions of Dollars)
Increase in:
Inventories	$	159
Properties, plants and equipment, net		108
Accrued liabilities		(3	)
Other deferred credits and liabilities		(14	)
Cash paid for acquisition	$	250

Service Stations—In the second quarter of 2004, Sunoco completed the purchase of 340 retail outlets operated under the Mobil^® brand from ConocoPhillips for $181 million, including inventory. Of the total sites acquired, 50 were owned outright and 62 were subject to long-term leases. The remaining network consisted of contracts to supply 34 dealer-owned and operated locations and 194 branded distributor-owned sites. These outlets, which included 31 sites that are Company-operated and have convenience stores, are located primarily in Delaware, Maryland, Virginia and Washington, D.C. These sites are being re-branded to Sunoco^® gasoline and APlus^® convenience stores over time. In the second quarter of 2003, Sunoco completed the purchase of 193 Speedway^® retail gasoline sites from a subsidiary of Marathon Ashland Pe - -

49

troleum LLC for $162 million, including inventory. The sites, which are located primarily in Florida and South Carolina, were all Company-operated locations with convenience stores. Of the 193 outlets, Sunoco became the lessee for 54 sites under long-term lease agreements. The Speedway^® sites were re-branded as Sunoco^® locations during the 2003-2004 period. The Company believes these acquisitions fit its long-term strategy of building a retail and convenience store network designed to provide attractive long-term returns.

The purchase prices for the service stations acquired have been allocated to the assets acquired and liabilities assumed based on their relative fair market values at the acquisition dates. The following is a summary of the effects of these transactions on Sunoco’s consolidated financial position:

(Millions of Dollars)	Mobil® Sites			Speedway® Sites
Increase in:
Inventories	$	1		$	21
Properties, plants and equipment, net		133			143
Deferred charges and other assets		48	*		—
Accrued liabilities		(1	)		—
Other deferred credits and liabilities		—			(2	)
Cash paid for acquisitions	$	181		$	162

* Consists of $10 million allocated to goodwill and $38 million allocated to contracts with dealers and distributors. The values of the dealer and distributor contracts are being amortized primarily on a straight-line basis over periods ranging from 10 to 15 years, which represent the expected lives of the Company’s affiliations with these dealers and distributors. The unamortized cost related to the dealer and distributor contracts amounted to $32 million at December 31, 2005.

Transaction with Equistar Chemicals, L.P.—Effective March 31, 2003, Sunoco formed a limited partnership with Equistar Chemicals, L.P. (“Equistar”) involving Equistar’s ethylene facility in LaPorte, TX. Equistar is a wholly owned subsidiary of Lyondell Chemical Company. In connection with this transaction, Equistar and the partnership entered into a 700 million pounds-per-year, 15-year propylene supply contract with Sunoco. Of this amount, 500 million pounds per year is priced on a cost-based formula that includes a fixed discount that declines over the life of the contract, while the remaining 200 million pounds per year is based on market prices. Sunoco also purchased Equistar’s polypropylene facility in Bayport, TX. Sunoco paid $194 million in cash and borrowed $4 million from the seller to form the partnership and acquire the Bayport facility.

Through the partnership, the Company believes it has secured a favorable long-term supply of propylene for its Gulf Coast polypropylene business, while the acquisition of the Bayport facility has increased the Company’s polypropylene capacity. This transaction complements and enhances the Company’s polypropylene business and strengthens its market position.

The purchase price has been allocated to the assets acquired and liabilities assumed based on their relative fair market values at the acquisition date. The following is a summary of the effects of the transaction on Sunoco’s consolidated financial position:

(Millions of Dollars)
Increase in:
Inventories	$	11
Properties, plants and equipment, net		30
Deferred charges and other assets		160	*
Accrued liabilities		(2	)
Retirement benefit liabilities		(1	)
		198
Seller financing:
Current portion of long-term debt		(1	)
Long-term debt		(3	)
		(4	)
Cash paid for acquisition	$	194

* Represents the amounts allocated to the propylene supply contract and the related partnership. The Company is amortizing this deferred cost over the 15-year life of the supply contract in a manner that reflects the future decline in the fixed discount over the contract period. This amortization expense amounted to $14, $15 and $11 million in 2005, 2004 and 2003, respectively, and is expected to approximate $13 million in 2006, $12 million in 2007, $11 million in 2008, $11 million in 2009 and $10 million in 2010. The unamortized cost related to the supply contract and related partnership amounted to $123 million at December 31, 2005.

Pro Forma Data for Acquisitions—The unaudited pro forma sales and other operating revenue, net income and net income per share of common stock of Sunoco for the year ended December 31, 2004, as if the acquisition of the Eagle Point refinery and related assets and the Mobil^® retail outlets had occurred on January 1, 2004, are as follows:

(Millions of Dollars, Except Per-Share Amount)
Sales and other operating revenue	$	25,741
Net income		$610
Net income per share of common stock—diluted		$4.07

The pro forma data does not purport to be indicative of the results that actually would have been obtained if the Eagle Point refinery and related assets and the Mobil^® retail outlets had been part of Sunoco’s businesses for the period presented and is not intended to be a projection of future results. Accordingly, the pro forma results do not reflect any restructuring costs, changes in operating levels, or potential cost savings and other synergies prior to the acquisition dates.

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Logistics Assets—In August 2005, Sunoco Logistics Partners L.P. (the “Partnership”) completed the acquisition of a crude oil pipeline system and related storage facilities located in Texas from ExxonMobil for $100 million. In December 2005, the Partnership also completed the acquisition of an ownership interest in the Mesa Pipeline from Chevron for $5 million, which, coupled with the 7.2 percent interest it acquired from Sunoco, gave it a 37.0 percent ownership interest. In 2004, the Partnership completed the following acquisitions: in March, certain pipeline and other logistics assets previously purchased by Sunoco with the Eagle Point refinery for $20 million; in April, two ConocoPhillips refined product terminals located in Baltimore, MD and Manassas, VA for $12 million; in June, an additional one-third interest in the Harbor Pipeline from El Paso Corporation for $7 million; and in November, a refined product terminal located in Columbus, OH from a subsidiary of Certified Oil Company for $8 million. During September 2003, the Partnership acquired an additional 3.1 percent interest in West Shore Pipe Line Company for $4 million, increasing its overall ownership interest in West Shore to 12.3 percent. The purchase prices of the 2005 and 2004 acquisitions have been included in properties, plants and equipment, while the purchase price of the 2003 acquisition has been included in investments and long-term receivables in the consolidated balance sheets. No pro forma information has been presented since the acquisitions were not material in relation to Sunoco’s consolidated results of operations.

Divestments

Retail Portfolio Management Program—A Retail Portfolio Management (“RPM”) program is ongoing, which is selectively reducing the Company’s invested capital in Company-owned or leased marketing sites. During the 2003-2006 period, selected sites, including some of the Mobil^® and Speedway^® acquired outlets, are being divested. Most of the sites are being converted to contract dealers or distributors thereby retaining most of the gasoline sales volume attributable to the divested sites within the Sunoco branded business. The Company generated $170 million of divestment proceeds through 2005 related to the sale of 323 sites. During 2005, 2004 and 2003, net gains of $8, $11 and $12 million, respectively ($5, $7 and $8 million after tax, respectively) were recognized as gains on divestments in other income (loss), net, in the consolidated statements of income in connection with the RPM program.

Midwest Marketing Divestment Program—In 2003, Sunoco announced its intention to sell its interest in 190 retail sites in Michigan and the southern Ohio markets of Columbus, Dayton and Cincinnati (“Midwest Marketing Divestment Program”). During 2003, 75 Company-owned or leased properties and contracts to supply 23 dealer- owned sites were divested under this program. The cash generated from these divestments totaled $46 million, which represented substantially all of the proceeds from the program. The remaining 92 sites, which were virtually all dealer-owned locations, were converted to distributor outlets in 2004. During 2003, a $14 million gain ($9 million after tax) was recognized as a gain on divestments in other income (loss), net, in the 2003 consolidated statement of income in connection with this program.

Private Label Credit Card Program—During 2004, Sunoco sold its private label consumer and commercial credit card business and related accounts receivable to Citibank. In connection with this divestment, Sunoco received $100 million in cash proceeds, recognized a $3 million gain on the divestment ($2 million after tax) and established a $3 million accrual ($2 million after tax) for employee terminations under a postemployment plan and for other exit costs. In addition, the two companies signed a seven-year agreement for Citibank to operate and service the Sunoco private label credit card program.

Belvieu Environmental Fuels—In 2004, Sunoco sold its one-third partnership interest in Belvieu Environmental Fuels (“BEF”), a joint venture that owns and operates an MTBE production facility in Mont Belvieu, TX, to Enterprise Products Operating L.P. (“Enterprise”) for $15 million in cash, resulting in a $13 million loss on divestment ($8 million after tax). This charge is included as a loss on divestment in other income (loss), net, in the 2004 consolidated statement of income. In connection with the sale, Sunoco has retained one-third of any liabilities and damages exceeding $300 thousand in the aggregate arising from any claims resulting from the ownership of the assets and liabilities of BEF for the period prior to the divestment date, except for any on-site environmental claims which are retained by Enterprise. Due to the nature of this indemnification, the Company cannot estimate the fair value, nor determine the total amount of the indemnification, if any. During 2003, as a result of various governmental actions which caused a material adverse impact on MTBE industry demand, BEF recorded a

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write-down of its MTBE production facility to its estimated fair value at that time. The estimated fair value was determined by an independent appraiser using present value techniques which reflect various alternative operating assumptions. Sunoco’s share of this provision, which is included as an equity loss in other income (loss), net, in the 2003 consolidated statement of income, amounted to $23 million ($15 million after tax).

Under an off-take agreement with BEF, which expired in 2004, Sunoco had agreed to purchase all of the MTBE production from the facility. Sunoco’s total MTBE purchases from BEF, which are included in costs of products sold and operating expenses in the consolidated statements of income, were $149 and $183 million during 2004 and 2003, respectively.

Plasticizer Business—During 2003, Sunoco announced its decision to sell its plasticizer business and recorded a $23 million provision ($15 million after tax) to write down the assets held for sale to their estimated fair values less costs to sell and established a $5 million accrual ($2 million after tax) for employee terminations under a postemployment plan and for other exit costs. These charges were recognized in the provision for write-down of assets and other matters in the 2003 consolidated statement of income. Sunoco sold this business and related inventory in January 2004 to BASF for approximately $90 million in cash. The sale included the Company’s plasticizer facility in Pasadena, TX. The Company’s Neville Island, PA site was not part of the transaction and continues to produce plasticizers exclusively for BASF under a three-year tolling agreement. Sunoco also agreed to provide terminalling services at this facility to BASF for a 15-year period.

The following table summarizes the changes in the accrual for exit costs and terminations related to the sale of the plasticizer business as well as for other exit costs and terminations:

(Millions of Dollars)	2005			2004			2003
Balance at beginning of year	$	11		$	17		$	10
Additional accruals		2			6			15
Payments charged against the accruals		(7	)		(12	)		(8	)
Balance at end of year	$	6		$	11		$	17

Other Matters

Phenol Supply Contract Dispute—During the third quarter of 2005, an arbitrator ruled that Sunoco was liable in an arbitration proceeding for breaching a supply agreement concerning the prices charged to Honeywell International Inc. (“Honeywell”) for phenol produced at Sunoco’s Philadelphia chemical plant from June 2003 through April 2005. In January 2006, the arbitrator ruled that Sunoco should bill Honeywell based on the pricing formula established in the arbitration until a second arbitration, set to begin in the second quarter of 2006, finalizes pricing for 2005 and beyond (see below). Damages of approximately $95 million ($56 million after tax), including prejudgment interest, were assessed, of which $27, $48 and $20 million pertained to 2005, 2004 and 2003, respectively. Such damages were recorded as a charge against earnings in other income (loss), net, in the 2005 consolidated statement of income. Sunoco is contesting the finding of liability and determination of damages as well as the arbitrator’s authority to establish 2005 pricing. The phenol supply agreement provides for a reopener for pricing on and after January 1, 2005 and sets forth specific standards for determining such pricing. The parties have been unsuccessful in negotiating the post-2004 price, and a new price will be determined in a second arbitration to be held before a different arbitrator. Sunoco believes the basis for the post-2004 pricing is substantially different from the basis of the award in the first arbitration.

Power Contract Restructuring—In December 2004, Sunoco and a subsidiary of FPL Energy (“FPL”) agreed to a restructuring of an agreement under which Sunoco may purchase steam from a natural gas fired cogeneration power plant owned and operated by FPL at Sunoco’s Marcus Hook refinery. Under the restructured terms, FPL surrendered its easement interest in land adjacent to the power plant on which four auxiliary boilers were constructed, thereby transferring ownership of the auxiliary boilers, which have an estimated fair market value of $33 million, to Sunoco. FPL operates the auxiliary boilers on Sunoco’s behalf. When the cogeneration plant is in operation, Sunoco has the option to purchase steam from the facility at a rate equivalent to that set forth in the original agreement. As part of the restructuring, Sunoco has agreed to a long-term lease of the land on which the cogeneration facility was constructed to FPL and to modify certain terms in the existing agreement for an aggregate cash payment of $48 million, most of which is attributable to prepaid rent. Sunoco received this $48 million payment in January 2005. No gain or loss was recognized in connection with the restructuring. Upon completion of the restructured agreement in January 2005, deferred revenue of $81 million was recorded in other deferred credits and liabilities in the consolidated balance sheet, which is being amortized into income over the 30-year contract term.

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3. Other Income (Loss), Net

(Millions of Dollars)	2005			2004			2003
Gain pertaining to income tax matters (Note 4)	$	3		$	28		$	—
Loss on phenol supply contract dispute (Note 2)		(95	)		—			—
Loss on early extinguishment of debt (Note 11)		—			(53	)		—
Equity income (loss):
Pipeline joint ventures (Notes 2 and 7)		16			19			20
Belvieu Environmental Fuels (Note 2)		—			2			(29	)
Other		10			5			2
Noncash reduction in minority interests in cokemaking operations (Note 13)		15			5			3
Gain on divestments (Note 2)		10			5			32
Other		28			19			12
	$	(13	)	$	30		$	40

4. Income Taxes

The components of income tax expense are as follows:

(Millions of Dollars)	2005		2004		2003
Income taxes currently payable:
U.S. federal	$	470	$	212	$	61
State and other		133		55		11
		603		267		72
Deferred taxes:
U.S. federal		—		100		101
State and other		3		23		10
		3		123		111
	$	606	$	390	$	183

The reconciliation of income tax expense at the U.S. statutory rate to the income tax expense is as follows:

(Millions of Dollars)	2005			2004			2003
Income tax expense at U.S. statutory rate of 35 percent	$	553		$	348		$	173
Increase (reduction) in income taxes resulting from:
Manufacturers’ deduction		(14	)		—			—
Income tax settlements		(19	)		(5	)		—
State and other income taxes, net of Federal income tax effects		88			51			14
Dividend exclusion for affiliated companies		(2	)		(3	)		(4	)
Nonconventional fuel credit		(1	)		(1	)		(1	)
Other		1			—			1
	$	606		$	390		$	183

The tax effects of temporary differences which comprise the net deferred income tax liability are as follows:

	December 31
(Millions of Dollars)	2005			2004
Deferred tax assets:
Retirement benefit liabilities	$	197		$	196
Environmental remediation liabilities		43			49
Other liabilities not yet deductible		290			200
Inventories		144			63
Other		56			50
Valuation allowance*		(3	)		(3	)
		727			555
Deferred tax liabilities:
Properties, plants and equipment		(1,259	)		(1,150	)
Other		(70	)		(50	)
		(1,329	)		(1,200	)
Net deferred income tax liability	$	(602	)	$	(645	)

* The valuation allowance reduces the benefit of certain state net operating loss carryforwards to the amount that will more likely than not be realized.

The net deferred income tax liability is classified in the consolidated balance sheets as follows:

	December 31
(Millions of Dollars)	2005			2004
Current asset	$	215		$	110
Noncurrent liability		(817	)		(755	)
	$	(602	)	$	(645	)

Net cash payments for (refunds of) income taxes were $597, $152 and $(42) million in 2005, 2004 and 2003, respectively.

During 2005, Sunoco settled certain federal income tax issues and established a provision for certain state and local tax matters. In connection with these tax matters, an $18 million net after-tax gain was recognized in the 2005 consolidated statement of income. There was no cash received in connection with the federal income tax settlement.

During 2004, Sunoco received a $2 million refund related to the computation of interest on numerous federal income tax issues. In connection with this settlement, an $18 million after-tax gain was recognized in the 2004 consolidated statement of income. Also in 2004, Sunoco settled certain federal income tax issues that had been in dispute, which increased net income by $5 million. In connection with this settlement, Sunoco received $9 million of cash proceeds.

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5. Earnings Per Share Data

The following table sets forth the reconciliation of the weighted-average number of common shares used to compute basic earnings per share (“EPS”) to those used to compute diluted EPS:

(In Millions)	2005	2004	2003
Weighted-average number of common shares outstanding—basic	136.6	148.2	153.4
Add effect of dilutive stock incentive awards	.9	1.6	1.6
Weighted-average number of shares—diluted	137.5	149.8	155.0

6. Inventories

	December 31
(Millions of Dollars)	2005		2004
Crude oil	$	317	$	319
Petroleum and chemical products		322		315
Materials, supplies and other		160		131
	$	799	$	765

The current replacement cost of all inventories valued at LIFO exceeded their carrying value by $2,304 and $1,550 million at December 31, 2005 and 2004, respectively.

7. Investments and Long-Term Receivables

	December 31
(Millions of Dollars)	2005		2004
Investments in affiliated companies:
Pipeline joint ventures (Notes 2 and 3)	$	86	$	84
Other		38		11
		124		95
Accounts and notes receivable		19		20
	$	143	$	115

Dividends received from affiliated companies amounted to $14, $23 and $19 million in 2005, 2004 and 2003, respectively. Earnings employed in the business at December 31, 2005 include $43 million of undistributed earnings of affiliated companies.

8. Properties, Plants and Equipment

(Millions of Dollars) December 31	Gross Investments, at Cost		Accumulated Depreciation, Depletion and Amortization		Net Investment
2005
Refining and supply	$	4,872	$	2,289	$	2,583
Retail marketing*		1,504		624		880
Chemicals		1,317		301		1,016
Logistics		1,327		495		832
Coke		556		209		347
	$	9,576	$	3,918	$	5,658
2004
Refining and supply	$	4,176	$	2,129	$	2,047
Retail marketing*		1,582		658		924
Chemicals		1,277		270		1,007
Logistics		1,129		472		657
Coke		524		193		331
	$	8,688	$	3,722	$	4,966

* Includes retail sites leased to third parties with a gross investment totaling $593 and $611 million at December 31, 2005 and 2004, respectively. Related accumulated depreciation totaled $300 and $298 million at December 31, 2005 and 2004, respectively.

Annual future minimum rentals due Sunoco, as lessor, on noncancelable operating leases at December 31, 2005 for retail sites are as follows (in millions of dollars):

Year ending December 31:
2006	$	38
2007		27
2008		18
2009		12
2010		5
Thereafter		16
	$	116

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9. Retirement Benefit Plans

Defined Benefit Pension Plans and Postretirement Health Care Plans

Sunoco has noncontributory defined benefit pension plans (“defined benefit plans”) which provide retirement benefits for approximately one-half of its employees. Sunoco also has plans which provide health care benefits for substantially all of its retirees (“postretirement benefit plans”). The postretirement benefit plans are unfunded and the costs are shared by Sunoco and its retirees. The levels of required retiree contributions to postretirement benefit plans are adjusted periodically, and the plans contain other cost-sharing features, such as deductibles and coinsurance. In addition, in 1993, Sunoco implemented a dollar cap on its future contributions for its principal postretirement health care benefits plan.

Defined benefit plans and postretirement benefit plans expense consisted of the following components:

	Defined Benefit Plans									Postretirement Benefit Plans
(Millions of Dollars)	2005			2004			2003			2005			2004			2003
Service cost (cost of benefits earned during the year)	$	49		$	46		$	38		$	9		$	8		$	6
Interest cost on benefit obligations		84			86			89			22			24			25
Expected return on plan assets		(91	)		(84	)		(85	)		—			—			—
Amortization of:
Prior service cost (benefit)		3			3			3			(5	)		(7	)		(12	)
Unrecognized losses		29			33			21			3			3			3
Net curtailment gains		—			—			—			—			—			(1	)
	$	74		$	84		$	66		$	29		$	28		$	21

Defined benefit plans and postretirement benefit plans expense is determined using actuarial assumptions as of the beginning of the year. The following weighted-average assumptions were used to determine defined benefit plans and postretirement benefit plans expense:

	Defined Benefit Plans			Postretirement Benefit Plans
(In Percentages)	2005	2004	2003		2005	2004	2003
Discount rate	5.75%	6.00%	6.75%		5.50%	6.00%	6.75%
Long-term expected rate of return on plan assets	8.50%	8.75%	8.75%
Rate of compensation increase	4.00%	4.00%	4.00%

The long-term expected rate of return on plan assets was estimated based on a variety of factors including the historical investment return achieved over a long-term period, the targeted allocation of plan assets and expectations concerning future returns in the marketplace for both equity and debt securities.

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The following tables set forth the components of the changes in benefit obligations and fair value of plan assets during 2005 and 2004 as well as the funded status and amounts both recognized and not recognized in the consolidated balance sheets at December 31, 2005 and 2004:

	Defined Benefit Plans												Postretirement Benefit Plans
	2005						2004
(Millions of Dollars)	Funded Plans			Unfunded Plans			Funded Plans			Unfunded Plans			2005			2004
Benefit obligations at beginning of year*	$	1,349		$	137		$	1,313		$	128		$	429		$	409
Service cost		45			4			43			3			9			8
Interest cost		76			8			78			8			22			24
Actuarial losses (gains)		75			17			60			10			(13	)		4
Plan amendments		—			—			(14	)		—			—			16
Benefits paid		(154	)		(13	)		(131	)		(12	)		(40	)		(41	)
Premiums paid by participants		—			—			—			—			10			9
Benefit obligations at end of year*	$	1,391		$	153		$	1,349		$	137		$	417		$	429
Fair value of plan assets at beginning of year**	$	1,158					$	1,071
Actual return on plan assets		92						123
Employer contributions		100						95
Benefits paid from plan assets		(154	)					(131	)
Fair value of plan assets at end of year**	$	1,196					$	1,158
Unfunded accumulated obligation	$	(50	)	$	(138	)	$	(40	)	$	(122	)
Provision for future salary increases		(145	)		(15	)		(151	)		(15	)
Benefit obligations in excess of plan assets at end of year		(195	)		(153	)		(191	)		(137	)	$	(417	)	$	(429	)
Unrecognized prior service cost (benefit)		14			(1	)		17			(1	)		(22	)		(27	)
Unrecognized net loss		424			69			374			57			68			84
Net amount recognized in balance sheet at end of year	$	243		$	(85	)	$	200		$	(81	)	$	(371	)	$	(372	)

* Represents the projected benefit obligations for defined benefit plans and the accumulated postretirement benefit obligations (“APBO”) for postretirement benefit plans. The accumulated benefit obligations for funded and unfunded defined benefit plans amounted to $1,246 and $138 million, respectively, at December 31, 2005, and $1,198 and $122 million, respectively, at December 31, 2004.

** There are no plan assets invested in Company stock.

The net amount recognized in the consolidated balance sheets at December 31, 2005 and 2004 is classified as follows:

	Defined Benefit Plans						Postretirement Benefit Plans
(Millions of Dollars)	2005			2004			2005			2004
Prepaid retirement costs	$	12		$	11		$	—		$	—
Retirement benefit liabilities		(192	)		(167	)		(371	)		(372	)
Deferred charges and other assets*		16			19			—			—
Accumulated other comprehensive loss (before related tax benefit)**		322			256			—			—
	$	158		$	119		$	(371	)	$	(372	)

* Represents an intangible asset for which an equivalent additional minimum liability is included in retirement benefit liabilities.

** Represents a separate component of shareholders’ equity for which an equivalent additional minimum liability is included in retirement benefit liabilities.

The asset allocations attributable to the funded defined benefit plans at December 31, 2005 and 2004 and the target allocation of plan assets for 2006, by asset category, are as follows:

		December 31
(In Percentages)	2006 Target*	2005	2004
Asset category:
Equity securities	60%	65%	64%
Debt securities	35	32	32
Other	5	3	4
Total	100%	100%	100%

* These target allocation percentages have been in effect since 1999.

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The investment strategy of the Company’s funded defined benefit plans is to achieve consistent positive returns, after adjusting for inflation, and to maximize long-term total return within prudent levels of risk through a combination of income and capital appreciation. Risk to capital is minimized through the diversification of investments across and within various asset categories.

Management currently anticipates making $100 million of voluntary contributions to the Company’s funded defined benefit plans in 2006.

The expected benefit payments through 2015 for the defined benefit and postretirement benefit plans are as follows:

	Defined Benefit Plans
(Millions of Dollars)	Funded Plans	Unfunded Plans	Postretirement Benefit Plans*
Year ending December 31:
2006	$111	$12	$52
2007	$116	$16	$56
2008	$121	$20	$59
2009	$124	$19	$62
2010	$126	$12	$64
2011 through 2015	$679	$67	$348

* Before premiums paid by participants.

The measurement date for the Company’s defined benefit and postretirement benefit plans is December 31. The following weighted-average assumptions were used at December 31, 2005 and 2004 to determine benefit obligations for the plans:

	Defined Benefit Plans		Postretirement Benefit Plans
(In Percentages)	2005	2004	2005	2004
Discount rate	5.60%	5.75%	5.50%	5.50%
Rate of compensation increase	4.00%	4.00%

The health care cost trend assumption used at December 31, 2005 to compute the APBO for the postretirement benefit plans was an increase of 11.0 percent (10.3 percent at December 31, 2004), which is assumed to decline gradually to 5.5 percent in 2012 and to remain at that level thereafter. A one-percentage point change each year in assumed health care cost trend rates would have the following effects at December 31, 2005:

(Millions of Dollars)	1-Percentage Point Increase	1-Percentage Point Decrease
Effect on total of service and interest cost components of postretirement benefits expense	$1	$(1	)
Effect on APBO	$12	$(11	)

Defined Contribution Pension Plans

Sunoco has defined contribution pension plans which provide retirement benefits for most of its employees. Sunoco’s contributions, which are principally based on a percentage of employees’ annual base compensation and are charged against income as incurred, amounted to $24, $21 and $20 million in 2005, 2004 and 2003, respectively.

Sunoco’s principal defined contribution plan is SunCAP. Sunoco matches 100 percent of employee contributions to this plan up to 5 percent of an employee’s base compensation. SunCAP is a combined profit sharing and employee stock ownership plan which contains a provision designed to permit SunCAP, only upon approval by the Company’s Board of Directors, to borrow in order to purchase shares of Company common stock. As of December 31, 2005, no such borrowings had been approved.

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10. Short-Term Borrowings and Credit Facilities

The Company has a revolving credit facility (the “Facility”) totaling $900 million, which matures in August 2010. The Facility provides the Company with access to short-term financing and is intended to support the issuance of commercial paper, letters of credit and other debt. The Company also can borrow directly from the participating banks under the Facility. The Facility is subject to commitment fees, which are not material. Under the terms of the Facility, Sunoco is required to maintain tangible net worth (as defined in the Facility) in an amount greater than or equal to targeted tangible net worth (targeted tangible net worth being determined by adding $1.125 billion and 50 percent of the excess of net income over share repurchases (as defined in the Facility) for each quarter ended after March 31, 2004). At December 31, 2005, the Company’s tangible net worth was $2.3 billion and its targeted tangible net worth was $1.3 billion. The Facility also requires that Sunoco’s ratio of consolidated net indebtedness, including borrowings of Sunoco Logistics Partners L.P., to consolidated capitalization (as those terms are defined in the Facility) not exceed .60 to 1. At December 31, 2005, this ratio was .17 to 1. At December 31, 2005, the Facility was being used to support $103 million of floating-rate notes due in 2034 (Note 11).

Sunoco Logistics Partners L.P. has a revolving credit facility, which was scheduled to mature in November 2009. In December 2005, the facility was amended to increase the amount available under the facility from $250 million to $300 million and to extend its term until November 2010. This facility is available to fund the Partnership’s working capital requirements, to finance acquisitions, and for general partnership purposes. It includes a $20 million distribution sublimit that is available for distributions to third-party unitholders and Sunoco. Amounts outstanding under the facility totaled $107 and $65 million at December 31, 2005 and 2004, respectively. The credit facility contains covenants requiring the Partnership to maintain a ratio of up to 4.75 to 1 of its consolidated total debt to its consolidated EBITDA (each as defined in the credit facility) and an interest coverage ratio (as defined in the credit facility) of at least 3 to 1. At December 31, 2005, the Partnership’s ratio of its consolidated debt to its consolidated EBITDA was 2.9 to 1 and the interest coverage ratio was 5.2 to 1.

Epsilon, the Company’s consolidated joint venture, has a $40 million revolving credit facility that matures in September 2006. The credit facility contains restrictive covenants which, among other things, limit the incurrence of additional debt and the sale of assets by Epsilon. At December 31, 2005, no amounts were outstanding under the credit facility. Any borrowings under this credit facility as well as Epsilon’s $120 million term loan that is also due in September 2006 (Note 11) are guaranteed by Sunoco, Inc. The term loan is collateralized by the joint venture’s polypropylene facility, which had a carrying value of $82 million at December 31, 2005.

11. Long-Term Debt

	December 31
(Millions of Dollars)	2005		2004
9 3/8% debentures, payable $16 in 2014 and $20 in 2015 and 2016	$	56	$	56
9% debentures due 2024		65		65
7 3/4% notes due 2009		146		146
7 1/4% notes due 2012		250		250
6 7/8% notes due 2006		54		54
6 3/4% notes due 2011		177		177
6 3/4% convertible subordinated debentures due 2012 (Note 14)		7		9
4 7/8% notes due 2014		250		250
Floating-rate notes (interest of 3.69% at December 31, 2005) due 2034 (Note 10)		103		103
Revolving credit loan, floating interest rate (4.74% at December 31, 2005) due 2010 (Note 10)		107		65
Floating-rate notes (interest of 4.74% at December 31, 2005) due 2006 (Note 10)		120		120
Revolving credit loans paid in 2005 (Note 10)		—		6
Other		79		85
		1,414		1,386
Less:  unamortized discount		3		4
current portion		177		3
	$	1,234	$	1,379

The aggregate amount of long-term debt maturing and sinking fund requirements in the years 2006 through 2010 is as follows (in millions of dollars):

2006	$	177	2009	$	148
2007		$8	2010	$	217
2008		$5

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In 2004, the Company repurchased long-term debt with a par value of $352 million utilizing the net proceeds from the issuance under its shelf registration statement of the 4 ⁷/8 percent notes due 2014 and $154 million of cash. Of the debt repurchased, $240 million was attributable to tender offer purchases of the 9 ³/8 percent debentures and the 6 ⁷/8 percent notes and $112 million was attributable to open market purchases of the 9 percent debentures, 7 ³/4 percent notes and 6 ³/4 percent notes. Sunoco recognized a $53 million loss ($34 million after tax) on the early extinguishment of this debt, which is reflected in other income (loss), net, in the 2004 consolidated statement of income (Note 3).

In 2004, the Company issued $103 million of floating-rate notes due in 2034 and used the proceeds to redeem its 7.60 percent environmental industrial revenue bonds that were due in 2024. These floating-rate notes, which are remarketed weekly, have been classified as long-term debt as the Company intends to continue the remarketing of the notes. In the event the notes are not remarketed, the Company can refinance them on a long-term basis utilizing its revolving credit facility (Note 10). In 2004, the Company also issued $100 million of commercial paper and used the proceeds to repay its maturing 7 ¹/8 percent notes. The commercial paper was repaid in 2005.

Cash payments for interest related to short-term borrowings and long-term debt (net of amounts capitalized) were $67, $98 and $111 million in 2005, 2004 and 2003, respectively.

The following table summarizes Sunoco’s long-term debt (including current portion) by issuer:

	December 31
(Millions of Dollars)	2005		2004
Sunoco, Inc.	$	700	$	702
Sunoco Logistics Partners L.P.		356		313
Epsilon Products Company, LLC		120		126
Other		235		241
	$	1,411	$	1,382

12. Commitments and Contingent Liabilities

Leases and Other Commitments

Sunoco, as lessee, has noncancelable operating leases for marine transportation vessels, service stations, office space and other property and equipment. Total rental expense for such leases for the years 2005, 2004 and 2003 amounted to $198, $197 and $144 million, respectively, which include contingent rentals totaling $12, $15 and $17 million, respectively. Approximately 6 percent of total rental expense was recovered through related sub-lease rental income during 2005.

The aggregate amount of future minimum annual rentals applicable to noncancelable operating leases, including amounts pertaining to lease extension options which are assumed to be exercised, are as follows (in millions of dollars):

	Current Lease Term		Lease Extension Options		Total
Year ending December 31:
2006	$	166	$	1	$	167
2007		153		3		156
2008		120		5		125
2009		94		7		101
2010		85		10		95
Thereafter		271		220		491
Future minimum lease payments	$	889	$	246		1,135
Less: Sub-lease rental income						(22	)
Net minimum lease payments					$	1,113

Approximately 36 percent of the aggregate amount of future minimum annual rentals applicable to noncancelable operating leases relates to time charters for marine transportation vessels. Most of these time charters contain terms of between three to seven years with renewal and sublease options. The time charter leases typically require a fixed-price payment or a fixed-price minimum and a variable component based on spot-market rates. In the table above, the variable component of the lease payments has been estimated utilizing the average spot-market prices for the year 2005. The actual variable component of the lease payments attributable to these time charters could vary significantly from the estimates included in the table.

Sunoco is contingently liable under various arrangements which guarantee debt of third parties aggregating to approximately $7 million at December 31, 2005. At this time, management does not believe that it is likely that the Company will have to perform under any of these guarantees.

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Over the years, Sunoco has sold thousands of retail gasoline outlets as well as refineries, terminals, coal mines, oil and gas properties and various other assets. In connection with these sales, the Company has indemnified the purchasers for potential environmental and other contingent liabilities related to the period prior to the transaction dates. In most cases, the effect of these arrangements was to afford protection for the purchasers with respect to obligations for which the Company was already primarily liable. While some of these indemnities have spending thresholds which must be exceeded before they become operative, or limits on Sunoco’s maximum exposure, they generally are not limited. The Company recognizes the fair value of the obligations undertaken for all guarantees entered into or modified after January 1, 2003. In addition, the Company accrues for any obligations under these agreements when a loss is probable and reasonably estimable. The Company cannot reasonably estimate the maximum potential amount of future payments under these agreements.

Sunoco is a party under agreements which provide for future payments to secure wastewater treatment services at its Toledo refinery and coal handling services at its Indiana Harbor cokemaking facility. The fixed and determinable amounts of the obligations under these agreements are as follows (in millions of dollars):

Year ending December 31:
2006	$	9
2007		9
2008		8
2009		8
2010		8
2011 through 2018		38
Total		80
Less: Amount representing interest		(23	)
Total at present value	$	57

Payments under these agreements, including variable components, totaled $20, $19 and $18 million for the years 2005, 2004 and 2003, respectively.

Effective January 1, 2001, Sunoco completed the acquisition of Aristech Chemical Corporation (“Aristech”), a wholly owned subsidiary of Mitsubishi Corporation (“Mitsubishi”), for $506 million in cash and the assumption of $163 million of debt. Contingent payments (the “earn out”) may also be made if realized margins for polypropylene and phenol exceed certain agreed-upon thresholds through 2006. As of December 31, 2005, no such payments have been made; however, a $14 million payment was earned in 2005 which will be paid in 2006. Any additional contingent payment earned in 2006 is limited to $90 million. All earn-out payments would be treated as adjustments to the purchase price. In addition, Mitsubishi is responsible for up to $100 million of any potential environmental liabilities of the business identified through 2026 arising out of or related to the period prior to the acquisition date.

Environmental Remediation Activities

Sunoco is subject to extensive and frequently changing federal, state and local laws and regulations, including, but not limited to, those relating to the discharge of materials into the environment or that otherwise deal with the protection of the environment, waste management and the characteristics and composition of fuels. As with the industry generally, compliance with existing and anticipated laws and regulations increases the overall cost of operating Sunoco’s businesses, including remediation, operating costs and capital costs to construct, maintain and upgrade equipment and facilities.

Existing laws and regulations result in liabilities and loss contingencies for remediation at Sunoco’s facilities and at formerly owned or third-party sites. The accrued liability for environmental remediation is classified in the consolidated balance sheets as follows:

	December 31
(Millions of Dollars)	2005		2004
Accrued liabilities	$	37	$	39
Other deferred credits and liabilities		100		109
	$	137	$	148

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The following table summarizes the changes in the accrued liability for environmental remediation activities by category:

(Millions of Dollars)	Refineries			Marketing Sites			Chemicals Facilities			Pipelines and Terminals			Hazardous Waste Sites			Other			Total
At December 31, 2002	$	52		$	72		$	8		$	19		$	5		$	3		$	159
Accruals		—			23			1			6			1			(1	)		30
Payments		(9	)		(22	)		(2	)		(10	)		(1	)		—			(44	)
Other		—			1			—			—			—			—			1
At December 31, 2003	$	43		$	74		$	7		$	15		$	5		$	2		$	146
Accruals		2			20			—			3			2			—			27
Payments		(10	)		(21	)		(1	)		(3	)		(3	)		—			(38	)
Acquisitions and divestments		11			—			(1	)		—			—			—			10
Other		2			1			—			—			—			—			3
At December 31, 2004	$	48		$	74		$	5		$	15		$	4		$	2		$	148
Accruals		2			22			1			6			1			—			32
Payments		(14	)		(25	)		(2	)		(7	)		(2	)		—			(50	)
Other		—			7			(1	)		1			—			—			7
At December 31, 2005	$	36		$	78		$	3		$	15		$	3		$	2		$	137

Sunoco’s accruals for environmental remediation activities reflect management’s estimates of the most likely costs that will be incurred over an extended period to remediate identified conditions for which the costs are both probable and reasonably estimable. Engineering studies, historical experience and other factors are used to identify and evaluate remediation alternatives and their related costs in determining the estimated accruals for environmental remediation activities. Losses attributable to unasserted claims are also reflected in the accruals to the extent they are probable of occurrence and reasonably estimable.

Total future costs for the environmental remediation activities identified above will depend upon, among other things, the identification of any additional sites, the determination of the extent of the contamination at each site, the timing and nature of required remedial actions, the technology available and needed to meet the various existing legal requirements, the nature and terms of cost-sharing arrangements with other potentially responsible parties, the availability of insurance coverage, the nature and extent of future environmental laws, inflation rates and the determination of Sunoco’s liability at the sites, if any, in light of the number, participation level and financial viability of the other parties. Management believes it is reasonably possible (i.e., less than probable but greater than remote) that additional environmental remediation losses will be incurred. At December 31, 2005, the aggregate of the estimated maximum additional reasonably possible losses, which relate to numerous individual sites, totaled approximately $90 million. However, the Company believes it is very unlikely that it will realize the maximum reasonably possible loss at every site. Furthermore, the recognition of additional losses, if and when they were to occur, would likely extend over many years and, therefore, likely would not have a material impact on the Company’s financial position.

Under various environmental laws, including the Resource Conservation and Recovery Act (“RCRA”) (which relates to solid and hazardous waste treatment, storage and disposal), Sunoco has initiated corrective remedial action at its facilities, formerly owned facilities and third-party sites. At the Company’s major manufacturing facilities, Sunoco has consistently assumed continued industrial use and a containment/remediation strategy focused on eliminating unacceptable risks to human health or the environment. The remediation accruals for these sites reflect that strategy. Accruals include amounts to prevent off-site migration and to contain the impact on the facility property, as well as to address known, discrete areas requiring remediation within the plants. Activities include closure of RCRA solid waste management units, recovery of hydrocarbons, handling of impacted soil, mitigation of surface water impacts and prevention of off-site migration.

Many of Sunoco’s current terminals are being addressed with the above containment/remediation strategy. At some smaller or less impacted facilities and some previously divested terminals, the focus is on remediating discrete interior areas to attain regulatory closure.

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Sunoco owns or operates certain retail gasoline outlets where releases of petroleum products have occurred. Federal and state laws and regulations require that contamination caused by such releases at these sites and at formerly owned sites be assessed and remediated to meet the applicable standards. The obligation for Sunoco to remediate this type of contamination varies, depending on the extent of the release and the applicable laws and regulations. A portion of the remediation costs may be recoverable from the reimbursement fund of the applicable state, after any deductible has been met.

Future costs for environmental remediation activities at the Company’s marketing sites also will be influenced by the extent of MTBE contamination of groundwater, the cleanup of which will be driven by thresholds based on drinking water protection. Though not all groundwater is used for drinking, several states have initiated or proposed more stringent MTBE cleanup requirements. Cost increases result directly from extended remedial operations and maintenance on sites that, under prior standards, could otherwise have been completed. Cost increases will also result from installation of additional remedial or monitoring wells and purchase of more expensive equipment because of the presence of MTBE. While actual cleanup costs for specific sites are variable and depend on many of the factors discussed above, expansion of similar MTBE remediation thresholds to additional states or adoption of even more stringent requirements for MTBE remediation would result in further cost increases.

The accrued liability for hazardous waste sites is attributable to potential obligations to remove or mitigate the environmental effects of the disposal or release of certain pollutants at third-party sites pursuant to the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”) (which relates to releases and remediation of hazardous substances) and similar state laws. Under CERCLA, Sunoco is potentially subject to joint and several liability for the costs of remediation at sites at which it has been identified as a “potentially responsible party” (“PRP”). As of December 31, 2005, Sunoco had been named as a PRP at 39 sites identified or potentially identifiable as “Superfund” sites under federal and state law. The Company is usually one of a number of companies identified as a PRP at a site. Sunoco has reviewed the nature and extent of its involvement at each site and other relevant circumstances and, based upon the other parties involved or Sunoco’s negligible participation therein, believes that its potential liability associated with such sites will not be significant.

Management believes that none of the current remediation locations, which are in various stages of ongoing remediation, is individually material to Sunoco as its largest accrual for any one Superfund site, operable unit or remediation area was less than $4 million at December 31, 2005. As a result, Sunoco’s exposure to adverse developments with respect to any individual site is not expected to be material. However, if changes in environmental regulations occur, such changes could impact multiple Sunoco facilities and formerly owned and third-party sites at the same time. As a result, from time to time, significant charges against income for environmental remediation may occur.

The Company maintains insurance programs that cover certain of its existing or potential environmental liabilities, which programs vary by year, type and extent of coverage. For underground storage tank remediations, the Company can also seek reimbursement through various state funds of certain remediation costs above a deductible amount. For certain acquired properties, the Company has entered into arrangements with the sellers or others that allocate environmental liabilities and provide indemnities to the Company for remediating contamination that occurred prior to the acquisition dates. Some of these environmental indemnifications are subject to caps and limits. No accruals have been recorded for any potential contingent liabilities that will be funded by the prior owners as management does not believe, based on current information, that it is likely that any of the former owners will not perform under any of these agreements. Other than the preceding arrangements, the Company has not entered into any arrangements with third parties to mitigate its exposure to loss from environmental contamination. Claims for recovery of environmental liabilities that are probable of realization totaled $22 million at December 31, 2005 and are included principally in deferred charges and other assets in the consolidated balance sheets.

MTBE Litigation

Sunoco, along with other refiners, manufacturers and sellers of gasoline, owners and operators of retail gasoline sites, and manufacturers of MTBE, are defendants in approximately 60 cases in 16 states involving the manufacture and use of MTBE in gasoline and MTBE contamination in groundwater. Plaintiffs, which include private well owners, water providers and certain governmental authorities, allege that refiners and suppliers of gasoline containing MTBE are responsible for manufacturing and distributing a defective product that contaminated groundwater. Plaintiffs are asserting primarily product liability claims but additional claims are also being asserted including, nuisance, trespass, negligence, violation of environmental laws and deceptive business practices. Plaintiffs are seeking compensatory damages, and in some cases injunctive relief, exemplary and punitive damages and attorneys’ fees. All of the public water provider cases have been removed to federal court and consolidated for pretrial purposes in the U.S. District Court for the

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Southern District of New York (MDL 1358). Motions to remand these cases to state courts have been denied. Motions to dismiss were denied. Discovery is proceeding in four focus cases. Sunoco is a defendant in three of those cases. In addition, several of the private well owner cases are moving forward. Sunoco is a focus defendant in two of those cases. Up to this point, for the group of MTBE cases currently pending, there has been insufficient information developed about the plaintiffs’ legal theories or the facts that would be relevant to an analysis of potential exposure. Based on the current law and facts available at this time, Sunoco believes that these cases will not have a material adverse effect on its consolidated financial position.

Conclusion

Many other legal and administrative proceedings are pending or possible against Sunoco from its current and past operations, including proceedings related to commercial and tax disputes, product liability, antitrust, employment claims, leaks from pipelines and underground storage tanks, natural resource damage claims, premises-liability claims, allegations of exposures of third parties to toxic substances (such as benzene or asbestos) and general environmental claims. The ultimate outcome of pending proceedings and other matters identified above cannot be ascertained at this time; however, it is reasonably possible that some of them could be resolved unfavorably to Sunoco. Management believes that these matters could have a significant impact on results of operations for any one year. However, management does not believe that any additional liabilities which may arise pertaining to such matters would be material in relation to the consolidated financial position of Sunoco at December 31, 2005.

13. Minority Interests

Cokemaking Operations

Since 1995, Sunoco has received, in four separate transactions, a total of $724 million in exchange for interests in its Jewell and Indiana Harbor cokemaking operations. Sunoco did not recognize any gain at the dates of these transactions because the third-party investors were entitled to a preferential return on their investments. The preferential returns are currently equal to 98 percent of the cash flows and tax benefits from the respective cokemaking operations during the preferential return periods, which continue until the investors recover their investments and achieve a cumulative annual after-tax return that averages approximately 10 percent. Income is recognized as coke production and sales generate cash flows and tax benefits which are allocated to Sunoco and the third-party investors, while expense is recognized to reflect the investors’ preferential returns.

The preferential return period for the Jewell operation is projected to end during 2011, while the preferential return period for the Indiana Harbor operation is projected to end during 2007. Due to the difficulty of forecasting operations and tax benefits into the future, the accuracy of these estimates is subject to considerable uncertainty. The estimated lengths of these preferential return periods are based upon the Company’s current expectations of future cash flows and tax benefits, which are impacted by sales volumes and prices, raw material and operating costs, capital expenditure levels and the ability to recognize tax benefits under the current tax law (see below). Higher-than-expected cash flows and tax benefits will shorten the investors’ preferential return periods, while lower-than-expected cash flows and tax benefits will lengthen the periods.

Following the expiration of these preferential return periods, the investor in the Jewell operation will be entitled to a minority interest in the related cash flows and tax benefits amounting to 18 percent, while the investors in the Indiana Harbor operation will be entitled to a minority interest in the related cash flows and tax benefits initially amounting to 34 percent and thereafter declining to 10 percent by 2038.

Under preexisting tax law, the coke production at Jewell and Indiana Harbor would not be eligible to generate nonconventional fuel tax credits after 2007. The energy policy legislation enacted in August 2005 includes additional tax credits pertaining to a portion of the coke production at Jewell, all of the coke production at Haverhill, where operations commenced in March 2005, and all future domestic coke plants placed into service by January 1, 2010. The new credits cover a four-year period, effective January 1, 2006 or the date any new facility is placed into service, if later. However, prior to their expiration dates, all of the tax credits would be phased out, on a ratable basis, if the average annual price of domestic crude oil at the wellhead is within a certain inflation-adjusted price range. (This range was $51.35 to $64.47 per barrel for 2004, the latest year for which the range is available.) If this were to occur, the Company could be required under tax indemnity agreements to make cash payments to the third-party investors. Payments would be required only if the expected end of the applicable preferential return period was extended by two years or more and if the respective third-party investor was expected to achieve a cumulative after-tax return of less than approximately 6.5 percent. The Company currently does not believe that any payments would be required, even if the average annual wellhead crude oil price were to exceed the threshold at which the credits

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are completely phased out. The domestic wellhead price averaged $50.26 per barrel for the year ended December 31, 2005.

The Company also indemnifies the third-party investors for certain tax benefits available to them during the preferential return period in the event the Internal Revenue Service disallows the tax deductions and benefits allocated to the third parties or if there is a change in the tax laws that reduces the amount of nonconventional fuel tax credits. These tax indemnifications are in effect until the applicable tax returns are no longer subject to Internal Revenue Service review. In certain of these cases, if performance under the indemnification is required, the Company also has the option to purchase the third-party investors’ interests. Although the Company believes it is remote that it will be required to make any payments under these indemnifications, at December 31, 2005, the maximum potential payment under these tax indemnifications and the options to purchase the third-party investors’ interests, if exercised, would have been approximately $615 million. If this were to occur, the minority interest balance would be reduced by approximately $195 million.

The following table sets forth the minority interest balances and the changes in these balances attributable to the third-party investors’ interests in cokemaking operations:

(Millions of Dollars)	2005			2004			2003
Balance at beginning of year	$	287		$	328		$	379
Nonconventional fuel credit and other tax benefits*		(57	)		(52	)		(58	)
Preferential return*		42			47			55
Cash distributions to third-party investors		(38	)		(36	)		(48	)
Balance at end of year	$	234		$	287		$	328

* The nonconventional fuel credit and other tax benefits and the preferential return, which comprise the noncash change in the minority interest in cokemaking operations, are included in other income (loss), net, in the consolidated statements of income (Note 3).

Logistics Operations

In the second quarter of 2004, Sunoco Logistics Partners L.P., a master limited partnership in which Sunoco had a 75.3 percent interest, issued 3.4 million limited partnership units at a price of $39.75 per unit. Proceeds from the offering, net of underwriting discounts and offering expenses, totaled $129 million. Coincident with the offering, the Partnership redeemed 2.2 million limited partnership units owned by Sunoco for $83 million. The proceeds from the offering also were principally used by the Partnership to finance its acquisitions during 2004 (Note 2). In the second quarter of 2005, the Partnership issued an additional 2.8 million limited partnership units at a price of $37.50 per unit. Proceeds from the offering, net of underwriting discounts and offering expenses, totaled approximately $99 million. These proceeds were used to redeem an equal number of limited partnership units owned by Sunoco. In the third quarter of 2005, the Partnership issued an additional 1.6 million limited partnership units at a price of $39.00 per unit. Proceeds from the offering, which totaled approximately $61 million, net of underwriting discounts and offering expenses, were used by the Partnership principally to repay a portion of the borrowings under its revolving credit facility, which had been used to partially fund its $100 million acquisition of the crude oil pipeline system and related storage facilities located in Texas from ExxonMobil (Notes 2 and 10). Upon completion of these transactions, Sunoco’s interest in the Partnership, including its 2 percent general partnership interest, decreased to 47.9 percent. The accounts of the Partnership continue to be included in Sunoco’s consolidated financial statements.

As of December 31, 2005, Sunoco owned 12.06 million limited partnership units consisting of 3.52 million common units and 8.54 million subordinated units. Distributions on Sunoco’s subordinated units are payable only after the minimum quarterly distributions for the common units held by the public and Sunoco, including any arrearages, have been made. The subordinated units convert to common units if certain financial tests related to earning and paying the minimum quarterly distribution for the preceding three consecutive one-year periods have been met. In February 2006 and 2005, when the quarterly cash distributions pertaining to the fourth quarters of 2005 and 2004 were paid, the first two three-year requirements were satisfied. As a result, a total of 5.70 million of Sunoco’s subordinated units have been converted to common units, 2.85 million each in February 2006 and February 2005. If the Partnership continues to make at least the minimum quarterly distributions through the fourth quarter of 2006, all of Sunoco’s remaining 5.69 million subordinated units would be converted to common units by February 2007.

The Partnership’s issuance of common units to the public has resulted in an increase in the value of Sunoco’s proportionate share of the Partnership’s equity as the issuance price per unit exceeded Sunoco’s carrying amount per unit at the time of issuance. The resultant gain to Sunoco on these transactions, which totaled approximately $125 million pretax at December 31, 2005, has been deferred as a component of minority interest in the Company’s consolidated balance sheet as the common units issued do not represent residual interests in the Partnership due to Sunoco’s ownership of the subordinated units. The deferred gain would be recognized in income when Sunoco’s remaining subordinated units convert to common units at which time the common units become the residual interests.

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Sunoco is a party to various agreements with the Partnership which require Sunoco to pay for minimum storage and throughput usage of certain Partnership assets. These agreements also establish fees for administrative services provided by Sunoco to the Partnership and provide indemnifications by Sunoco for certain environmental, toxic tort and other liabilities.

The following table sets forth the minority interest balance and the changes to this balance attributable to the third-party investors’ interests in Sunoco Logistics Partners L.P.:

(Millions of Dollars)	2005			2004			2003
Balance at beginning of year	$	232		$	104		$	100
Net proceeds from public offerings		160			129			—
Minority interest share of income*		28			19			15
Increase attributable to Partnership management incentive plan		5			—			—
Cash distributions to third-party investors**		(28	)		(20	)		(11	)
Balance at end of year	$	397		$	232		$	104

* Included in selling, general and administrative expenses in the consolidated statements of income.

** During the 2002-2005 period, the Partnership increased its quarterly cash distribution per unit from $.45 to $.7125.

Epsilon Joint Venture Operations

Epsilon Products Company, LLC (“Epsilon”) is a joint venture that consists of polymer-grade propylene operations at Sunoco’s Marcus Hook, PA refinery and an adjacent polypropylene plant. The joint venture is a variable interest entity for which the Company is the primary beneficiary. As such, the accounts of Epsilon are included in Sunoco’s consolidated financial statements.

The following table sets forth the minority interest balance and the changes to this balance attributable to the other joint venture partner’s interest in Epsilon:

(Millions of Dollars)	2005		2004		2003
Balance at beginning of year	$	11	$	8	$	8
Minority interest share of income*		5		3		—
Balance at end of year	$	16	$	11	$	8

* Included in selling, general and administrative expenses in the consolidated statements of income.

14. Shareholders’ Equity

Each share of Company common stock is entitled to one full vote. The $7 million of outstanding 6 ³/4 percent subordinated 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, 2005, there were 363,400 shares of common stock reserved for this potential conversion (Note 11).

On July 7, 2005, the Company’s Board of Directors (“Board”) approved a two-for-one split of Sunoco’s common stock to be effected in the form of a stock dividend. The shares were distributed on August 1, 2005 to shareholders 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 proportionally increased in accordance with the terms of those respective agreements and plans.

The Company increased the quarterly dividend paid on common stock from $.125 per share ($.50 per year) to $.1375 per share ($.55 per year) beginning with the fourth quarter of 2003 and then to $.15 per share ($.60 per year) beginning with the third quarter of 2004, to $.20 per share ($.80 per year) beginning with the second quarter of 2005 and to $.25 per share ($1.00 per year) beginning with the second quarter of 2006.

The Company repurchased in 2005, 2004 and 2003, 6.7, 15.9 and 5.8 million shares, respectively, of its common stock for $435, $568 and $136 million, respectively. In March 2005, the Company announced that its Board had approved an additional $500 million share repurchase authorization. At December 31, 2005, the Company had a remaining authorization from its Board to purchase up to $306 million of Company common stock in the open market 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, 2005, 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 shareholders’ equity:

	December 31
(Millions of Dollars)	2005			2004
Minimum pension liability adjustment	$	(191	)	$	(166	)
Hedging activities		(1	)		2
	$	(192	)	$	(164	)

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15. Management Incentive Plans

Sunoco’s principal management incentive plans are the Executive Incentive Plan (“EIP”) and the Long-Term Performance 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 options, common stock units and related rights to directors, officers and other key employees of Sunoco. The options granted under LTPEP II have a 10-year term, are not exercisable until two years after the date of grant and permit optionees to purchase Company common stock at its fair market value on the date of grant. LTPEP II authorizes the use of eight million shares of common stock for awards. No awards may be granted under LTPEP II after December 31, 2008, unless the Board extends this date to a date no later than December 31, 2013.

The following table summarizes information with respect to common stock option awards under Sunoco’s management incentive plans as well as the Employee Option Plan:

	Management Incentive Plans				Employee Option Plan*
	Shares Under Option		Weighted- Average Option Price Per Share		Shares Under Option		Option Price Per Share
Outstanding, December 31, 2002	9,062,620		$	15.64	318,408		$	14.00
Granted	1,009,600		$	24.40	—
Exercised	(3,606,620	)	$	15.16	(187,390	)	$	14.00
Canceled	(65,520	)	$	18.97	(83,238	)	$	14.00
Outstanding, December 31, 2003	6,400,080		$	17.27	47,780		$	14.00
Granted	821,200		$	41.28	—
Exercised	(4,454,192	)	$	16.01	(47,780	)	$	14.00
Canceled	—				—
Outstanding, December 31, 2004	2,767,088		$	26.42	—
Granted	373,700		$	77.54	—
Exercised	(1,612,482	)	$	20.39	—
Canceled	—				—
Outstanding, December 31, 2005	1,528,306		$	45.27	—
Exercisable, December 31
2003	3,928,760		$	16.23	47,780		$	14.00
2004	936,288		$	15.56	—
2005	333,406		$	18.94	—
Available for Grant, December 31, 2005	4,011,845				—

* Options were granted to employees (other than executives) during 1993 and 1994.

The following table provides additional information concerning all options outstanding at December 31, 2005:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Shares Under Option	Weighted- Average Remaining Contractual Life (Years)	Weighted- Average Exercise Price		Shares Under Option	Weighted- Average Exercise Price
$12.63—$19.94	207,406	5	$	15.56	207,406	$	15.56
$24.51	126,000	8	$	24.51	126,000	$	24.51
$41.28	821,200	9	$	41.28	—
$77.54	373,700	10	$	77.54	—
$12.63—$77.54	1,528,306	9	$	45.27	333,406	$	18.94

66

Common stock unit awards mature upon completion of a restriction period or upon attainment of predetermined performance targets. At January 1, 2003, all outstanding common stock units were payable in Company common stock. In December 2003, the Company changed the method of payment for certain outstanding common stock unit awards to cash. As a result, the Company recorded a $12 million charge to the capital in excess of par value component of shareholders’ equity at December 31, 2003. At December 31, 2005, 787,990 of the outstanding common stock unit awards were payable in cash and 146,830 were payable in Company common stock. The following table summarizes information with respect to all common stock unit awards under Sunoco’s management incentive plans:

	2005		2004		2003
Outstanding at beginning of year	1,000,750		990,868		924,424
Granted*	102,670		244,920		289,130
Performance factor adjustment**	164,600		105,185		67,863
Matured***	(333,200	)	(340,223	)	(287,349	)
Canceled	—		—		(3,200	)
Outstanding at end of year	934,820		1,000,750		990,868

* The weighted-average price for common stock unit awards on the date of grant was $77.54, $41.09 and $24.20 for awards granted in 2005, 2004 and 2003, respectively.

** Consists of adjustments to matured performance-based awards to reflect actual performance. The adjustments are required since the original grants of these awards were at 100 percent of the targeted amounts.

*** Includes 276,000 and 255,255 common stock unit awards in 2005 and 2004, respectively, that were paid in cash.

Sunoco follows the fair value method of accounting for employee stock compensation plans prescribed by SFAS No. 123. Stock-based compensation expense for 2005, 2004 and 2003 determined utilizing this method amounted to $65, $31 and $13 million, respectively, which consisted of $8, $6 and $6 million, respectively, related to stock option awards and $57, $25 and $7 million, respectively, related to common stock unit awards. In addition, equity-based compensation expense attributable to Sunoco Logistics Partners L.P. for 2005, 2004 and 2003 amounted to $3, $4 and $3 million, respectively.

Under SFAS No. 123R, which Sunoco intends to adopt effective January 1, 2006 (Note 1), a non-substantive vesting period approach will be required for new share-based payment transactions that vest when an employee becomes retirement eligible as is the case under Sunoco’s share-based awards (i.e., the vesting period cannot exceed the date an employee becomes retirement eligible). The effect will be to accelerate expense recognition compared to the vesting period approach that Sunoco currently uses that reflects the stated vesting period. For the year ending December 31, 2006, the Company currently estimates that its after-tax compensation expense under this provision of SFAS No. 123R will be approximately $5-$10 million higher than it would have been under SFAS No. 123.

The stock-based compensation expense for stock options reflects the estimated fair values of $22.76, $10.96 and $6.54 per option granted during 2005, 2004 and 2003, respectively. These values are calculated using the Black- Scholes option pricing model based on the following weighted-average assumptions:

	2005	2004	2003
Expected life (years)	5	5	6
Risk-free interest rate	4.5%	3.8%	3.7%
Dividend yield	1.0%	1.5%	2.2%
Expected volatility	27.7%	27.4%	28.8%

16. Financial Instruments

The estimated fair value of financial instruments has been determined based on the Company’s assessment of available market information and appropriate valuation methodologies. However, these estimates may not necessarily be indicative of the amounts that the Company could realize in a current market exchange.

Sunoco’s current assets (other than inventories and deferred income taxes) and current liabilities are financial instruments. The estimated fair values of these financial instruments approximate their carrying amounts. At December 31, 2005 and 2004, the estimated fair value of Sunoco’s long-term debt was $1,317 and $1,495 million, respectively, compared to carrying amounts of $1,234 and $1,379 million, respectively. Long-term debt that is publicly traded was valued based on quoted market prices while the fair value of other debt issues was estimated by management based upon current interest rates available to Sunoco at the respective balance sheet dates for similar issues.

The Company guarantees the debt of affiliated companies and others. Due to the complexity of these guarantees and the absence of any market for these financial instruments, the Company does not believe it is practicable to estimate their fair value.

Sunoco uses swaps, options, futures, forwards and other derivative instruments for hedging purposes. Sunoco is at risk for possible changes in the market value for these derivative instruments. However, it is anticipated that such risk would be mitigated by price changes in the underlying hedged items. In addition, Sunoco is exposed to credit risk in the event of nonperformance by counterparties. Management believes this risk is negligible as its counterparties are either regulated by exchanges or are major international financial institutions or corporations with investment-grade credit ratings. Market and credit risks associated with all of Sunoco’s derivative contracts are reviewed regularly by management.

67

Derivative instruments are used from time to time to achieve ratable pricing of crude oil purchases, to convert certain refined product sales to fixed or floating prices, to lock in what Sunoco considers to be acceptable margins for various refined products and to lock in the price of a portion of the Company’s electricity and natural gas purchases or sales. In addition, Sunoco uses derivative contracts from time to time to reduce foreign exchange risk relating to certain export sales denominated in foreign currencies.

At December 31, 2005, the Company had recorded liabilities totaling $14 million for hedging losses and assets totaling $11 million for hedging gains, which represented their fair value as determined using various indices and dealer quotes. The amount of hedge ineffectiveness on derivative contracts during the 2003-2005 period was not material. Open contracts as of December 31, 2005 vary in duration but do not extend beyond 2006.

17. Business Segment Information

Sunoco is principally a petroleum refiner and marketer and chemicals manufacturer with interests in logistics and cokemaking. Sunoco’s operations are organized into five business segments.

The Refining and Supply segment manufactures petroleum products and commodity petrochemicals at Sunoco’s Marcus Hook, Philadelphia, Eagle Point and Toledo refineries and petroleum and lubricant products at Sunoco’s Tulsa refinery and sells these products to other Sunoco businesses and to wholesale and industrial customers. Refinery operations are comprised of Northeast Refining (the Marcus Hook, Philadelphia and Eagle Point refineries) and MidContinent Refining (the Toledo and Tulsa refineries).

The Retail Marketing segment sells gasoline and middle distillates at retail and operates convenience stores in 24 states primarily on the East Coast and in the Midwest region of the United States.

The Chemicals segment manufactures phenol and related products at chemical plants in Philadelphia, PA and Haverhill, OH; polypropylene at facilities in LaPorte, TX, Neal, WV and Bayport, TX; and cumene at the Philadelphia and Eagle Point refineries. In addition, propylene is upgraded and polypropylene is produced at the Marcus Hook, PA Epsilon joint venture facility. This segment also distributes and markets these products. In September 2004, Sunoco sold its one-third interest in the Mont Belvieu, TX Belvieu Environmental Fuels MTBE production facility to Enterprise Products Operating L.P. In January 2004, a facility in Pasadena, TX, which produces plasticizers, was sold to BASF, while a facility in Neville Island, PA, which produces plasticizers, now does so exclusively for BASF under a three-year tolling agreement (Note 2).

The Logistics segment operates refined product and crude oil pipelines and terminals and conducts crude oil acquisition and marketing activities primarily in the Northeast, Midwest and South Central regions of the United States. In addition, the Logistics segment has ownership interests in several refined product and crude oil pipeline joint ventures. Substantially all logistics operations are conducted through Sunoco Logistics Partners L.P. (Note 13).

The Coke segment makes high-quality, blast-furnace coke at facilities located in East Chicago, IN (Indiana Harbor), Vansant, VA (Jewell) and, commencing in March 2005, Franklin Furnace, OH (Haverhill), and produces metallurgical coal from mines in Virginia, primarily for use at the Jewell cokemaking facility. Substantially all of the coke sales are made under long-term contracts with subsidiaries of a major steel company. In addition, the Indiana Harbor plant produces heat as a by-product that is used by a third party to produce electricity and the Haverhill plant produces steam that is sold to the Chemicals business. An additional cokemaking facility is currently under construction in Vitória, Brazil, which is expected to be operational in the fourth quarter of 2006. Sunoco currently has a one percent ownership interest in the Vitória facility and expects to purchase an additional 19 percent equity interest. Sunoco will be the operator of the Vitória facility.

Income tax amounts give effect to the tax credits earned by each segment. Overhead expenses that can be identified with a segment have been included as deductions in determining pretax and after-tax segment income. The remainder are included in Corporate and Other. Also included in Corporate and Other are net financing expenses and other, which consist principally of interest expense, the preferential return of third-party investors in the Company’s cokemaking operations (Note 13) and debt and other financing expenses less interest income and interest capitalized, and significant unusual and infrequently occurring items not allocated to a segment for purposes of reporting to the chief operating decision maker. Intersegment revenues are accounted for based on the prices negotiated by the segments which approximate market. Identifiable assets are those assets that are utilized within a specific segment.

68

Segment Information

(Millions of Dollars)	Refining and Supply			Retail Marketing			Chemicals			Logistics			Coke			Corporate and Other			Consolidated
2005
Sales and other operating revenue (including consumer excise taxes):
Unaffiliated customers	$	16,620		$	11,783		$	2,440		$	2,497		$	414		$	—		$	33,754
Intersegment	$	9,420		$	—		$	—		$	1,983		$	6		$	—		$	—
Pretax segment income (loss)	$	1,582		$	50		$	152		$	37		$	69		$	(310	)	$	1,580
Income tax (expense) benefit		(635	)		(20	)		(58	)		(15	)		(21	)		143			(606	)
After-tax segment income (loss)	$	947		$	30		$	94		$	22		$	48		$	(167	)*	$	974
Equity income	$	10		$	—		$	—		$	16		$	—		$	—		$	26
Depreciation, depletion and amortization	$	201		$	105		$	71		$	36		$	16		$	—		$	429
Capital expenditures	$	687		$	117		$	55		$	79	**	$	32		$	—		$	970
Investments in affiliated companies	$	37		$	—		$	—		$	86		$	1		$	—		$	124
Identifiable assets	$	3,866		$	1,390		$	1,583		$	1,586		$	417		$	1,152	***	$	9,931	†

* Consists of $84 million of after-tax corporate expenses, $45 million of after-tax net financing expenses and other, an $18 million net after-tax gain related to income tax matters and a $56 million after-tax loss associated with the Chemicals segment’s phenol supply contract dispute (Notes 2, 3 and 4).

** Excludes $100 million acquisition from ExxonMobil of a crude oil pipeline system and related storage facilities located in Texas and $5 million acquisition from Chevron of an ownership interest in Mesa Pipeline (Note 2).

*** Consists of Sunoco’s $215 million consolidated deferred income tax asset, $12 million of prepaid retirement costs and $925 million attributable to corporate activities.

^† After elimination of intersegment receivables.

(Millions of Dollars)	Refining and Supply			Retail Marketing			Chemicals			Logistics			Coke			Corporate and Other			Consolidated
2004
Sales and other operating revenue (including consumer excise taxes):
Unaffiliated customers	$	11,732		$	9,567		$	2,197		$	1,700		$	272		$	—		$	25,468
Intersegment	$	7,125		$	—		$	—		$	1,750		$	—		$	—		$	—
Pretax segment income (loss)	$	908		$	111		$	153		$	44		$	58		$	(279	)	$	995
Income tax (expense) benefit		(367	)		(43	)		(59	)		(13	)		(18	)		110			(390	)
After-tax segment income (loss)	$	541		$	68		$	94		$	31		$	40		$	(169	)*	$	605
Equity income	$	5		$	—		$	2		$	19		$	—		$	—		$	26
Depreciation, depletion and amortization	$	188		$	106		$	70		$	32		$	13		$	—		$	409
Capital expenditures	$	463	**	$	103	***	$	56	**	$	75	**	$	135		$	—		$	832
Investments in affiliated companies	$	11		$	—		$	—		$	84		$	—		$	—		$	95
Identifiable assets	$	3,125		$	1,336		$	1,582		$	1,254		$	374		$	485	†	$	8,079	††

* Consists of $67 million of after-tax corporate expenses, $78 million of after-tax net financing expenses and other, an $18 million after-tax gain related to income tax matters, an $8 million after-tax loss on the divestment of the Chemicals segment’s one-third interest in BEF and a $34 million after-tax loss from the early extinguishment of debt in connection with a debt restructuring (Notes 2, 3, 4 and 11).

** Excludes $250 million acquisition from El Paso Corporation of the Eagle Point refinery and related chemical and logistics assets, which includes inventory. The $250 million purchase price is comprised of $190, $40 and $20 million attributable to Refining and Supply, Chemicals and Logistics, respectively (Note 2).

*** Excludes $181 million acquisition from ConocoPhillips of 340 Mobil^® retail outlets located primarily in Delaware, Maryland, Virginia and Washington, D.C., which includes inventory (Note 2).

^† Consists of Sunoco’s $110 million consolidated deferred income tax asset, $11 million of prepaid retirement costs and $364 million attributable to corporate activities.

^†† After elimination of intersegment receivables.

69

Segment Information

(Millions of Dollars)	Refining and Supply			Retail Marketing			Chemicals			Logistics			Coke			Corporate and Other			Consolidated
2003
Sales and other operating revenue (including consumer excise taxes):
Unaffiliated customers	$	7,174		$	7,539		$	1,730		$	1,275		$	251		$	—		$	17,969
Intersegment	$	4,852		$	—		$	—		$	1,383		$	—		$	—		$	—
Pretax segment income (loss)	$	416		$	145		$	84		$	34		$	66		$	(250	)	$	495
Income tax (expense) benefit		(155	)		(54	)		(31	)		(8	)		(23	)		88			(183	)
After-tax segment income (loss)	$	261		$	91		$	53		$	26		$	43		$	(162	)*	$	312
Equity income (loss)	$	2		$	—		$	(6	)	$	20		$	—		$	(23	)**	$	(7	)
Depreciation, depletion and amortization	$	165		$	99		$	65		$	27		$	13		$	—		$	369
Capital expenditures	$	245		$	107	***	$	31	†	$	39		$	5		$	—		$	427
Investments in affiliated companies	$	12		$	—		$	25		$	85		$	—		$	—		$	122
Identifiable assets	$	2,344		$	1,274		$	1,586		$	1,121		$	268		$	485	††	$	7,053	†††

* Consists of $40 million of after-tax corporate expenses, $99 million of after-tax net financing expenses and other, a $9 million after-tax gain associated with the Retail Marketing Midwest Marketing Divestment Program and a $32 million after-tax provision for asset write-downs and other matters (Notes 2 and 3).

** Represents Sunoco’s share of a provision recorded by the Chemicals segment’s one-third-owned BEF joint venture to write down its MTBE production facility to its estimated fair value (Notes 2 and 3).

*** Excludes $162 million purchase from a subsidiary of Marathon Ashland Petroleum LLC of 193 Speedway^® retail gasoline sites located primarily in Florida and South Carolina, which includes inventory (Note 2).

^† Excludes $198 million associated with the formation of a propylene partnership with Equistar Chemicals, L.P. and a related supply contract and the acquisition of Equistar’s Bayport polypropylene facility, which includes inventory (Note 2).

^†† Consists of Sunoco’s $91 million consolidated deferred income tax asset, $11 million of prepaid retirement costs and $383 million attributable to corporate activities.

^††† After elimination of intersegment receivables.

The following table sets forth Sunoco’s sales to unaffiliated customers and other operating revenue by product or service:

(Millions of Dollars)	2005		2004		2003
Gasoline:
Wholesale	$	5,339	$	3,934	$	2,167
Retail		7,929		6,169		4,529
Middle distillates		8,866		5,764		3,518
Residual fuel		1,509		948		797
Petrochemicals		3,014		2,719		1,987
Lubricants		417		324		295
Other refined products		517		656		505
Convenience store merchandise		535		585		540
Other products and services		204		178		163
Resales of purchased crude oil		2,422		1,637		1,218
Coke and coal		414		272		251
Consumer excise taxes		2,588		2,282		1,999
	$	33,754	$	25,468	$	17,969

18. Subsequent Events (Unaudited)

In March 2006, Sunoco Logistics Partners L.P. purchased two separate crude oil pipeline systems and related storage facilities located in Texas, one from Alon USA Energy, Inc. for $68 million and the other from Black Hills Energy, Inc. (“Black Hills”) for approximately $41 million. The Black Hills acquisition also includes a lease acquisition marketing business and related inventory.

70

Supplemental Financial and Operating Information (Unaudited)

Refining and Supply and Retail Marketing Segments Data

Refinery Utilization*	2005		2004		2003
Refinery crude unit capacity at December 31	900.0	**	890.0	***	730.0
Input to crude units	881.0		855.7	†	708.1
Refinery crude unit capacity utilized	98%		97%		97%

* Thousands of barrels daily, except percentages.

** Reflects an increase in January 2005 due to a 10 thousand barrels-per-day adjustment in MidContinent Refining.

*** Reflects increases in January 2004 for the acquisition of the 150 thousand barrels-per-day Eagle Point refinery effective January 13, 2004 and a 10 thousand barrels-per-day adjustment in MidContinent Refining.

^† Data pertaining to the Eagle Point refinery are based on the amounts attributable to the 354-day ownership period (January 13, 2004 – December 31, 2004) divided by 366, the number of days in the year.

Products Manufactured*	2005	2004	2003
Gasoline	443.4	442.0	375.6
Middle distillates	319.5	300.3	236.7
Residual fuel	76.2	73.0	59.8
Petrochemicals	36.8	38.1	27.9
Lubricants	13.2	13.6	13.6
Other	86.6	82.0	77.6
Total production	975.7	949.0	791.2
Less: Production used as fuel in refinery operations	48.6	46.2	37.1
Total production available for sale	927.1	902.8	754.1

* Thousands of barrels daily.

Inventories*	2005	2004	2003
Crude oil	21.6	21.7	16.8
Refined products**	18.9	19.4	17.0

* Millions of barrels at December 31.

** Includes petrochemical inventories produced at Sunoco’s Marcus Hook, Philadelphia, Eagle Point and Toledo refineries, excluding cumene, which is included in the Chemicals segment.

Retail Sales*	2005	2004	2003
Gasoline	298.3	296.3	276.5
Middle distillates	45.3	42.7	40.3
	343.6	339.0	316.8

* Thousands of barrels daily.

Retail Gasoline Outlets	2005	2004	2003
Direct outlets:
Company owned or leased	1,288	1,396	1,442
Dealer owned	544	546	594
Total direct outlets	1,832	1,942	2,036
Distributor outlets	2,931	2,862	2,492
	4,763	4,804	4,528

Other Data	2005	2004	2003
Throughput per Company-owned or leased outlet*	136.3	132.6	124.4

* Thousands of gallons of gasoline and diesel monthly.

Chemicals Segment Data

Chemical Sales*	2005	2004	2003
Phenol and related products	2,579	2,615	2,629
Polypropylene	2,218	2,239	2,248
Plasticizers**	—	28	591
Other	91	187	173
	4,888	5,069	5,641

* Millions of pounds.

** The plasticizer business was divested in January 2004.

Other Data	2005	2004	2003
Chemical inventories*	480	437	480

* Millions of pounds at December 31.

Logistics Segment Data

Pipeline Shipments*	2005	2004	2003
Crude oil	16.3	13.9	13.0
Refined products	17.1	17.2	16.4

* Billions of barrel miles. Excludes joint-venture operations.

Terminal Throughputs*	2005	2004	2003
Refined product terminals	390	341	283
Nederland, TX marine terminal	458	488	442
Other terminals	702	685	479
	1,550	1,514	1,204

* Thousands of barrels daily.

Other Data	2005	2004	2003
Crude oil inventory*	2.0	2.0	2.0

* Millions of barrels at December 31.

Coke Segment Data*

	2005		2004	2003
Coke production	2,405	**	1,965	2,024
Coke sales	2,375	**	1,953	2,024

* Thousands of tons.

** Includes amounts attributable to the Haverhill facility, which commenced operations in March 2005.

71

Selected Financial Data

(Millions of Dollars or Shares, Except Per-Share Amounts)	2005	2004	2003	2002		2001
Statement of Income Data:
Sales and other operating revenue (including consumer excise taxes)	$33,754	$25,468	$17,969	$14,299		$14,063
Net income (loss)*	$974	$605	$312	$(47	)	$398
Per-Share Data**:
Net income (loss):
Basic	$7.13	$4.08	$2.03	$(.31	)	$2.46
Diluted	$7.08	$4.04	$2.01	$(.31	)	$2.43
Cash dividends on common stock***	$.75	$.575	$.5125	$.50		$.50
Balance Sheet Data:
Cash and cash equivalents	$919	$405	$431	$390		$42
Total assets	$9,931	$8,079	$7,053	$6,441		$6,019
Short-term borrowings and current portion of long-term debt	$177	$103	$103	$2		$302
Long-term debt	$1,234	$1,379	$1,498	$1,453		$1,142
Shareholders’ equity	$2,051	$1,607	$1,556	$1,394		$1,642
Outstanding shares of common stock**	133.1	138.7	150.8	152.9		151.1
Shareholders’ equity per outstanding share**	$15.41	$11.59	$10.32	$9.12		$10.87

* Includes after-tax gains related to income tax matters totaling $18, $18 and $21 million in 2005, 2004 and 2001, respectively, an after-tax gain associated with a retail marketing divestment program in the Midwest totaling $9 million in 2003, an after-tax loss associated with a phenol supply contract dispute totaling $56 million in 2005, after-tax provisions for asset write-downs and other matters totaling $8, $32, $22 and $1 million in 2004, 2003, 2002 and 2001, respectively, and an after-tax loss from early extinguishment of debt totaling $34 million in 2004. (See Notes 2, 3, 4 and 11 to the consolidated financial statements.)

** Share and per-share data presented for all periods reflect the effect of a two-for-one stock split, which was effected in the form of a common stock dividend distributed on August 1, 2005. (See Note 14 to the consolidated financial statements.)

*** The Company increased the quarterly dividend paid on common stock from $.125 per share ($.50 per year) to $.1375 per share ($.55 per year) beginning with the fourth quarter of 2003 and then to $.15 per share ($.60 per year) beginning with the third quarter of 2004, to $.20 per share ($.80 per year) beginning with the second quarter of 2005 and to $.25 per share ($1.00 per year) beginning with the second quarter of 2006.

72

Quarterly Financial and Stock Market Information (Unaudited)

(Millions of Dollars, Except Per-Share Amounts and Common Stock Prices)

	2005						2004
	First Quarter	Second Quarter	Third Quarter		Fourth Quarter		First Quarter	Second Quarter	Third Quarter		Fourth Quarter
Sales and other operating revenue (including consumer excise taxes)	$7,191	$7,970	$9,345		$9,248		$5,232	$6,265	$6,575		$7,396
Gross profit*	$423	$632	$846		$750		$362	$631	$431		$562
Net income	$116	$242	$329	**	$287	***	$89	$234	$104	†	$178
Net income per share of common stock††:
Basic	$.84	$1.77	$2.41		$2.13		$.59	$1.55	$.70		$1.25
Diluted	$.83	$1.75	$2.39		$2.12		$.58	$1.53	$.69		$1.24
Cash dividends per share of common stock††	$.15	$.20	$.20		$.20		$.1375	$.1375	$.15		$.15
Common stock price††—high	$53.88	$58.60	$81.49		$85.29		$32.24	$32.85	$37.19		$42.26
—low	$38.10	$46.08	$57.07		$65.00		$25.26	$29.13	$29.38		$35.26
—end of period	$51.76	$56.84	$78.20		$78.38		$31.19	$31.81	$36.99		$40.86

* Gross profit equals sales and other operating revenue less cost of products sold and operating expenses; depreciation, depletion and amortization; and consumer excise, payroll and other applicable taxes.

** Includes an $18 million net after-tax gain related to income tax matters and a $46 million after-tax loss associated with a phenol supply contract dispute.

*** Includes a $10 million after-tax loss associated with a phenol supply contract dispute.

^† Includes an $18 million after-tax gain related to income tax matters, an $8 million after-tax loss on divestment of the Company’s one-third interest in the BEF MTBE production facility and a $34 million after-tax loss from the early extinguishment of debt in connection with a debt restructuring.

^†† Common stock price and per-share data presented for all periods reflect the effect of a two-for-one stock split, which was effected in the form of a common stock dividend distributed on August 1, 2005. The Company’s common stock is principally traded on the New York Stock Exchange, Inc. under the symbol “SUN.” The Company had approximately 22,400 holders of record of common stock as of January 31, 2006.

73

EX-14

Exhibit 14

SUNOCO, INC.

CODE OF BUSINESS CONDUCT AND ETHICS

1. Introduction

This Code of Business Conduct and Ethics sets forth the basic principles that guide the business conduct of Sunoco, Inc. Sunoco intends not just to comply with legal requirements but to conduct its business in accordance with a high level of honesty and integrity. Public confidence and the reputation of the Company are valuable business assets that must be earned by ethical conduct in the Company’s interactions with its vendors, customers, competitors, communities, investors, employees and the government. Each officer, director and employee is expected to act in good faith and with integrity in the performance of his/her responsibilities on behalf of the Company and in compliance with all applicable laws, rules and regulations. Officers, directors and employees of the Company also have a duty of loyalty to the Company to further its aims and goals and to work on behalf of its best interests. This Code of Business Conduct and Ethics is intended to comply with the provisions of the Sarbanes-Oxley Act of 2002 and its implementing regulations.

Officers, directors and employees of the Company must comply with this Code and Company policies and must conduct themselves in a manner to avoid even the appearance of improper behavior.

If a local custom or law requires less stringent standards than this Code or Company policy, officers, directors and employees still must comply with the Code and Company policy. Those who violate this Code will be subject to disciplinary action, up to and including termination of employment. Violations and waivers of, and amendments to, this Code will be disclosed as required by law. If there is a situation which an officer, director or employee believes may violate or lead to a violation of this Code, the guidelines described in Section 17 of this Code should be followed.

2. Scope

This Code applies to all officers, directors and employees of Sunoco Inc. and its subsidiaries and affiliates. Agents, representatives and consultants of the Company are expected to act in the Company’s best interests and in accordance with high ethical standards. Conduct that is improper for the Company or any of its officers, directors or employees to engage in directly may not be engaged in by the use of agents, representatives or consultants.

3. Senior Financial Officers’ Code of Ethics

All officers, directors, and employees and specifically the Chief Executive Officer, Chief Financial Officer, Comptroller, General Auditor and other senior financial officers must comply with this Code, the other Company Policies listed in Appendix A to this Code and with all applicable rules and standards of the Securities and Exchange Commission, the Financial Accounting Standards Board, the New York Stock Exchange, and other regulatory bodies.

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In particular, the Chief Executive Officer, Chief Financial Officer, Comptroller, General Auditor and other senior financial officers are responsible for full, fair, accurate, timely and understandable disclosure in the periodic reports that the Company files with the Securities and Exchange Commission and will promptly bring to the attention of the Financial Information Committee any material information of which he or she may become aware that could affect such disclosures. The Chief Executive Officer and each senior financial officer shall promptly bring to the attention of the Audit Committee of the Board of Directors any information he or she may have regarding:

• significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data;

• any fraud, whether material or not, that involves management or any other employee who has a significant role in the Company’s financial reporting, disclosure or internal control; or

• any material violation of (1) any law, rule or regulation (including the securities laws) applicable to the Company or the operation of its businesses or (2) this Code.

4. Compliance with Laws, Rules, Regulations and Ethics

Obeying the law, both in letter and in spirit, is the foundation on which this Company’s ethical standards are built. All officers, directors and employees must respect and obey the laws of the cities, states and countries in which the Company operates, and the Company’s business will be conducted in accordance with a high standard of honesty and integrity. If a local law conflicts with a policy in this Code, you must comply with the law; however, if local custom or policy conflicts with this Code, you must comply with the Code. Any questions regarding application of the law or the appropriateness of a particular course of conduct should be referred to the responsible managers, the Legal Department, the Human Resources Department, the General Auditor or other appropriate personnel. Suspected violations of law or policy should be reported to management, the Legal or Human Resources Department, the General Auditor or the Sunoco Compliance Hotline. Managers must resolve questions or violations promptly and properly, with the assistance of the Legal, Human Resources or General Auditor’s Departments as necessary.

The Company holds information and training sessions to promote compliance with laws, rules, regulations and Company policies, which officers, directors and employees are expected to attend.

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5. Conflicts of Interest

A conflict of interest exists when the private interest of an officer, director or employee interferes with that person’s ability to advance the legitimate interests of the Company. A conflict situation can arise when an officer, director or employee takes actions or has interests that may make it difficult to perform his or her Company duties objectively and effectively. Conflicts of interest may also arise when an officer, director or employee, or members of his or her family, receives improper personal benefits as a result of his or her position in the Company.

Officers, directors and employees of the Company and its subsidiaries are prohibited from engaging in transactions or relationships that may reasonably be expected to give rise to conflicts of interest. Any officer, director or employee who becomes aware of a potential, apparent or actual conflict should bring it to the attention of his/her manager or other appropriate personnel, or consult the guidelines described in Section 17 of this Code. Management will take such actions as are necessary and proper to remove the conflict, which may include procedural safeguards, removal of an employee’s discretion in the area of conflict, reassignment of job responsibilities, reassignment of the employee, or prohibition against continued participation in the conflicting activity. The resolution of a potential conflict situation by management is not a violation or waiver of this Code or the Company’s Conflict of Interest Policy.

Conflicts of interest may not always be clear-cut, so if an officer, director or employee has a question, he/she should consult with higher levels of management or the Company’s Legal Department. Also, officers, directors and employees should consult the Company’s separate, more detailed Conflict of Interest Policy.

6. Financial Reporting and Controls, Records Management and Communications

The Company requires honest and accurate recording and reporting of financial and other information in order to make responsible business decisions and full, fair, accurate, timely and understandable financial and other disclosures to regulatory agencies and the public. The Company will maintain internal controls to ensure that transactions are properly authorized, assets are safeguarded, operations are conducted in accordance with Board of Directors and management directives and financial records are reliable. All of the Company’s books, records, accounts and financial statements must be maintained in reasonable detail, must appropriately reflect the Company’s transactions and must conform both to applicable legal requirements and to the Company’s system of internal controls.

The Company will maintain disclosure controls to ensure that required information is recorded, processed, summarized and reported as required by law and regulation and within the time periods specified. Required information will be timely communicated to management as appropriate to allow timely decisions regarding disclosure. Financial statements for external purposes will be fairly presented in conformity with generally accepted accounting principles accepted in the United States or other applicable standards as required by law or regulation. Public statements and filings regarding the Company’s business and financial status must be true, accurate, complete, timely, understandable and not misleading. Unrecorded funds or assets, such as “slush funds” will not be maintained. No false or fictitious entries will be made on the Company books and records.

Page 3

If an officer, director or employee is not sure whether a certain expense or transaction is legitimate, or how to properly account for the expense or transaction, he/she must ask his/her supervisor or the Comptroller’s Department. Rules and guidelines are available from the Materials Management and Accounting Departments.

Business records and communications often become public and all officers, directors and employees should avoid exaggeration, derogatory remarks, guesswork, or inappropriate characterizations of people and companies. This applies equally to e-mail, internal memos and formal reports. Records should always be retained or destroyed according to the applicable law and the Company’s record retention schedule. Records relevant to a pending or threatened government or Company investigation or other legal action must not be destroyed. In the event of litigation or governmental investigation, officers, directors and employees should consult the Company’s Legal Department for instructions on document retention.

7. Confidential Information, Disclosure and Insider Trading

Officers, directors and employees must maintain the confidentiality of confidential information entrusted to them by the Company, except when disclosure is authorized by the Legal Department or required by applicable laws or regulations as determined by the Legal Department. Confidential information includes all non-public information that might be of use to competitors, or harmful to the Company or its customers and suppliers, if disclosed. All non-public information about the Company should be considered confidential information. Examples of confidential information include: Pending acquisitions, divestments and joint ventures, turnarounds, or other major maintenance projects, trade secrets, patents, trademarks, copyrights, business plans, marketing plans, engineering and manufacturing ideas, designs, databases, records, salary information and any unpublished financial data and reports and any information subject to any obligation or agreement of confidentiality. It also includes information that suppliers and customers have entrusted to the Company. The obligation to preserve confidential information continues even after the end of employment or service on the Board of Directors.

Officers, directors and employees who have access to confidential information are not permitted to use or share that information for any purpose other than the legitimate conduct of Company business. The use of Company confidential information for personal financial benefit, such as to trade in stocks or bonds, or to “tip” others who might make an investment decision on the basis of this information is unethical and illegal and is prohibited. Officers, directors and employees should consult the Company’s separate, more detailed Company Insider Trading and Corporate Disclosure Policies and the Legal Department with any questions they may have.

8. Competition and Fair Dealing

Sunoco seeks to outperform its competition fairly and honestly. Sunoco seeks competitive advantages through superior performance but never through unethical or illegal business practices. The Company shall avoid any situation in which the Company or its officers, directors or employees could be accused of conspiring with competitors or using coercive or unfair tactics on customers or suppliers. Neither the Company nor its officers, directors or employees shall enter into any illegal arrangements with competitors or impose any illegal restraints on customers or suppliers. Prohibited transactions include any understanding or arrangement with competitors, express or implied, to fix prices, to refuse to do business with particular customers or suppliers, to divide markets, to limit supplies, to rig bids, to restrict distribution channels or to

Page 4

engage in any other type of transaction which might be viewed as a restraint upon domestic or foreign commerce. Prices charged or paid for the Company’s raw materials, products, services and facilities, including any changes made to those prices, shall be determined independently by the Company, based solely upon its own view of costs, market conditions, competitive situations, desired profit levels and other business factors.

Stealing proprietary information, possessing trade secret information obtained without the owner’s consent, or inducing such disclosures by past or present employees of other companies is prohibited. Each officer, director and employee must respect the rights of and deal fairly with the Company’s customers, suppliers, competitors and their employees. No officer, director or employee should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other intentional unfair-dealing practice. Officers, directors and employees should consult the Company’s separate, more detailed Antitrust Policy and the Legal Department with any questions they may have.

9. Entertainment and Gifts

The purpose of business entertainment and gifts in a commercial setting is to create goodwill and sound working relationships, not to gain unfair advantage with customers or suppliers. No gift or entertainment should ever be offered, given, provided or accepted by any Company officer, director or employee or any family member of such person, unless it: (1) is not a cash gift; (2) is consistent with customary business practices; (3) is not excessive in value; (4) cannot be construed as a bribe or payoff and (5) does not violate any laws or regulations. An officer, director or employee should discuss with his/her supervisor or the Legal Department any gifts or proposed gifts or entertainment which he/she is not certain are appropriate. Officers, directors or employees should also consult the Company’s separate, more detailed Conflicts of Interest Policy and their business unit’s Gift and Entertainment Reporting Guidelines.

10. Discrimination and Harassment

The diversity of the Company’s employees is a tremendous asset. Sunoco is firmly committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or harassment of any kind. Employees will be evaluated solely on the basis of their job performance and results. Examples of unacceptable conduct include: Derogatory comments based on racial or ethnic characteristics; unwelcome sexual advances; violence and threatening behavior; discrimination on the basis of race, gender, national origin, age, religion, sexual orientation; other improper characteristic or displaying sexually explicit material in the workplace. Officers, directors and employees may consult the Company’s separate, more detailed Anti-Discrimination, Equal Employment Opportunity, and Harassment Policies and the Human Resources and Legal Departments with any questions they may have.

11. Health, Environment and Safety

The Company strives to provide each employee with a safe and healthful work environment. Each employee has responsibility for maintaining a safe and healthy workplace for all employees by following safety and health rules and practices and reporting accidents, injuries and unsafe equipment, practices or conditions. Employees are expected to be fit for duty and capable of performing their responsibilities in a safe and productive manner free from substance abuse. Substance abuse in the workplace will not be tolerated.

Page 5

To maintain the Company’s valuable reputation, compliance with Sunoco’s quality processes and safety requirements is essential. Sunoco’s products and services will be designed, manufactured and handled to meet its obligations to customers and to appropriately manage risks to human health and the environment.

The Company is a careful steward of natural resources. Sunoco’s goal is to prevent HES incidents such as permit violations, environmental spills and releases, fires, explosions, injuries and illnesses and other accidents. The Company will inform appropriate officials, employees, contractors, customers and the public about significant health, safety or environmental hazards related to its facilities in a timely manner and will comply with all environmental laws, rules and permits that apply to its operations. Officers, directors and employees should consult the Company’s separate, more detailed Health, Environment and Safety and Substance Abuse Policies and the HES and Legal Departments with any questions they may have.

12. Protection and Proper Use of Company Assets

All employees must protect the Company’s assets and ensure their efficient and lawful use. Theft, carelessness and waste have a direct impact on the Company’s profitability. Any suspected incident of fraud, theft or improper use of Company assets should be immediately reported to management and investigated. All transactions must be properly authorized. Employees must be aware of the limits of their authority and may not engage in transactions that are beyond their limit of authority.

Company equipment, goods and services should not be used for non-Company business, though incidental personal use may be permitted.

13. Payments to Government Personnel

The U.S. Foreign Corrupt Practices Act prohibits giving anything of value, directly or indirectly, to officials of foreign governments or foreign political candidates in order to obtain or retain business. It is strictly prohibited to make illegal payments to government officials of any country.

In addition, the U.S. government has a number of laws and regulations regarding business gratuities which may be accepted by U.S. government personnel. The promise, offer or delivery to an official or employee of the U.S. government of a gift, favor or other gratuity in violation of these rules would not only violate Company policy but could also be a criminal offense. State and local governments, as well as foreign governments, may have similar rules. The Company’s Legal Department can provide guidance in this area. Officers, directors and employees should also consult the separate, more detailed Prohibited Payments and Political Contributions Policy.

14. Waivers of the Code of Business Conduct and Ethics

Any amendment or waiver of this Code for executive officers, senior financial officers or directors may be made only by the Board of Directors or a Board committee and will be disclosed promptly as required by law or stock exchange regulation.

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15. Reporting Any Illegal or Unethical Behavior and Protection Against Retaliation

The Company is committed to achieving compliance with this Code and all applicable securities laws and regulations, accounting standards, accounting controls and audit practices. Reporting of violations is important to assure that the Company swiftly detects, investigates, corrects, reports violations and prevents recurrence of violations. Employees and officers are expected to talk to supervisors, managers or other appropriate personnel and directors to the Governance Committee of the Board about observed illegal or unethical behavior and when they are in doubt about the best course of action to take in a particular situation. Employees are expected to cooperate in internal investigations of misconduct.

ALTHOUGH VIOLATIONS SHOULD FIRST BE REPORTED DIRECTLY TO MANAGEMENT, SUNOCO ALSO HAS A TOLL-FREE CONFIDENTIAL HOTLINE (800-228-5687) FOR ITS EMPLOYEES TO REPORT ANY VIOLATIONS OF LAW, THIS CODE OR OTHER COMPANY POLICIES BY COMPANY OFFICERS, DIRECTORS OR EMPLOYEES. THE HOTLINE IS AVAILABLE 24 HOURS A DAY/7 DAYS A WEEK AND CALLS ARE ANONYMOUS. The Hotline may be used to report any concerns regarding the Company’s compliance with any law, this Code or other Company policy, including but not limited to those concerning financial reporting and disclosures, financial or managerial controls, accounting, internal accounting controls, or auditing matters (including concerns regarding questionable accounting or auditing matters), antitrust, discrimination, harassment, retaliation, health, environment or safety, or any impropriety by any officer, director, employee or agent of Sunoco.

All issues raised regarding financial or accounting matters will be brought to the attention of Sunoco’s General Auditor and all significant issues related to financial matters and this Code will be brought to the attention of the Audit Committee of the Board of Directors.

It is the policy of the Company to provide employees with a working environment that is free of retaliation based on an employee’s good faith reporting or disclosing of any violation of law, this Code or other policy. Reports may be made anonymously.

16. Enforcement

Those who violate this Code will be subject to disciplinary action, up to and including termination of employment.

17. Compliance Procedures

Officers, directors and employees must all work to ensure prompt and consistent action against violations of this Code. However, some situations are not clear-cut and require a difficult judgement call. These are the steps officers, directors and employees should keep in mind:

• Gather all the facts. In order to reach the right solutions, the people involved must be as fully informed as possible.

• Ask themselves: What specifically are they being asked to do? Does it seem unethical or improper? Focus on the specific question they are faced with and the alternatives they have. Use judgment and common sense; if something seems unethical or improper, it probably is. If

Page 7

the officer, director or employee or the Company would be embarrassed by the disclosure of the conduct to their supervisor, the government, or the public, then that course of conduct should not be followed.

• Clarify responsibility and role. In most situations, there is shared responsibility. It may help to get others involved and discuss the problem.

• Discuss the problem with their supervisor. This is the basic guidance for all situations. In many cases, the supervisor will be more knowledgeable about the question and will appreciate being brought into the decision-making process. Remember that it is the supervisor’s responsibility to help solve problems.

• Seek help from Company resources. In the rare case in which it may not be appropriate to discuss an issue with the supervisor, or in which the person involved does not feel comfortable approaching his/her supervisor with the question, discuss it with the Human Resources manager or any member of the Legal Department. If that also is not appropriate, call (800) 228-5867, the Company’s toll-free Hotline, which will put the person involved in contact with the appropriate people at the Company who can help with the issues.

• Violations may be reported in confidence and without fear of retaliation. If the situation requires that the identity of the employee, officer or director be kept secret, anonymity will be protected. The Company does not permit retaliation of any kind against employees for good faith reports of violations of law, regulations, this Code and other Company policies.

• Always ask first, act later. If any officer, director or employee is unsure of what to do in any situation, he/she should seek guidance.

Code of Business Conduct and Ethics Appendix

In addition to the matters addressed in this Code, officers, directors and employees are required to comply with all other Company Policies, as amended from time to time, including but not limited to the following Policies some of which address, with more specificity, matters addressed in this Code:

• Anti-Discrimination Policy

• Antitrust Compliance Policy

• Computer Systems and Use and Security Policy

• Conflict of Interest Policy

• Corporate Disclosure Policy

• Corporate Risk Management Policy

• Equal Employment Opportunity Policy

• Harassment Policy

• Indemnification for Employee Service to Outside Organizations

• Insider Trading Policy

• Management Control Process

• Non-Retaliation Policy

• Personnel File Guidelines for Retention

• Principles of Health, Environment and Safety

• Prohibited Payments and Political Contributions Policy

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• Records/Information Management Policy

• Substance Abuse Policy

• Travel and Reimbursable Expense Policy

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EX-21

Exhibit 21

DECEMBER 31, 2005

SUNOCO, INC.

SUBSIDIARIES OF THE REGISTRANT

COMPANY NAME:	INC./REG.
Mascot, Inc. (MA)	MA
Radnor Corporation	PA
Radnor/California Service Corporation	DE
Radnor/Credit Corporation	DE
Radnor/Dutton Mill Corporation	PA
Radnor/Edgewater, Inc.	DE
Radnor/Investment Corporation	DE
Radnor/Loudoun Corporation	DE
Radnor/Murrieta Corporation	DE
Radnor/North Corporation	DE
Laurel Oak Realty Corporation	DE
Radnor/Spring Ridge Corporation	DE
Radnor/Frederick Corporation	DE
Radnor/Vail Ranch Corporation	DE
Radnor/Victorville Corporation	DE
Radnor/Yorba Linda-I Corporation	DE
Sun Alternate Energy Corporation	DE
Sun Atlantic Refining and Marketing Company	DE
Sun Atlantic Refining and Marketing B.V., Inc.	DE
Sun Atlantic Refining and Marketing B.V.	Netherlands
Atlantic Petroleum Corporation	DE
Atlantic Petroleum Delaware Corporation	DE
Atlantic Petroleum (Out) LLC	DE
Atlantic Pipeline (Out) L.P.	TX
Atlantic R&M (Out) L.P.	TX
Atlantic Refining & Marketing Corp.	DE

PAGE 1 OF 4

DECEMBER 31, 2005

SUNOCO, INC.

SUBSIDIARIES OF THE REGISTRANT

COMPANY NAME:	INC./ORG./REG.
Sun Canada, Inc.	DE
Helios Assurance Company Limited	Bermuda
Sun International Limited	Bermuda
Sun Mexico One, Inc.	DE
Sunoco de Mexico, S.A. de C.V.	Mexico
Sun Mexico Two, Inc.	DE
Sun Coal & Coke Company	DE
Cambria Coke Company	DE
Elk River Minerals Corporation	DE
Haverhill North Coke Company	DE
Indiana Harbor Coke Company	DE
Indiana Harbor Coke Corporation	IN
Jewell Coke Company	DE
Jewell Resources Corporation	VA
Dominion Coal Corporation	VA
Jewell Coal & Coke Company, Inc.	VA
Jewell Smokeless Coal Corporation	VA
Oakwood Red Ash Coal Corporation	VA
Vansant Coal Corporation	VA
Sun Coke International, Inc.	DE
Port Talbot Coke Company Limited	England
SOL Coqueria Tubarão S.A.	Brazil
Sun Coke East Servicos de Coqueificacao Ltda.	Brazil
Sun Coke Company	DE
Sun Company, Inc.	DE
(name saver company)
Sun Company, Inc.	PA
(name saver company)
Sun Executive Services Company	PA
(name saver company)
Sun Geologic and Seismic, Inc.	DE
Sun Oil Argentina Limited	Bermuda
Sun Oil Company	DE
(name saver company)

PAGE 2 OF 4

DECEMBER 31, 2005

SUNOCO, INC.

SUBSIDIARIES OF THE REGISTRANT

COMPANY NAME:	INC./ORG./REG.
Sun Oil Company (U.K.) Ltd.	DE
Sun Oil Export Company	DE
Sun Oil International, Inc.	DE
Sun Pipe Line Company of Delaware	DE
Mid-Continent Pipe Line (Out) LLC	TX
Mid-Valley Pipeline Company	OH
Sun Oil Line of Michigan (Out) LLC	TX
Sun Pipe Line Company	TX
Sun Pipe Line Delaware (Out) LLC	DE
Sun Refining and Marketing Company	DE
(name saver company)
Sun Services Corporation	PA
Sun Transport, LLC	PA
Helios Capital Corporation	DE
Beneco Leasing Two, Inc.	OH
Sunoco Leasing, Inc.	DE
Heleasco Twenty, Inc.	DE
Heleasco Twenty-Three, Inc.	DE
Jalisco Corporation	CA
Lesley Corporation	DE
Libre Insurance Company, Ltd.	Bermuda
Sun-Del Services, Inc.	DE
Sunoco Caribbean, Inc.	DE
(name saver company)
Sunoco, Inc. (R&M)	PA
Aristech Chemical Corporation	DE
Aristech Investment Corporation	DE
Epsilon Products Company, LLC	PA
Mid-State Oil Company	DE
Puerto Rico Sun Oil Company LLC	DE

PAGE 3 OF 4

DECEMBER 31, 2005

SUNOCO, INC.

SUBSIDIARIES OF THE REGISTRANT

COMPANY NAME:	INC./ORG./REG.
Sun Lubricants and Specialty Products Inc.	Quebec
Sun Petrochemicals, Inc.	DE
Sun Petrochemicals Company	PA
Sunmarks, Inc.	DE
Sunoco LaPorte LLC	DE
Sunoco Olefins #3 Inc.	DE
Sunoco Olefins #4 Inc.	DE
Sunoco Olefins L.P.	DE
Sunoco Polyolefins Inc. #1	DE
Sunoco Polyolefins Inc. #2	DE
Sunoco Polyolefins L.P.	DE
Sunoco Power Generation LLC	DE
Sunoco Power Marketing L.L.C.	PA
Sunoco Overseas, Inc.	DE
Lugrasa, S.A.	Panama
Sunoco Partners LLC	PA
Sunoco Logistics Partners L.P.	DE
Sunoco Logistics Partners GP LLC	DE
Sunoco Logistics Partners Operations L.P.	DE
Sunoco Logistics Partners Operations GP LLC	DE
Sunoco Partners Marketing & Terminals L.P.	TX
Sunoco Pipeline L.P.	TX
Sun Pipe Line Services (Out) LLC	DE
Sunoco Partners Lease Acquisition & Marketing LLC	DE
Sunoco Receivables Corporation, Inc.	DE
The Claymont Investment Company	DE
Triad Carriers, Inc.	PA
BBQ, Inc.	PA
Carrier Systems Motor Freight, Inc.	DE

PAGE 4 OF 4

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in this Annual Report (Form 10-K) of Sunoco, Inc. of our reports dated February 23, 2006 with respect to the consolidated financial statements of Sunoco, Inc. and subsidiaries, Sunoco, Inc. and subsidiaries management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Sunoco, Inc. and subsidiaries, included in the 2005 Annual Report to Shareholders of Sunoco, Inc.

Our audits also included the financial statement schedule of Sunoco, Inc. and subsidiaries for the years ended December 31, 2005, 2004, and 2003, listed in Item 15(a). The schedule is the responsibility of Sunoco, Inc. and subsidiaries’ management. Our responsibility is to express an opinion based on our audits. In our opinion, as to which the date is February 23, 2006, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also consent to the incorporation by reference of our report dated February 23, 2006, with respect to the consolidated financial statements of Sunoco, Inc. and subsidiaries, our report dated February 23, 2006, with respect to Sunoco, Inc. and subsidiaries management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting of Sunoco, Inc. and subsidiaries, incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule of Sunoco, Inc. and subsidiaries included in this Annual Report (Form 10-K) for the year ended December 31, 2005 and, incorporated by reference in this Annual Report (Form 10-K) for the years ended December 31, 2005, 2004 and 2003, in the following registration statements:

Sunoco, Inc. Capital Accumulation Plan Form S-8 Registration Statement (Registration No. 33-9931);

Sunoco, Inc. Long-Term Performance Enhancement Plan II Form S-8 Registration Statement (Registration No. 333-60110);

Sunoco, Inc. Long-Term Performance Enhancement Plan Form S-8 Registration Statement (Registration No. 333-30941);

Sunoco, Inc. Long-Term Incentive Plan Form S-8 Registration Statement (Registration No. 33-10055);

Sunoco, Inc. and Subsidiaries Stock Supplement Plan Form S-8 Registration Statement (Registration No. 2-53283);

Sunoco, Inc. Executive Long-Term Stock Investment Plan Form S-8 Registration Statement (Registration No. 33-44059);

Sunoco, Inc. Employee Option Plan Form S-8 Registration Statement (Registration No. 33-49275);

Sunoco, Inc. Shareholder Access and Reinvestment Plan Form S-3 Registration Statement (Registration No. 333-78881);

Sunoco, Inc. Form S-3 Registration Statement (Registration No. 333-40876);

Sunoco, Inc. Dividend Reinvestment Plan Form S-3 Registration Statement (Registration No. 33-39834);

Sunoco, Inc. Dividend Reinvestment Plan Form S-3 Registration Statement (Registration No. 33-52615);

Sunoco, Inc. Deferred Compensation Plan Form S-8 Registration Statement (Registration No. 333-49340); and

Sunoco, Inc. Savings Restoration Plan Form S-8 Registration Statement (Registration No. 333-49342).

/s/ ERNST & YOUNG LLP

Philadelphia, Pennsylvania

March 2, 2006

EX-24.1

EXHIBIT 24.1

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, That the undersigned officers and/or directors of Sunoco, Inc., a Pennsylvania corporation, do and each of them does, hereby constitute and appoint Thomas W. Hofmann, Michael S. Kuritzkes and Joseph P. Krott, his or her true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him or her and in his or her name, place and stead, to sign the Sunoco, Inc. Form 10-K for the year ending December 31, 2005 and any and all future amendments thereto; and to file said Form 10-K and any such amendments with all exhibits thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals this 2nd day of March, 2006.

/s/ ROBERT J. DARNALL	/s/ JAMES G. KAISER
Robert J. Darnall Director	James G. Kaiser Director
/s/ JOHN G. DROSDICK	/s/ JOSEPH P. KROTT
John G. Drosdick Chairman, Chief Executive Officer, President and Director (Principal Executive Officer)	Joseph P. Krott Comptroller (Principal Accounting Officer)
/s/ URSULA O. FAIRBAIRN	/s/ RICHARD H. LENNY
Ursula O. Fairbairn Director	Richard H. Lenny Director
/s/ THOMAS P. GERRITY	/s/ R. ANDERSON PEW
Thomas P. Gerrity Director	R. Anderson Pew Director
/s/ ROSEMARIE B. GRECO	/s/ G. JACKSON RATCLIFFE
Rosemarie B. Greco Director	G. Jackson Ratcliffe Director
/s/ THOMAS W. HOFMANN	/s/ JOHN W. ROWE
Thomas W. Hofmann Senior Vice President and Chief Financial Officer (Principal Financial Officer)	John W. Rowe Director /s/ JOHN K. WULFF John K. Wulff Director

EX-24.2

EXHIBIT 24.2

I, Ann C. Mulé, Secretary of Sunoco, Inc., a Pennsylvania corporation, hereby certify that the following is a full, true and complete copy of a resolution adopted at a meeting of the Board of Directors of Sunoco, Inc., duly called and held on March 2, 2006, at which a quorum was present and acting throughout and that no action has been taken to rescind or amend said resolution and that the same is now in full force and effect:

RESOLVED, That the Annual Report of Sunoco, Inc. (the “Company”) to the Securities and Exchange Commission on Form 10-K, for the year ended December 31, 2005, is approved in the form presented to this meeting, subject to such changes or amendments as may be approved (as so amended, the “Form 10-K”) by any one of the following officers of the Company: the Chairman, Chief Executive Officer and President; the Senior Vice President and Chief Financial Officer; or the Senior Vice President and General Counsel;

FURTHER RESOLVED, That each of the above-named officers and the Comptroller (collectively, the “Authorized Officers”) is authorized to sign and file, or cause to be filed, on behalf of the Company, the Form 10-K, together with any such other certificates, documents, instruments or notices as may be necessary or as any such officer may deem necessary or desirable in order to effectuate or carry out the purposes and intent of the foregoing resolutions, and that all such actions heretofore taken by any one or more of the Authorized Officers in order to effectuate or carry out the purposes and intent of the foregoing resolutions are hereby ratified, adopted and approved.

(Corporate Seal)	/s/    Ann C. Mulé
	Ann C. Mulé Secretary

March 2, 2006

Philadelphia, PA

EX-31.1

Exhibit 31.1

Certification

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, John G. Drosdick, Chairman, Chief Executive Officer and President of Sunoco, Inc., certify that:

1. I have reviewed this annual report on Form 10-K of Sunoco, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 2, 2006	/s/    John G. Drosdick
	John G. Drosdick Chairman, Chief Executive Officer and President

EX-31.2

Exhibit 31.2

Certification

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Thomas W. Hofmann, Senior Vice President and Chief Financial Officer of Sunoco, Inc., certify that:

1. I have reviewed this annual report on Form 10-K of Sunoco, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 2, 2006	/s/    Thomas W. Hofmann
	Thomas W. Hofmann Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification

of

Periodic Financial Report

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, John G. Drosdick, Chairman, Chief Executive Officer and President of Sunoco, Inc., hereby certify that the Annual Report on Form 10-K for the fiscal year ended December 31, 2005 fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Sunoco, Inc.

Date: March 2, 2006	/s/    John G. Drosdick
	John G. Drosdick Chairman, Chief Executive Officer and President

EX-32.2

Exhibit 32.2

Certification

of

Periodic Financial Report

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Thomas W. Hofmann, Senior Vice President and Chief Financial Officer of Sunoco, Inc., hereby certify that the Annual Report on Form 10-K for the fiscal year ended December 31, 2005 fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Sunoco, Inc.

Date: March 2, 2006	/s/    Thomas W. Hofmann
	Thomas W. Hofmann Senior Vice President and Chief Financial Officer