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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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(Mark One)

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

For the quarterly period ended June 30, 2006

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



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SUNOCO, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)

(215) 977-3000

(Registrants telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)



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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 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 Exchange
Act).    YES ̈NO  x

At June 30, 2006, there were 130,409,122 shares of Common Stock, $1 par value outstanding.



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##### Table of Contents

SUNOCO, INC.

INDEX



|                              |  |           |  |                                                                                                 |  |         
|----------------------------- |  | --------- |  | ----------------------------------------------------------------------------------------------- |  | --------
|                              |  |           |  |                                                                                                 |  | Page No.
|PART I. FINANCIAL INFORMATION |  |          
|                              |  |           | 
|                              |  | Item 1.   |  | Financial Statements (Unaudited)                                                                |  |         
|                              |  |           | 
|                              |  |           |  | Condensed Consolidated Statements of Income for the Six Months Ended June 30, 2006 and 2005     |  | 1       
|                              |  |           | 
|                              |  |           |  | Condensed Consolidated Statements of Income for the Three Months Ended June 30, 2006 and 2005   |  | 2       
|                              |  |           | 
|                              |  |           |  | Condensed Consolidated Balance Sheets at June 30, 2006 and December 31, 2005                    |  | 3       
|                              |  |           | 
|                              |  |           |  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005 |  | 4       
|                              |  |           | 
|                              |  |           |  | Notes to Condensed Consolidated Financial Statements                                            |  | 5       
|                              |  |           | 
|                              |  | Item 2.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations           |  | 22      
|                              |  |           | 
|                              |  | Item 3.   |  | Quantitative and Qualitative Disclosures About Market Risk                                      |  | 38      
|                              |  |           | 
|                              |  | Item 4.   |  | Controls and Procedures                                                                         |  | 38      
|                              | 
|PART II. OTHER INFORMATION    |  |          
|                              |  |           | 
|                              |  | Item 1.   |  | Legal Proceedings                                                                               |  | 39      
|                              |  |           | 
|                              |  | Item 1A.  |  | Risk Factors                                                                                    |  | 39      
|                              |  |           | 
|                              |  | Item 2.   |  | Unregistered Sales of Equity Securities and Use of Proceeds                                     |  | 39      
|                              |  |           | 
|                              |  | Item 4.   |  | Submission of Matters to a Vote of Security Holders                                             |  | 40      
|                              |  |           | 
|                              |  | Item 6.   |  | Exhibits                                                                                        |  | 40      
|                              |  |          
|                              |  | SIGNATURE |  | 42                                                                                             



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##### Table of Contents

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Sunoco, Inc. and Subsidiaries

(Millions of Dollars and Shares, Except Per Share Amounts)



|                                                                    |  |                                 |        |   |      |   |        |  
|------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                    |  | For the Six MonthsEnded June 30 |       
|                                                                    |  | 2006                            |        |   | 2005 |  
|                                                                    |  | (UNAUDITED)                     |       
|REVENUES                                                            |  |                                 |        |   |      |   |        |  
|Sales and other operating revenue (including consumer excise taxes) |  | $                               | 19,144 |   |      | $ | 15,161 |  
|Interest income                                                     |  |                                 | 18     |   |      |   | 6      |  
|Other income, net (Notes 2 and 3)                                   |  |                                 | 21     |   |      |   | 32     |  
|                                                                    |  |                                 |        |   |      |   |        |  
|                                                                    |  |                                 | 19,183 |   |      |   | 15,199 |  
|                                                                    |  |                                 |        |   |      |   |        |  
|COSTS AND EXPENSES                                                  |  |                                 |        |   |      |   |        |  
|Cost of products sold and operating expenses                        |  |                                 | 16,312 |   |      |   | 12,640 |  
|Consumer excise taxes                                               |  |                                 | 1,291  |   |      |   | 1,225  |  
|Selling, general and administrative expenses (Note 2)               |  |                                 | 420    |   |      |   | 434    |  
|Depreciation, depletion and amortization                            |  |                                 | 226    |   |      |   | 207    |  
|Payroll, property and other taxes                                   |  |                                 | 65     |   |      |   | 64     |  
|Interest cost and debt expense                                      |  |                                 | 53     |   |      |   | 46     |  
|Interest capitalized                                                |  |                                 | (5     | ) |      |   | (12    | )
|                                                                    |  |                                 |        |   |      |   |        |  
|                                                                    |  |                                 | 18,362 |   |      |   | 14,604 |  
|                                                                    |  |                                 |        |   |      |   |        |  
|Income before income tax expense                                    |  |                                 | 821    |   |      |   | 595    |  
|Income tax expense                                                  |  |                                 | 316    |   |      |   | 237    |  
|                                                                    |  |                                 |        |   |      |   |        |  
|NET INCOME                                                          |  | $                               | 505    |   |      | $ | 358    |  
|                                                                    |  |                                 |        |   |      |   |        |  
|Net income per share of common stock:                               |  |                                 |        |   |      |   |        |  
|Basic                                                               |  | $                               | 3.82   |   |      | $ | 2.60   |  
|Diluted                                                             |  | $                               | 3.80   |   |      | $ | 2.58   |  
|                                                                    |  |                                
|Weighted-average number of shares outstanding (Notes 5 and 9):      |  |                                 |        |   |      |   |        |  
|Basic                                                               |  |                                 | 132.2  |   |      |   | 137.7  |  
|Diluted                                                             |  |                                 | 132.9  |   |      |   | 138.5  |  
|                                                                    |  |                                
|Cash dividends paid per share of common stock (Note 9)              |  | $                               | .45    |   |      | $ | .35    |  

(See Accompanying Notes)



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CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Sunoco, Inc. and Subsidiaries

(Millions of Dollars and Shares, Except Per Share Amounts)



|                                                                    |  |                                   |        |   |      |   |       |  
|------------------------------------------------------------------- |  | --------------------------------- | ------ | - | ---- | - | ----- | -
|                                                                    |  | For the Three MonthsEnded June 30 |       
|                                                                    |  | 2006                              |        |   | 2005 |  
|                                                                    |  | (UNAUDITED)                       |       
|REVENUES                                                            |  |                                   |        |   |      |   |       |  
|Sales and other operating revenue (including consumer excise taxes) |  | $                                 | 10,575 |   |      | $ | 7,970 |  
|Interest income                                                     |  |                                   | 8      |   |      |   | 3     |  
|Other income, net (Notes 2 and 3)                                   |  |                                   | 7      |   |      |   | 17    |  
|                                                                    |  |                                   |        |   |      |   |       |  
|                                                                    |  |                                   | 10,590 |   |      |   | 7,990 |  
|                                                                    |  |                                   |        |   |      |   |       |  
|COSTS AND EXPENSES                                                  |  |                                   |        |   |      |   |       |  
|Cost of products sold and operating expenses                        |  |                                   | 8,858  |   |      |   | 6,581 |  
|Consumer excise taxes                                               |  |                                   | 663    |   |      |   | 640   |  
|Selling, general and administrative expenses (Note 2)               |  |                                   | 210    |   |      |   | 225   |  
|Depreciation, depletion and amortization                            |  |                                   | 114    |   |      |   | 102   |  
|Payroll, property and other taxes                                   |  |                                   | 31     |   |      |   | 28    |  
|Interest cost and debt expense                                      |  |                                   | 27     |   |      |   | 23    |  
|Interest capitalized                                                |  |                                   | (4     | ) |      |   | (6    | )
|                                                                    |  |                                   |        |   |      |   |       |  
|                                                                    |  |                                   | 9,899  |   |      |   | 7,593 |  
|                                                                    |  |                                   |        |   |      |   |       |  
|Income before income tax expense                                    |  |                                   | 691    |   |      |   | 397   |  
|Income tax expense                                                  |  |                                   | 265    |   |      |   | 155   |  
|                                                                    |  |                                   |        |   |      |   |       |  
|NET INCOME                                                          |  | $                                 | 426    |   |      | $ | 242   |  
|                                                                    |  |                                   |        |   |      |   |       |  
|Net income per share of common stock:                               |  |                                   |        |   |      |   |       |  
|Basic                                                               |  | $                                 | 3.24   |   |      | $ | 1.77  |  
|Diluted                                                             |  | $                                 | 3.22   |   |      | $ | 1.75  |  
|                                                                    |  |                                  
|Weighted-average number of shares outstanding (Notes 5 and 9):      |  |                                   |        |   |      |   |       |  
|Basic                                                               |  |                                   | 131.5  |   |      |   | 137.1 |  
|Diluted                                                             |  |                                   | 132.2  |   |      |   | 138.0 |  
|                                                                    |  |                                  
|Cash dividends paid per share of common stock (Note 9)              |  | $                                 | .25    |   |      | $ | .20   |  

(See Accompanying Notes)



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CONDENSED CONSOLIDATED BALANCE SHEETS

Sunoco, Inc. and Subsidiaries

(Millions of Dollars)



|                                                          |  |                 |        |                     |   |      
|--------------------------------------------------------- |  | --------------- | ------ | ------------------- | - | -----
|                                                          |  | At June 30 2006 |        | At December 31 2005
|                                                          |  | (UNAUDITED)     |        |                    
|ASSETS                                                    |  |                 |        |                     |   |      
|Current Assets                                            |  |                 |        |                     |   |      
|Cash and cash equivalents                                 |  | $               | 600    |                     | $ | 919  
|Accounts and notes receivable, net                        |  |                 | 2,363  |                     |   | 1,754
|Inventories:                                              |  |                 |        |                     |   |      
|Crude oil                                                 |  |                 | 531    |                     |   | 317  
|Petroleum and chemical products                           |  |                 | 495    |                     |   | 322  
|Materials, supplies and other                             |  |                 | 168    |                     |   | 160  
|Deferred income taxes                                     |  |                 | 216    |                     |   | 215  
|                                                          |  |                 |        |                     |   |      
|Total Current Assets                                      |  |                 | 4,373  |                     |   | 3,687
|                                                          |  |                
|Investments and long-term receivables                     |  |                 | 127    |                     |   | 143  
|Properties, plants and equipment                          |  |                 | 10,004 |                     |   | 9,576
|Less accumulated depreciation, depletion and amortization |  |                 | 4,035  |                     |   | 3,918
|                                                          |  |                 |        |                     |   |      
|Properties, plants and equipment, net                     |  |                 | 5,969  |                     |   | 5,658
|Prepaid retirement costs                                  |  |                 | 12     |                     |   | 12   
|Deferred charges and other assets (Note 3)                |  |                 | 449    |                     |   | 431  
|                                                          |  |                 |        |                     |   |      
|Total Assets                                              |  | $               | 10,930 |                     | $ | 9,931
|                                                          |  |                 |        |                     |   |      
|LIABILITIES AND SHAREHOLDERS EQUITY                      |  |                 |        |                     |   |      
|Current Liabilities                                       |  |                 |        |                     |   |      
|Accounts payable                                          |  | $               | 3,711  |                     | $ | 3,014
|Accrued liabilities (Note 6)                              |  |                 | 475    |                     |   | 681  
|Current portion of long-term debt                         |  |                 | 195    |                     |   | 177  
|Taxes payable                                             |  |                 | 434    |                     |   | 338  
|                                                          |  |                 |        |                     |   |      
|Total Current Liabilities                                 |  |                 | 4,815  |                     |   | 4,210
|                                                          |  |                
|Long-term debt (Note 7)                                   |  |                 | 1,243  |                     |   | 1,234
|Retirement benefit liabilities (Note 8)                   |  |                 | 537    |                     |   | 563  
|Deferred income taxes                                     |  |                 | 895    |                     |   | 817  
|Other deferred credits and liabilities (Notes 3 and 6)    |  |                 | 400    |                     |   | 409  
|Commitments and contingent liabilities (Note 6)           |  |                 |        |                     |   |      
|Minority interests (Note 2)                               |  |                 | 745    |                     |   | 647  
|Shareholders equity (Note 9)                             |  |                 | 2,295  |                     |   | 2,051
|                                                          |  |                 |        |                     |   |      
|Total Liabilities and Shareholders Equity                |  | $               | 10,930 |                     | $ | 9,931
|                                                          |  |                 |        |                     |   |      

(See Accompanying Notes)



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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Sunoco, Inc. and Subsidiaries

(Millions of Dollars)



|                                                                                                |  |                                  |      |   |      |   |      |  
|----------------------------------------------------------------------------------------------- |  | -------------------------------- | ---- | - | ---- | - | ---- | -
|                                                                                                |  | For the Six Months Ended June 30 |     
|                                                                                                |  | 2006                             |      |   | 2005 |  
|                                                                                                |  | (UNAUDITED)                      |     
|INCREASES (DECREASES) IN CASH AND CASH EQUIVALENTS                                              |  |                                  |      |   |      |   |      |  
|                                                                                                |  |                                 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                           |  |                                  |      |   |      |   |      |  
|Net income                                                                                      |  | $                                | 505  |   |      | $ | 358  |  
|Adjustments to reconcile net income to net cash provided by operating activities:               |  |                                  |      |   |      |   |      |  
|Phenol supply contract dispute payment (Note 3)                                                 |  |                                  | (95  | ) |      |   |     |  
|Proceeds from power contract restructuring (Note 3)                                             |  |                                  |     |   |      |   | 48   |  
|Depreciation, depletion and amortization                                                        |  |                                  | 226  |   |      |   | 207  |  
|Deferred income tax expense                                                                     |  |                                  | 75   |   |      |   | 25   |  
|Payments in excess of expense for retirement plans                                              |  |                                  | (26  | ) |      |   | (5   | )
|Changes in working capital pertaining to operating activities, net of effect of acquisitions:   |  |                                  |      |   |      |   |      |  
|Accounts and notes receivable                                                                   |  |                                  | (547 | ) |      |   | (432 | )
|Inventories                                                                                     |  |                                  | (393 | ) |      |   | (222 | )
|Accounts payable and accrued liabilities                                                        |  |                                  | 501  |   |      |   | 587  |  
|Taxes payable                                                                                   |  |                                  | 96   |   |      |   | (7   | )
|Other                                                                                           |  |                                  | 23   |   |      |   | 12   |  
|                                                                                                |  |                                  |      |   |      |   |      |  
|Net cash provided by operating activities                                                       |  |                                  | 365  |   |      |   | 571  |  
|                                                                                                |  |                                  |      |   |      |   |      |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                           |  |                                  |      |   |      |   |      |  
|Capital expenditures                                                                            |  |                                  | (429 | ) |      |   | (470 | )
|Acquisitions (Notes 3 and 6)                                                                    |  |                                  | (123 | ) |      |   |     |  
|Proceeds from divestments (Note 3)                                                              |  |                                  | 28   |   |      |   | 21   |  
|Other                                                                                           |  |                                  | (9   | ) |      |   | 5    |  
|                                                                                                |  |                                  |      |   |      |   |      |  
|Net cash used in investing activities                                                           |  |                                  | (533 | ) |      |   | (444 | )
|                                                                                                |  |                                  |      |   |      |   |      |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                           |  |                                  |      |   |      |   |      |  
|Net proceeds from issuance of long-term debt                                                    |  |                                  | 301  |   |      |   |     |  
|Repayments of long-term debt                                                                    |  |                                  | (275 | ) |      |   | (13  | )
|Net proceeds from issuance of Sunoco Logistics Partners L.P. limited partnership units (Note 2) |  |                                  | 110  |   |      |   | 99   |  
|Cash distributions to investors in cokemaking operations                                        |  |                                  | (7   | ) |      |   | (11  | )
|Cash distributions to investors in Sunoco Logistics Partners L.P.                               |  |                                  | (22  | ) |      |   | (12  | )
|Cash dividend payments                                                                          |  |                                  | (60  | ) |      |   | (48  | )
|Purchases of common stock for treasury                                                          |  |                                  | (198 | ) |      |   | (131 | )
|Proceeds from issuance of common stock under management incentive plans                         |  |                                  | 1    |   |      |   | 6    |  
|Other                                                                                           |  |                                  | (1   | ) |      |   | (5   | )
|                                                                                                |  |                                  |      |   |      |   |      |  
|Net cash used in financing activities                                                           |  |                                  | (151 | ) |      |   | (115 | )
|                                                                                                |  |                                  |      |   |      |   |      |  
|Net increase (decrease) in cash and cash equivalents                                            |  |                                  | (319 | ) |      |   | 12   |  
|Cash and cash equivalents at beginning of period                                                |  |                                  | 919  |   |      |   | 405  |  
|                                                                                                |  |                                  |      |   |      |   |      |  
|Cash and cash equivalents at end of period                                                      |  | $                                | 600  |   |      | $ | 417  |  
|                                                                                                |  |                                  |      |   |      |   |      |  

(See Accompanying Notes)



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



|1. | General.
|-- | --------

The accompanying condensed consolidated
financial statements are presented in accordance with the requirements of Form 10-Q and U.S. generally accepted accounting principles for interim financial reporting. They do not include all disclosures normally made in financial statements
contained in Form 10-K. In managements opinion, all adjustments necessary for a fair presentation of the results of operations, financial position and cash flows for the periods shown have been made. All such adjustments are of a normal
recurring nature. Results for the three and six months ended June 30, 2006 are not necessarily indicative of results for the full-year 2006.

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 9).



|2. | 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 potential
limitations on the ability to recognize tax benefits based upon the level of crude oil prices (see below). The estimates also assume that the realization of nonconventional fuel tax credits is 61 percent in 2006 and 100 percent thereafter.
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
periodically to 10 percent by 2038.

Under existing tax law, the coke production at Jewell and Indiana Harbor is not 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



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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 $53.20 to $66.79 per barrel for 2005, the latest year for which the range is available.) The domestic wellhead price averaged $59.19 per barrel for the five months ended May 31, 2006, $64.32 per
barrel for the month of May 2006 and $50.26 per barrel for the year ended December 31, 2005. The corresponding prices for West Texas Intermediate (WTI) crude oil, a widely published reference price for domestic crude oil, were
$66.31 per barrel for the five months ended May 31, 2006, $70.96 per barrel for the month of May 2006 and $56.56 per barrel for the year ended December 31, 2005. Based upon the Companys estimate of domestic wellhead prices for the
first half of 2006, Sun Coke recorded only 61 percent of the benefit of the tax credits that otherwise would have been available without regard to these phase-out provisions. The estimated impact of this phase-out reduced earnings for the first half
of 2006 by $5 million after tax. The ultimate amount of the credits to be earned during 2006 will be based upon the average annual price of domestic crude oil at the wellhead. In addition, if the tax credits were phased out, 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 are completely phased out.

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 June 30, 2006, the maximum
potential payment under these tax indemnifications and the options to purchase the third-party investors interests, if exercised, would have been approximately $610 million. If this were to occur, the minority interest balance would be reduced
by approximately $185 million.



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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 (in millions of dollars):



|                                                    |  |                          |     |   |      |   |     |  
|--------------------------------------------------- |  | ------------------------ | --- | - | ---- | - | --- | -
|                                                    |  | Six Months Ended June 30 |    
|                                                    |  | 2006                     |     |   | 2005 |  
|Balance at beginning of year                        |  | $                        | 234 |   |      | $ | 287 |  
|Nonconventional fuel credit and other tax benefits* |  |                          | (22 | ) |      |   | (30 | )
|Preferential return*                                |  |                          | 19  |   |      |   | 22  |  
|Cash distributions to third-party investors         |  |                          | (7  | ) |      |   | (11 | )
|                                                    |  |                          |     |   |      |   |     |  
|Balance at end of period                            |  | $                        | 224 |   |      | $ | 268 |  
|                                                    |  |                          |     |   |      |   |     |  

---

| | * | 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, net, in the condensed consolidated statements of income.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Logistics Operations

In the second quarter of 2005, Sunoco Logistics Partners L.P. (the Partnership), a master limited partnership in which Sunoco has an
ownership interest, issued 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. In the second quarter of 2006, the Partnership
issued $175 million of senior notes due 2016 and 2.7 million limited partnership units at a price of $43.00 per unit. Proceeds from the 2006 offerings, net of underwriting discounts and offering expenses, totaled approximately $173 and $110
million, respectively. These proceeds were used by the Partnership in part to repay the outstanding borrowings under its revolving credit facility with the balance used to fund a portion of the Partnerships 2006 growth capital program. Upon
completion of the equity offerings, Sunocos interest in the Partnership, including its 2 percent general partnership interest, decreased to 43 percent. The accounts of the Partnership continue to be included in Sunocos condensed
consolidated financial statements.

As of June 30, 2006, Sunoco owned 12.06 million limited partnership units consisting of
6.37 million common units and 5.69 million subordinated units. Distributions on Sunocos subordinated units are payable only after the minimum quarterly distributions of $.45 per unit 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 meet the financial tests through the fourth quarter of 2006, all of Sunocos remaining
5.69 million subordinated units would be converted to common units in February 2007.



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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 $150 million pretax at June 30, 2006, has been deferred as a component of minority interest in the Companys condensed consolidated balance sheets 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 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. (in millions of dollars):



|                                                               |  |                         |     |   |      |   |     |  
|-------------------------------------------------------------- |  | ----------------------- | --- | - | ---- | - | --- | -
|                                                               |  | Six Months EndedJune 30 |    
|                                                               |  | 2006                    |     |   | 2005 |  
|Balance at beginning of year                                   |  | $                       | 397 |   |      | $ | 232 |  
|Net proceeds from public equity offerings                      |  |                         | 110 |   |      |   | 99  |  
|Minority interest share of income*                             |  |                         | 20  |   |      |   | 13  |  
|Increase attributable to Partnership management incentive plan |  |                         | 1   |   |      |   | 5   |  
|Cash distributions to third-party investors**                  |  |                         | (22 | ) |      |   | (12 | )
|                                                               |  |                         |     |   |      |   |     |  
|Balance at end of period                                       |  | $                       | 506 |   |      | $ | 337 |  
|                                                               |  |                         |     |   |      |   |     |  

---

| | * | Included in selling, general and administrative expenses in the condensed consolidated statements of income.
| | - | ------------------------------------------------------------------------------------------------------------

| | ** | During 2005 and the first half of 2006, the Partnership increased its quarterly cash distribution per unit from $.625 to $.775.
| | -- | -------------------------------------------------------------------------------------------------------------------------------

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 condensed 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 (in millions of dollars):



|                                          |  |                         |    |   |      |   |   
|----------------------------------------- |  | ----------------------- | -- | - | ---- | - | --
|                                          |  | Six Months EndedJune 30
|                                          |  | 2006                    |    |   | 2005
|Balance at beginning of year              |  | $                       | 16 |   |      | $ | 11
|Minority interest share of income (loss)* |  |                         | (1 | ) |      |   | 3 
|                                          |  |                         |    |   |      |   |   
|Balance at end of period                  |  | $                       | 15 |   |      | $ | 14
|                                          |  |                         |    |   |      |   |   

---

| | * | Included in selling, general and administrative expenses in the condensed consolidated statements of income.
| | - | ------------------------------------------------------------------------------------------------------------



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|3. | Changes in Business and Other Matters.
|-- | --------------------------------------

Acquisitions

Logistics Assets  In July 2006, Sunoco Logistics Partners L.P. agreed to purchase from Sunoco for $65 million a
company that has a 55 percent interest in Mid-Valley Pipeline Company, a joint venture which owns a crude oil pipeline system in the Midwest. This transaction is subject to regulatory review and is expected to close in the third quarter of 2006. In
March 2006, the Partnership purchased two separate crude oil pipeline systems and related storage facilities located in Texas, one from affiliates of Black Hills Energy, Inc. (Black Hills) for $41 million and the other from affiliates of
Alon USA Energy, Inc. (Alon) for $68 million. The Black Hills acquisition also includes a lease acquisition marketing business and related inventory. The Partnership also expects to complete a $20 million project to connect the Black
Hills pipeline system to the Nederland terminal by mid-2007 and a $17 million project to expand capacity on the Alon pipeline system and to construct new tankage at the Nederland terminal to service these new volumes more efficiently. 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. 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. The above acquisitions were initially funded with proceeds from borrowings
under the Partnerships revolving credit facility (Note 2).

The purchase price of the Black Hills acquisition has been allocated to
the assets acquired based on their estimated fair market values at the acquisition date. The Partnership engaged an independent appraisal firm to value the Black Hills assets. The appraisal was completed during the second quarter of 2006. The
following is a summary of the effects of this transaction on Sunocos consolidated financial position (in millions of dollars):



|                                      |  |   |   
|------------------------------------- |  | - | --
|Increase in:                          |  |   |   
|Inventories                           |  | $ | 2 
|Properties, plants and equipment, net |  |   | 39
|                                      |  |   |   
|                                      |  | $ | 41
|                                      |  |   |   

The purchase price of the Alon and Mesa Pipeline acquisitions has been included in properties,
plants and equipment in the condensed 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 retail sites. During the 2003-2006 period, selected
sites are being divested. Most of the sites are being converted to contract dealers and 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 $193 million has been received through June 30, 2006 related to the sale of 352 sites. During the first six months of 2006 and 2005, net gains of $6 and $7 million,
respectively ($3 and $4 million after tax, respectively), were recognized in other income, net, in



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the condensed consolidated statements of income in connection with the RPM program. The Company expects the RPM program to generate additional gains during
the remainder of 2006.

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 finalizes pricing for 2005 and beyond under provisions of the supply agreement which provide for a price reopener on and after January 1, 2005. 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, which were paid to Honeywell in April 2006, were recorded as a charge
against earnings in the 2005 consolidated statement of income ($78 million in the third quarter and $17 million in the fourth quarter). In March 2006, a U.S. District Court judge upheld the first arbitrators ruling. In July 2006, the second
arbitrator ruled that the pricing through July 2009 should be based essentially on the pricing formula established in the first arbitration. As Sunoco has been billing Honeywell based on this formula, this ruling did not impact Sunocos
consolidated results of operations.

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 with 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 condensed consolidated balance sheet, which is being amortized into income over the 30-year term of the contract.



|4. | Stock-Based Compensation.
|-- | -------------------------

Effective January 1, 2006,
the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS No. 123R), utilizing the modified-prospective method. SFAS No. 123R revised the accounting for
stock-based compensation required by 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, which is similar to the method followed by the Company under the provisions of SFAS No. 123. SFAS No. 123R also requires the use of a non-substantive vesting period approach for
new share-based payment awards that vest when an employee becomes retirement eligible as is the case under Sunocos share-



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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 previously followed under SFAS No. 123. Adoption of SFAS No. 123R did not have a material effect on the Companys results of operations for the six-month period ended June 30,
2006. However, assuming the fair value of awards to be granted in the fourth quarter of 2006 are similar to the value of those granted in December 2005, the Company currently estimates that its after-tax compensation expense under SFAS No. 123R
will be approximately $5-$10 million higher in 2006 than it would have been under SFAS No. 123 as a result of the accelerated expense recognition. 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.

The stock
options granted under the Companys management incentive plans have a 10-year term, are not exercisable until two years after the date of grant and permit optionees to purchase Company stock at its fair market value on the date of grant. Under
SFAS No. 123, the fair value of the stock options was estimated using the Black-Scholes option pricing model. Use of this model requires the Company to make certain assumptions regarding the term that the options are expected to be outstanding
(expected life), as well as regarding the risk-free interest rate, the Companys expected dividend yield and the expected volatility of the Companys stock price during the period the options are expected to be outstanding. The
expected life and dividend yield are estimated based on historical experience. The risk-free interest rate is based on the U.S. Treasury yield curve at the date of grant for periods that are approximately equal to the expected life. The Company uses
historical share prices, for a period equivalent to the options expected life, to estimate the expected volatility of the Companys share price. The Company continues to use the Black-Scholes option pricing model to estimate the fair
value of stock options under SFAS No. 123R.

During the six months ended June 30, 2006 and 2005, 49,070 and 625,812 stock options,
respectively, were exercised with an intrinsic value of $3 and $19 million, respectively. Cash received from the exercise of options during the six months ended June 30, 2006 totaled $1 million and the related tax benefit realized was $1
million. At June 30, 2006, there were 1,478,286 stock options outstanding, of which 284,336 were exercisable. As of that date, the aggregate intrinsic value of all of the outstanding stock options was $37 million, while the aggregate intrinsic
value and the weighted-average remaining contractual term of the exercisable options was $14 million and five years, respectively.

Common
stock unit awards under the Companys management incentive plans mature upon completion of a three-year service period or upon attainment of predetermined performance targets during the three-year period. For the performance-based awards,
adjustments for attainment of performance targets can range from 0200 percent of the award grant. Awards are payable in cash or common stock. Awards to be paid in cash are classified as liabilities in the Companys condensed consolidated
balance sheets and are re-measured for expense purposes at fair value each period (based on the fair value of an equivalent number of Sunoco common shares at the end of the period) with any change in fair value recognized as an increase or decrease
in income. For awards to be settled in common stock, the fair value for expense purposes is based on the closing price of the Companys shares on the date of grant.

During the six months ended June 30, 2006 and 2005, 527,000 and 276,000 common stock units, respectively, were settled in cash and 75,200 and 53,200 common stock units, respectively, were settled in common stock.
The intrinsic value of the common stock units that were settled in cash during



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the six months ended June 30, 2006 and 2005 totaled $43 and $12 million, respectively, while the intrinsic value of the common stock unit awards that
were settled in common stock totaled $6 and $2 million, respectively. At June 30, 2006, excluding any potential adjustment for performance, there were 531,140 common stock units outstanding payable in cash and 152,415 payable in stock with an
aggregate intrinsic value of $37 and $11 million, respectively.

For the six months ended June 30, 2006 and 2005, the Company
recognized stock-based compensation expense of $14 and $25 million, respectively, and related tax benefits of $6 and $10 million, respectively. As of June 30, 2006, total compensation cost related to nonvested awards not yet recognized was $37
million, and the weighted-average period over which this cost is expected to be recognized in income is 1.5 years. The stock-based compensation expense and the total compensation cost related to nonvested awards not yet recognized reflect the
Companys estimates of performance factors pertaining to performance-based common stock unit awards.



|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):



|                                                             |  |                         |  |                           |  |       |  |      
|------------------------------------------------------------ |  | ----------------------- |  | ------------------------- |  | ----- |  | -----
|                                                             |  | Six Months EndedJune 30 |  | Three Months EndedJune 30
|                                                             |  | 2006                    |  | 2005                      |  | 2006  |  | 2005 
|Weighted-average number of common shares outstanding  basic |  | 132.2                   |  | 137.7                     |  | 131.5 |  | 137.1
|Add effect of dilutive stock incentive awards                |  | .7                      |  | .8                        |  | .7    |  | .9   
|                                                             |  |                         |  |                           |  |       |  |      
|Weighted-average number of shares - diluted                  |  | 132.9                   |  | 138.5                     |  | 132.2 |  | 138.0
|                                                             |  |                         |  |                           |  |       |  |      



|6. | Commitments and Contingent Liabilities.
|-- | ---------------------------------------

Commitments

Sunoco is contingently liable under various arrangements which guarantee debt of third parties aggregating to
approximately $6 million at June 30, 2006. At this time, management does not believe that it is likely that the Company will have to perform under any of these guarantees.

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 certain 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.



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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. For 2005, a $14 million payment was earned, which was paid in April 2006. Any additional contingent payment earned in 2006 is limited to $90 million. All
earn-out payments are being 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 January 1, 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 condensed consolidated balance sheets as follows (in millions of dollars):



|                                       |  |                 |     |                     |   |    
|-------------------------------------- |  | --------------- | --- | ------------------- | - | ---
|                                       |  | At June 30 2006 |     | At December 31 2005
|Accrued liabilities                    |  | $               | 41  |                     | $ | 37 
|Other deferred credits and liabilities |  |                 | 91  |                     |   | 100
|                                       |  |                 |     |                     |   |    
|                                       |  | $               | 132 |                     | $ | 137
|                                       |  |                 |     |                     |   |    

The following table summarizes the changes in the accrued liability for environmental remediation
activities by category (in millions of dollars):



|                           |  |            |    |   |                 |   |     |                      |  |   |                         |   |  |                       |    |   |       |   |    |       |  |   |    |   |  |   |     |  
|-------------------------- |  | ---------- | -- | - | --------------- | - | --- | -------------------- |  | - | ----------------------- | - |  | --------------------- | -- | - | ----- | - | -- | ----- |  | - | -- | - |  | - | --- | -
|                           |  | Refineries |    |   | Marketing Sites |   |     | Chemicals Facilities |  |   | Pipelines and Terminals |   |  | Hazardous Waste Sites |    |   | Other |   |    | Total | 
|Balance at January 1, 2005 |  | $          | 48 |   |                 | $ | 74  |                      |  | $ | 5                       |   |  | $                     | 15 |   |       | $ | 4  |       |  | $ | 2  |   |  | $ | 148 |  
|Accruals                   |  |            | 1  |   |                 |   | 9   |                      |  |   |                        |   |  |                       | 2  |   |       |   |   |       |  |   |   |   |  |   | 12  |  
|Payments                   |  |            | (5 | ) |                 |   | (10 | )                    |  |   |                        |   |  |                       | (2 | ) |       |   | (1 | )     |  |   |   |   |  |   | (18 | )
|Other                      |  |            |   |   |                 |   | (2  | )                    |  |   |                        |   |  |                       | 1  |   |       |   |   |       |  |   |   |   |  |   | (1  | )
|                           |  |            |    |   |                 |   |     |                      |  |   |                         |   |  |                       |    |   |       |   |    |       |  |   |    |   |  |   |     |  
|Balance at June 30, 2005   |  | $          | 44 |   |                 | $ | 71  |                      |  | $ | 5                       |   |  | $                     | 16 |   |       | $ | 3  |       |  | $ | 2  |   |  | $ | 141 |  
|                           |  |            |    |   |                 |   |     |                      |  |   |                         |   |  |                       |    |   |       |   |    |       |  |   |    |   |  |   |     |  
|Balance at January 1, 2006 |  | $          | 36 |   |                 | $ | 78  |                      |  | $ | 3                       |   |  | $                     | 15 |   |       | $ | 3  |       |  | $ | 2  |   |  | $ | 137 |  
|Accruals                   |  |            | 3  |   |                 |   | 10  |                      |  |   | 1                       |   |  |                       | 1  |   |       |   | 1  |       |  |   |   |   |  |   | 16  |  
|Payments                   |  |            | (4 | ) |                 |   | (12 | )                    |  |   |                        |   |  |                       | (2 | ) |       |   | (1 | )     |  |   | (1 | ) |  |   | (20 | )
|Other                      |  |            |   |   |                 |   |    |                      |  |   | (1                      | ) |  |                       |   |   |       |   |   |       |  |   |   |   |  |   | (1  | )
|                           |  |            |    |   |                 |   |     |                      |  |   |                         |   |  |                       |    |   |       |   |    |       |  |   |    |   |  |   |     |  
|Balance at June 30, 2006   |  | $          | 35 |   |                 | $ | 76  |                      |  | $ | 3                       |   |  | $                     | 14 |   |       | $ | 3  |       |  | $ | 1  |   |  | $ | 132 |  
|                           |  |            |    |   |                 |   |     |                      |  |   |                         |   |  |                       |    |   |       |   |    |       |  |   |    |   |  |   |     |  

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



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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 June 30, 2006, 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.

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



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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 June 30, 2006, Sunoco
had been named as a PRP at 38 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 $3 million at June 30, 2006. 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 $21 million at June 30, 2006 and are included principally in deferred charges and other
assets in the condensed consolidated balance sheets.



15



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Environmental 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 through 2006 for the low-sulfur gasoline and through May 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 are incurred as 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 requirements is approximately $750 million. Capital spending to meet these requirements totaled $742 million through June 30, 2006. 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. Sunocos Bayport and LaPorte, TX chemical facilities are located within the Houston non-attainment area. 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 necessary, develop and implement revised State Implementation Plans to respond to the new regulations.



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Under existing law that was enacted in August 2005, a new renewable fuels mandate for ethanol use in
gasoline was established (immediately in California and on May 5, 2006 for the rest of the nation). Although the act did not ban MTBE, during the second quarter of 2006, Sunoco discontinued the use of MTBE and increased its use of ethanol in
gasoline. While management expects ethanol will continue to be adequately supplied, this change by Sunoco and other refiners in the industry has price and supply implications in the marketplace. Any additional Federal and state legislation could
also 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 65 cases in 17 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 these 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 future quarter or 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 June 30, 2006. Furthermore, management does not believe that the overall costs for environmental activities will have a material impact over an extended period of time on Sunocos cash flows or liquidity.



17



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##### Table of Contents

|7. | Debt Redemption.
|-- | ----------------

In the second quarter of 2006, the
Company redeemed its 9-3/8 percent debentures with a book value of $56 million. The Company recognized a loss of less than $1 million due to the early extinguishment of the debt.



|8. | Retirement Benefit Plans.
|-- | -------------------------

The following tables set forth
the components of defined benefit plans and postretirement benefit plans expense (in millions of dollars):



|                                                       |  |                          |     |   |                             |   |     |      |  |   |      |   |  |   |    |  
|------------------------------------------------------ |  | ------------------------ | --- | - | --------------------------- | - | --- | ---- |  | - | ---- | - |  | - | -- | -
|                                                       |  | Defined BenefitPlans     |     |   | PostretirementBenefit Plans |  
|                                                       |  | Six Months Ended June 30 |     |   | Six Months Ended June 30    |  
|                                                       |  | 2006                     |     |   | 2005                        |   |     | 2006 |  |   | 2005 |  
|Service cost (cost of benefits earned during the year) |  | $                        | 26  |   |                             | $ | 24  |      |  | $ | 5    |   |  | $ | 4  |  
|Interest cost on benefit obligations                   |  |                          | 43  |   |                             |   | 42  |      |  |   | 11   |   |  |   | 12 |  
|Expected return on plan assets                         |  |                          | (47 | ) |                             |   | (45 | )    |  |   |     |   |  |   |   |  
|Amortization of:                                       |  |                          |     |   |                             |   |     |      |  |   |      |   |  |   |    |  
|Prior service cost (benefit)                           |  |                          | 1   |   |                             |   | 1   |      |  |   | (2   | ) |  |   | (2 | )
|Unrecognized losses                                    |  |                          | 16  |   |                             |   | 15  |      |  |   | 2    |   |  |   | 1  |  
|                                                       |  |                          |     |   |                             |   |     |      |  |   |      |   |  |   |    |  
|Total expense                                          |  | $                        | 39  |   |                             | $ | 37  |      |  | $ | 16   |   |  | $ | 15 |  
|                                                       |  |                          |     |   |                             |   |     |      |  |   |      |   |  |   |    |  



|                                                       |  |                            |     |   |                             |   |     |      |  |   |      |   |  |   |    |  
|------------------------------------------------------ |  | -------------------------- | --- | - | --------------------------- | - | --- | ---- |  | - | ---- | - |  | - | -- | -
|                                                       |  | Defined BenefitPlans       |     |   | PostretirementBenefit Plans |  
|                                                       |  | Three Months Ended June 30 |     |   | Three Months Ended June 30  |  
|                                                       |  | 2006                       |     |   | 2005                        |   |     | 2006 |  |   | 2005 |  
|Service cost (cost of benefits earned during the year) |  | $                          | 13  |   |                             | $ | 12  |      |  | $ | 2    |   |  | $ | 2  |  
|Interest cost on benefit obligations                   |  |                            | 22  |   |                             |   | 21  |      |  |   | 6    |   |  |   | 6  |  
|Expected return on plan assets                         |  |                            | (24 | ) |                             |   | (23 | )    |  |   |     |   |  |   |   |  
|Amortization of:                                       |  |                            |     |   |                             |   |     |      |  |   |      |   |  |   |    |  
|Prior service cost (benefit)                           |  |                            |    |   |                             |   |    |      |  |   | (1   | ) |  |   | (1 | )
|Unrecognized losses                                    |  |                            | 6   |   |                             |   | 8   |      |  |   | 1    |   |  |   |   |  
|                                                       |  |                            |     |   |                             |   |     |      |  |   |      |   |  |   |    |  
|Total expense                                          |  | $                          | 17  |   |                             | $ | 18  |      |  | $ | 8    |   |  | $ | 7  |  
|                                                       |  |                            |     |   |                             |   |     |      |  |   |      |   |  |   |    |  



|9. | Shareholders Equity.
|-- | ---------------------



|                                       |  |                       |        |   |                     |   |        |  
|-------------------------------------- |  | --------------------- | ------ | - | ------------------- | - | ------ | -
|                                       |  | At June 30 2006       |        |   | At December 31 2005 |  
|                                       |  | (Millions of Dollars) |       
|Common stock, par value $1 per share   |  | $                     | 280    |   |                     | $ | 280    |  
|Capital in excess of par value         |  |                       | 1,595  |   |                     |   | 1,587  |  
|Earnings employed in the business      |  |                       | 4,211  |   |                     |   | 3,766  |  
|Accumulated other comprehensive loss   |  |                       | (201   | ) |                     |   | (192   | )
|Common stock held in treasury, at cost |  |                       | (3,590 | ) |                     |   | (3,390 | )
|                                       |  |                       |        |   |                     |   |        |  
|Total                                  |  | $                     | 2,295  |   |                     | $ | 2,051  |  
|                                       |  |                       |        |   |                     |   |        |  



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##### Table of Contents

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.

During the first six months of 2006, the
Company repurchased 2,843,000 shares of common stock for $198 million under an existing repurchase authorization. At June 30, 2006, the Company had a remaining authorization from its Board to purchase up to $109 million of Company common stock
in the open market from time to time depending on prevailing market conditions and available cash. In July 2006, an additional $500 million authorization was approved.

The Company increased the quarterly cash dividend paid on common stock from $.15 per share ($.60 per year) to $.20 per share ($.80 per year) beginning with the second quarter of 2005 and then to $.25 per share ($1.00
per year) beginning with the second quarter of 2006.



|10. | Comprehensive Income.
|--- | ---------------------

The following table sets forth
Sunocos comprehensive income (in millions of dollars):



|                                                            |  |                         |     |   |                           |   |     |      |  |   |      |   |  |   |     |  
|----------------------------------------------------------- |  | ----------------------- | --- | - | ------------------------- | - | --- | ---- |  | - | ---- | - |  | - | --- | -
|                                                            |  | Six Months EndedJune 30 |     |   | Three Months EndedJune 30 |  
|                                                            |  | 2006                    |     |   | 2005                      |   |     | 2006 |  |   | 2005 |  
|Net income                                                  |  | $                       | 505 |   |                           | $ | 358 |      |  | $ | 426  |   |  | $ | 242 |  
|Other comprehensive income, net of related income taxes:    |  |                         |     |   |                           |   |     |      |  |   |      |   |  |   |     |  
|Net hedging gains (losses)                                  |  |                         | (13 | ) |                           |   | 6   |      |  |   | (12  | ) |  |   | 3   |  
|Reclassifications of net hedging (gains) losses to earnings |  |                         | 4   |   |                           |   | (3  | )    |  |   | 2    |   |  |   | (1  | )
|                                                            |  |                         |     |   |                           |   |     |      |  |   |      |   |  |   |     |  
|Comprehensive income                                        |  | $                       | 496 |   |                           | $ | 361 |      |  | $ | 416  |   |  | $ | 244 |  
|                                                            |  |                         |     |   |                           |   |     |      |  |   |      |   |  |   |     |  



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##### Table of Contents

|11. | Business Segment Information.
|--- | -----------------------------

The following table sets
forth certain income statement information concerning Sunocos business segments (in millions of dollars):



|                               |  |                                  |        |                |   |                    |  |   |     |    
|------------------------------ |  | -------------------------------- | ------ | -------------- | - | ------------------ |  | - | --- | ---
|                               |  | Sales and OtherOperating Revenue |        | Segment Income |  
|Six Months Ended June 30, 2006 |  | Unaffiliated Customers           |        | Inter- segment |   | (Loss) (after tax) | 
|Refining and Supply            |  | $                                | 9,194  |                | $ | 5,548              |  | $ | 482 |    
|Retail Marketing               |  |                                  | 6,707  |                |   |                   |  |   | 10  |    
|Chemicals                      |  |                                  | 1,250  |                |   |                   |  |   | 22  |    
|Logistics                      |  |                                  | 1,756  |                |   | 993                |  |   | 18  |    
|Coke                           |  |                                  | 237    |                |   | 5                  |  |   | 24  |    
|Corporate and Other            |  |                                  |       |                |   |                   |  |   | (51 | )* 
|                               |  |                                  |        |                |   |                    |  |   |     |    
|Consolidated                   |  | $                                | 19,144 |                |   |                    |  | $ | 505 |    
|                               |  |                                  |        |                |   |                    |  |   |     |    
|                               |  |                                  |       
|Six Months Ended June 30, 2005 |  |                                  |        |                |   |                    | 
|Refining and Supply            |  | $                                | 7,273  |                | $ | 4,215              |  | $ | 320 |    
|Retail Marketing               |  |                                  | 5,324  |                |   |                   |  |   | (1  | )  
|Chemicals                      |  |                                  | 1,248  |                |   |                   |  |   | 63  |    
|Logistics                      |  |                                  | 1,121  |                |   | 971                |  |   | 12  |    
|Coke                           |  |                                  | 195    |                |   |                   |  |   | 23  |    
|Corporate and Other            |  |                                  |       |                |   |                   |  |   | (59 | )**
|                               |  |                                  |        |                |   |                    |  |   |     |    
|Consolidated                   |  | $                                | 15,161 |                |   |                    |  | $ | 358 |    
|                               |  |                                  |        |                |   |                    |  |   |     |    

---

|* | Consists of $27 million of after-tax corporate expenses and $24 million of after-tax net financing expenses and other.
|- | ----------------------------------------------------------------------------------------------------------------------

|** | Consists of $32 million of after-tax corporate expenses and $27 million of after-tax net financing expenses and other.
|-- | ----------------------------------------------------------------------------------------------------------------------



20



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##### Table of Contents

|                                 |  |                                  |        |                |   |                                  |  |   |     |    
|-------------------------------- |  | -------------------------------- | ------ | -------------- | - | -------------------------------- |  | - | --- | ---
|                                 |  | Sales and OtherOperating Revenue |        |                |  
|Three Months Ended June 30, 2006 |  | Unaffiliated Customers           |        | Inter- segment |   | Segment Income(Loss) (after tax) | 
|Refining and Supply              |  | $                                | 5,074  |                | $ | 3,179                            |  | $ | 409 |    
|Retail Marketing                 |  |                                  | 3,758  |                |   |                                 |  |   | 10  |    
|Chemicals                        |  |                                  | 651    |                |   |                                 |  |   | 8   |    
|Logistics                        |  |                                  | 973    |                |   | 516                              |  |   | 12  |    
|Coke                             |  |                                  | 119    |                |   | 3                                |  |   | 10  |    
|Corporate and Other              |  |                                  |       |                |   |                                 |  |   | (23 | )* 
|                                 |  |                                  |        |                |   |                                  |  |   |     |    
|Consolidated                     |  | $                                | 10,575 |                |   |                                  |  | $ | 426 |    
|                                 |  |                                  |        |                |   |                                  |  |   |     |    
|                                 |  |                                  |       
|Three Months Ended June 30, 2005 |  |                                  |        |                |   |                                  | 
|Refining and Supply              |  | $                                | 3,836  |                | $ | 2,235                            |  | $ | 212 |    
|Retail Marketing                 |  |                                  | 2,854  |                |   |                                 |  |   | 7   |    
|Chemicals                        |  |                                  | 589    |                |   |                                 |  |   | 30  |    
|Logistics                        |  |                                  | 586    |                |   | 495                              |  |   | 9   |    
|Coke                             |  |                                  | 105    |                |   |                                 |  |   | 13  |    
|Corporate and Other              |  |                                  |       |                |   |                                 |  |   | (29 | )**
|                                 |  |                                  |        |                |   |                                  |  |   |     |    
|Consolidated                     |  | $                                | 7,970  |                |   |                                  |  | $ | 242 |    
|                                 |  |                                  |        |                |   |                                  |  |   |     |    

---

|* | Consists of $11 million of after-tax corporate expenses and $12 million of after-tax net financing expenses and other.
|- | ----------------------------------------------------------------------------------------------------------------------

|** | Consists of $16 million of after-tax corporate expenses and $13 million of after-tax net financing expenses and other.
|-- | ----------------------------------------------------------------------------------------------------------------------



|12. | New Accounting Pronouncement.
|--- | -----------------------------

In July 2006, FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 (FASB Interpretation No. 48), was issued. It clarifies the accounting for uncertainty in
income taxes recognized in an entitys financial statements in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, by prescribing the minimum recognition threshold and measurement
attribute a tax position taken or expected to be taken on a tax return is required to meet before being recognized in the financial statements. FASB Interpretation No. 48 also provides guidance on derecognition, measurement, classification,
interest and penalties, accounting in interim periods, disclosure and transition. Sunoco is currently evaluating the impact of FASB Interpretation No. 48, which must be implemented effective January 1, 2007.



21



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##### Table of Contents

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF
OPERATIONS  SIX MONTHS

Earnings Profile of Sunoco Businesses (after tax)



|                                 |  |                         |     |   |      |   |     |          |  |   |     |  
|-------------------------------- |  | ----------------------- | --- | - | ---- | - | --- | -------- |  | - | --- | -
|                                 |  | Six Months EndedJune 30 |     |   |      |  
|                                 |  | 2006                    |     |   | 2005 |   |     | Variance | 
|                                 |  | (Millions of Dollars)   |    
|Refining and Supply              |  | $                       | 482 |   |      | $ | 320 |          |  | $ | 162 |  
|Retail Marketing                 |  |                         | 10  |   |      |   | (1  | )        |  |   | 11  |  
|Chemicals                        |  |                         | 22  |   |      |   | 63  |          |  |   | (41 | )
|Logistics                        |  |                         | 18  |   |      |   | 12  |          |  |   | 6   |  
|Coke                             |  |                         | 24  |   |      |   | 23  |          |  |   | 1   |  
|Corporate and Other:             |  |                         |     |   |      |   |     |          |  |   |     |  
|Corporate expenses               |  |                         | (27 | ) |      |   | (32 | )        |  |   | 5   |  
|Net financing expenses and other |  |                         | (24 | ) |      |   | (27 | )        |  |   | 3   |  
|                                 |  |                         |     |   |      |   |     |          |  |   |     |  
|Consolidated net income          |  | $                       | 505 |   |      | $ | 358 |          |  | $ | 147 |  
|                                 |  |                         |     |   |      |   |     |          |  |   |     |  

Analysis of Earnings Profile of Sunoco Businesses

In the six-month period ended June 30, 2006, Sunoco earned $505 million, or $3.80 per share of common stock on a diluted basis, compared to $358 million, or $2.58
per share, for the first half of 2005.

The $147 million increase in net income in the first half of 2006 was primarily due to higher wholesale fuels
margins ($241 million). Also contributing to the improvement in earnings were higher retail gasoline margins ($12 million), a lower effective income tax rate ($11 million) and higher earnings from Sunocos Logistics business ($6 million).
Partially offsetting these positive factors were higher expenses ($61 million), including fuel charges; lower chemical margins ($43 million); and lower production of refined products ($17 million).



22



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##### Table of Contents

Refining and Supply



|                                                     |  |                                  |       |      |   |      
|---------------------------------------------------- |  | -------------------------------- | ----- | ---- | - | -----
|                                                     |  | For the Six Months Ended June 30
|                                                     |  | 2006                             |       | 2005
|Income (millions of dollars)                         |  | $                                | 482   |      | $ | 320  
|Wholesale margin* (per barrel):                      |  |                                  |       |      |   |      
|Total Refining and Supply                            |  | $                                | 9.35  |      | $ | 6.92 
|Northeast Refining                                   |  | $                                | 8.55  |      | $ | 6.84 
|MidContinent Refining                                |  | $                                | 11.69 |      | $ | 7.14 
|Crude inputs as percent of crude unit rated capacity |  |                                  | 94    |      |   | 98   
|Throughputs (thousands of barrels daily):            |  |                                  |       |      |   |      
|Crude oil                                            |  |                                  | 849.7 |      |   | 882.9
|Other feedstocks                                     |  |                                  | 72.7  |      |   | 58.0 
|                                                     |  |                                  |       |      |   |      
|Total throughputs                                    |  |                                  | 922.4 |      |   | 940.9
|                                                     |  |                                  |       |      |   |      
|Products manufactured (thousands of barrels daily):  |  |                                  |       |      |   |      
|Gasoline                                             |  |                                  | 440.9 |      |   | 440.4
|Middle distillates                                   |  |                                  | 309.1 |      |   | 315.9
|Residual fuel                                        |  |                                  | 73.5  |      |   | 77.6 
|Petrochemicals                                       |  |                                  | 35.0  |      |   | 38.5 
|Lubricants                                           |  |                                  | 13.9  |      |   | 13.1 
|Other                                                |  |                                  | 84.7  |      |   | 92.2 
|                                                     |  |                                  |       |      |   |      
|Total production                                     |  |                                  | 957.1 |      |   | 977.7
|Less: Production used as fuel in refinery operations |  |                                  | 44.6  |      |   | 47.8 
|                                                     |  |                                  |       |      |   |      
|Total production available for sale                  |  |                                  | 912.5 |      |   | 929.9
|                                                     |  |                                  |       |      |   |      

---

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

Refining and Supply earned $482 million in the first half of 2006 versus $320 million in the first half of 2005. The $162 million increase
in earnings was due to higher realized margins ($241 million), partially offset by lower production volumes ($17 million) and higher expenses ($65 million). The lower volumes were mainly a result of scheduled maintenance turnarounds at the
Philadelphia and Toledo refineries, while the higher expenses were mainly the result of higher purchased fuel costs and expenses associated with the maintenance activities. Also contributing to the increase in expenses were operating costs to
produce low-sulfur fuels.



23



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##### Table of Contents

Retail Marketing



|                                    |  |                                  |       |      |   |       |  
|----------------------------------- |  | -------------------------------- | ----- | ---- | - | ----- | -
|                                    |  | For the Six Months Ended June 30 |      
|                                    |  | 2006                             |       | 2005 |  
|Income (loss) (millions of dollars) |  | $                                | 10    |      | $ | (1    | )
|Retail margin* (per barrel):        |  |                                  |       |      |   |       |  
|Gasoline                            |  | $                                | 3.21  |      | $ | 2.86  |  
|Middle distillates                  |  | $                                | 4.37  |      | $ | 4.27  |  
|Sales (thousands of barrels daily): |  |                                  |       |      |   |       |  
|Gasoline                            |  |                                  | 298.3 |      |   | 297.6 |  
|Middle distillates                  |  |                                  | 43.9  |      |   | 45.8  |  
|                                    |  |                                  |       |      |   |       |  
|                                    |  |                                  | 342.2 |      |   | 343.4 |  
|                                    |  |                                  |       |      |   |       |  
|Retail gasoline outlets             |  |                                  | 4,723 |      |   | 4,804 |  
|                                    |  |                                  |       |      |   |       |  

---

|* | 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 earned $10 million in the first half of 2006 versus a loss of $1 million
in the first six months of 2005. The $11 million increase in results was primarily due to higher average retail gasoline margins ($12 million). Lower expenses ($3 million) were offset by lower non-gasoline income.

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 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 $193 million has been received through June 30, 2006 related to the sale of 352 sites. During the first six months of 2006 and 2005, net
after-tax gains of $3 and $4 million, respectively, were recognized in connection with the RPM program. The Company expects the RPM program will generate additional gains in 2006.



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Chemicals



|                             |  |                                  |       |      |   |      
|---------------------------- |  | -------------------------------- | ----- | ---- | - | -----
|                             |  | For the Six Months Ended June 30
|                             |  | 2006*                            |       | 2005
|Income (millions of dollars) |  | $                                | 22    |      | $ | 63   
|Margin** (cents per pound):  |  |                                  |       |      |   |      
|All products***              |  |                                  | 9.8   |      |   | 12.7 
|Phenol and related products  |  |                                  | 8.1   |      |   | 11.9 
|Polypropylene***             |  |                                  | 12.2  |      |   | 14.3 
|Sales (millions of pounds):  |  |                                  |       |      |   |      
|Phenol and related products  |  |                                  | 1,296 |      |   | 1,298
|Polypropylene                |  |                                  | 1,131 |      |   | 1,116
|Other                        |  |                                  | 42    |      |   | 49   
|                             |  |                                  |       |      |   |      
|                             |  |                                  | 2,469 |      |   | 2,463
|                             |  |                                  |       |      |   |      

---

|* | The income and margin data reflect a new pricing formula for 2006 sales of phenol to Honeywell International Inc. based upon the outcome of arbitration decisions in the third
quarter of 2005 and first quarter of 2006 (see below).
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|*** | The polypropylene and all products margins include the impact of a long-term supply contract with Equistar Chemicals, L.P. which is priced on a cost-based formula that includes a
fixed discount.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Chemicals earned $22 million in the first half of 2006 versus $63 million in the prior-year period. The $41 million decrease
in earnings was due primarily to lower margins for both phenol and polypropylene ($43 million). Higher expenses, due in part to higher fuel and utility costs, were offset by a $4 million deferred tax benefit recognized in the second quarter of 2006
as a result of a state law change.

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 finalizes pricing for 2005 and beyond under provisions of the supply agreement which provide for a price reopener on and after
January 1, 2005. Damages of approximately $95 million, including prejudgment interest, were assessed, of which $27, $48 and $20 million pertained to 2005, 2004 and 2003, respectively. Such damages, which were paid to Honeywell in April 2006,
have been reported as a charge against 2005 earnings and were shown separately as Phenol Supply Contract Dispute under Corporate and Other in the Earnings Profile of Sunoco Businesses ($46 million after tax in the third quarter and $10 million after
tax in the fourth quarter). In March 2006, a U.S. District Court judge upheld the first arbitrators ruling. In July 2006, the second arbitrator ruled that the pricing through July 2009 should be based essentially on the pricing formula
established in the first arbitration. As Sunoco has been billing Honeywell based on this formula, this ruling did not impact Sunocos consolidated results of operations. (See Note 3 to the condensed consolidated financial statements.)

Logistics

Sunocos Logistics business earned $18
million in the first half of 2006 versus $12 million in the first half of 2005. The $6 million increase in earnings was due largely to the absence of a $4 million after-tax accrual attributable to a



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pipeline spill in January 2005 and a $2 million unfavorable tax adjustment. Also contributing to the increase were higher
earnings attributable to Eastern pipeline operations and crude oil acquisition and marketing activities as well as operating results from the Partnerships acquisitions completed in 2006 and 2005. Partially offsetting these positive factors was
Sunocos reduced ownership in the Partnership subsequent to the public equity offerings in 2006 and 2005 (see Financial Condition  Other Cash Flow Information below).

In July 2006, the Partnership agreed to purchase from Sunoco for $65 million a company that has a 55 percent interest in Mid-Valley Pipeline Company, a joint venture
which owns a crude oil pipeline in the Midwest. This transaction is subject to regulatory review and is expected to close in the third quarter of 2006. In March 2006, the Partnership purchased two separate crude oil pipeline systems and related
storage facilities located in Texas, one from affiliates of Black Hills Energy, Inc. (Black Hills) for $41 million and the other from affiliates of Alon USA Energy, Inc. (Alon) for $68 million. The Black Hills acquisition
also includes a lease acquisition marketing business and related inventory. The Partnership also expects to complete a $20 million project to connect the Black Hills pipeline system to the Nederland terminal by mid-2007 and a $17 million project to
expand capacity on the Alon pipeline system and to construct new tankage at the Nederland terminal to service these new volumes more efficiently. In August 2005, the Partnership completed the acquisition of another 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. The above acquisitions were initially funded with proceeds from borrowings under the Partnerships revolving credit facility (see Financial Condition
 Financial Capacity below).

Coke

Coke
earned $24 million in the first six months of 2006 versus $23 million in the first six months of 2005. The $1 million increase in earnings was due primarily to higher income from the cokemaking facility in Haverhill, OH, which commenced operations
in March 2005, and lower selling, general and administrative expenses. Partially offsetting these positive factors were lower coal sales volumes and lower tax benefits from cokemaking operations, which reflects a partial phase-out of the benefits as
a result of the high level of crude oil prices during the first half of 2006 (see below).

Under existing tax law, the coke production at Jewell and
Indiana Harbor is not 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 $16 million on an after-tax basis beginning in 2008 assuming the tax
credits were available to be used in their entirety during 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 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 $53.20 to $66.79 per barrel for 2005, the latest year for which the range
is available.) The domestic wellhead price averaged $59.19 per barrel for the five months ended May 31, 2006, $64.32 per barrel for the month of May 2006 and $50.26 per barrel for the year ended December 31, 2005. The corresponding prices
for West Texas Intermediate (WTI) crude oil, a widely published reference price for



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domestic crude oil, were $66.31 per barrel for the five months ended May 31, 2006, $70.96 per barrel for the month of May 2006 and $56.56 per barrel for
the year ended December 31, 2005. If the 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 $28 million for each year. Based upon the Companys estimate of domestic wellhead prices for the first half of 2006, Sun Coke recorded only 61 percent of the benefit of the tax credits that otherwise would have been available
without regard to these phase-out provisions. The estimated impact of the phase-out reduced earnings for the first half of 2006 by $5 million after tax. The ultimate amount of the credits to be earned during 2006 will be based upon the average
annual price of domestic crude oil at the wellhead. 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 2 to the condensed consolidated financial statements.)

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 projected by the Project Company to be operational in the first quarter of 2007.

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 were $27 million after tax in the current six-month period versus $32 million in the first half of 2005. The $5 million decrease was primarily due to lower accruals for performance-related incentive compensation.

Net Financing Expenses and Other  Net financing expenses and other were $24 million after tax in the first half of 2006 versus $27 million in the
prior-year half. The $3 million decline was primarily due to higher interest income ($8 million), partially offset by a decrease in capitalized interest ($4 million).



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##### Table of Contents

Analysis of Condensed Consolidated Statements of Income

Revenues  Total revenues were $19.18 billion in the first half of 2006 compared to $15.20 billion in the first half of 2005. The 26 percent increase was primarily
due to higher refined product prices. Also contributing to the increase were higher crude oil sales in connection with the crude oil gathering and marketing activities of the Companys Logistics operations. Partially offsetting these positive
factors were lower refined product sales volumes.

Costs and Expenses  Total pretax costs and expenses were $18.36 billion in the current six-month
period compared to $14.60 billion in the first half of 2005. The 26 percent increase was primarily due to higher crude oil and refined product acquisition costs resulting from price increases. Also contributing to the increase in total pretax costs
and expenses were higher crude oil costs in connection with the crude oil gathering and marketing activities of the Companys Logistics operations.

RESULTS OF OPERATIONS  THREE MONTHS

Earnings Profile of Sunoco Businesses (after
tax)



|                                 |  |                           |     |   |      |   |     |          |  |   |     |  
|-------------------------------- |  | ------------------------- | --- | - | ---- | - | --- | -------- |  | - | --- | -
|                                 |  | Three Months EndedJune 30 |     |   |      |  
|                                 |  | 2006                      |     |   | 2005 |   |     | Variance | 
|                                 |  | (Millions of Dollars)     |    
|Refining and Supply              |  | $                         | 409 |   |      | $ | 212 |          |  | $ | 197 |  
|Retail Marketing                 |  |                           | 10  |   |      |   | 7   |          |  |   | 3   |  
|Chemicals                        |  |                           | 8   |   |      |   | 30  |          |  |   | (22 | )
|Logistics                        |  |                           | 12  |   |      |   | 9   |          |  |   | 3   |  
|Coke                             |  |                           | 10  |   |      |   | 13  |          |  |   | (3  | )
|Corporate and Other:             |  |                           |     |   |      |   |     |          |  |   |     |  
|Corporate expenses               |  |                           | (11 | ) |      |   | (16 | )        |  |   | 5   |  
|Net financing expenses and other |  |                           | (12 | ) |      |   | (13 | )        |  |   | 1   |  
|                                 |  |                           |     |   |      |   |     |          |  |   |     |  
|Consolidated net income          |  | $                         | 426 |   |      | $ | 242 |          |  | $ | 184 |  
|                                 |  |                           |     |   |      |   |     |          |  |   |     |  

Analysis of Earnings Profile of Sunoco Businesses

In the three-month period ended June 30, 2006, Sunoco earned $426 million, or $3.22 per share of common stock on a diluted basis, compared to $242 million, or $1.75
per share, for the second quarter of 2005.

The $184 million increase in net income in the second quarter of 2006 was primarily due to higher wholesale
fuels margins ($233 million). Also contributing to the improvement in earnings were a lower effective income tax rate ($5 million), higher retail gasoline margins ($4 million) and higher earnings from Sunocos Logistics business ($3 million).
Partially offsetting these positive factors were lower chemical margins ($30 million); higher expenses ($21 million), including fuel charges; and lower production of refined products ($9 million).



28



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##### Table of Contents

Refining and Supply



|                                                     |  |                                    |       |      |   |      
|---------------------------------------------------- |  | ---------------------------------- | ----- | ---- | - | -----
|                                                     |  | For the Three Months Ended June 30
|                                                     |  | 2006                               |       | 2005
|Income (millions of dollars)                         |  | $                                  | 409   |      | $ | 212  
|Wholesale margin* (per barrel):                      |  |                                    |       |      |   |      
|Total Refining and Supply                            |  | $                                  | 12.41 |      | $ | 7.87 
|Northeast Refining                                   |  | $                                  | 11.56 |      | $ | 7.55 
|MidContinent Refining                                |  | $                                  | 15.00 |      | $ | 8.80 
|Crude inputs as percent of crude unit rated capacity |  |                                    | 96    |      |   | 99   
|Throughputs (thousands of barrels daily):            |  |                                    |       |      |   |      
|Crude oil                                            |  |                                    | 863.8 |      |   | 890.8
|Other feedstocks                                     |  |                                    | 76.7  |      |   | 63.3 
|                                                     |  |                                    |       |      |   |      
|Total throughputs                                    |  |                                    | 940.5 |      |   | 954.1
|                                                     |  |                                    |       |      |   |      
|Products manufactured (thousands of barrels daily):  |  |                                    |       |      |   |      
|Gasoline                                             |  |                                    | 453.9 |      |   | 437.8
|Middle distillates                                   |  |                                    | 310.1 |      |   | 327.3
|Residual fuel                                        |  |                                    | 76.2  |      |   | 78.0 
|Petrochemicals                                       |  |                                    | 34.4  |      |   | 38.4 
|Lubricants                                           |  |                                    | 14.7  |      |   | 13.5 
|Other                                                |  |                                    | 83.9  |      |   | 95.0 
|                                                     |  |                                    |       |      |   |      
|Total production                                     |  |                                    | 973.2 |      |   | 990.0
|Less: Production used as fuel in refinery operations |  |                                    | 44.9  |      |   | 48.9 
|                                                     |  |                                    |       |      |   |      
|Total production available for sale                  |  |                                    | 928.3 |      |   | 941.1
|                                                     |  |                                    |       |      |   |      

---

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

Refining and Supply earned $409 million in the current quarter versus $212 million in the second quarter of 2005. The $197 million increase
in earnings was due to higher realized margins ($233 million), particularly for wholesale gasoline and distillate fuel products. Strong premiums for ethanol-blended gasoline and low-sulfur diesel fuel supported the wholesale marketplace throughout
the second quarter. Partially offsetting these positive factors were higher expenses ($28 million) and lower production volumes ($9 million) The higher expenses in the quarter were mainly the result of higher purchased fuel costs and expenses
associated with maintenance activities. Also contributing to the increase in expenses were operating costs to produce low-sulfur fuels. The lower volumes were due to a planned maintenance turnaround at the Toledo refinery that extended from the end
of March into mid-April.



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Retail Marketing



|                                    |  |                                   |       |      |   |      
|----------------------------------- |  | --------------------------------- | ----- | ---- | - | -----
|                                    |  | For the Three MonthsEnded June 30
|                                    |  | 2006                              |       | 2005
|Income (millions of dollars)        |  | $                                 | 10    |      | $ | 7    
|Retail margin* (per barrel):        |  |                                   |       |      |   |      
|Gasoline                            |  | $                                 | 3.53  |      | $ | 3.32 
|Middle distillates                  |  | $                                 | 3.64  |      | $ | 3.34 
|Sales (thousands of barrels daily): |  |                                   |       |      |   |      
|Gasoline                            |  |                                   | 308.9 |      |   | 305.4
|Middle distillates                  |  |                                   | 41.4  |      |   | 42.2 
|                                    |  |                                   |       |      |   |      
|                                    |  |                                   | 350.3 |      |   | 347.6
|                                    |  |                                   |       |      |   |      
|Retail gasoline outlets             |  |                                   | 4,723 |      |   | 4,804
|                                    |  |                                   |       |      |   |      

---

|* | 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 earned $10 million in the current quarter versus $7 million in the second
quarter of 2005. The $3 million increase in earnings was primarily due to higher average retail gasoline margins ($4 million). Monthly gasoline and diesel throughput per Company owned or leased outlet was approximately 3 percent higher than the
second quarter of 2005.

Chemicals



|                             |  |                                   |       |      |   |      
|---------------------------- |  | --------------------------------- | ----- | ---- | - | -----
|                             |  | For the Three MonthsEnded June 30
|                             |  | 2006*                             |       | 2005
|Income (millions of dollars) |  | $                                 | 8     |      | $ | 30   
|Margin** (cents per pound):  |  |                                   |       |      |   |      
|All products***              |  |                                   | 8.8   |      |   | 12.8 
|Phenol and related products  |  |                                   | 7.1   |      |   | 12.8 
|Polypropylene***             |  |                                   | 11.1  |      |   | 13.2 
|Sales (millions of pounds):  |  |                                   |       |      |   |      
|Phenol and related products  |  |                                   | 663   |      |   | 617  
|Polypropylene                |  |                                   | 569   |      |   | 583  
|Other                        |  |                                   | 21    |      |   | 16   
|                             |  |                                   |       |      |   |      
|                             |  |                                   | 1,253 |      |   | 1,216
|                             |  |                                   |       |      |   |      

---

|* | The income and margin data reflect a new pricing formula for 2006 sales of phenol to Honeywell International Inc. based upon the outcome of arbitration decisions in the third
quarter of 2005 and first quarter of 2006.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|*** | The polypropylene and all products margins include the impact of a long-term supply contract with Equistar Chemicals, L.P. which is priced on a cost-based formula that includes a
fixed discount.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Chemicals earned $8 million in the second quarter of 2006 versus $30 million in the prior-year quarter. The $22 million
decrease in earnings was due primarily to lower margins for both phenol and polypropylene ($30 million), partially offset by higher sales volumes ($2 million), lower expenses ($1 million) and a deferred tax benefit ($4 million) recognized in the
second quarter of 2006 as a result of a state law change. The average gross margin for phenol and related products was



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almost 6 cents per pound lower than the second quarter of 2005 largely due to weaker acetone and bisphenol-A markets. Polypropylene margins were slightly
over 2 cents per pound lower than the year-ago period.

Logistics

Sunocos Logistics business earned $12 million in the second quarter of 2006 versus $9 million in the second quarter of 2005. The $3 million increase in earnings was due largely to higher earnings attributable to
Eastern pipeline operations and crude oil acquisition and marketing activities. Operating results from the Partnerships acquisitions completed in 2006 and 2005 also contributed to the increase. Partially offsetting these positive factors was
Sunocos reduced ownership in the Partnership subsequent to the public equity offerings in 2006 and 2005 (see Financial Condition  Other Cash Flow Information below).

Coke

Coke earned $10 million in the second quarter of 2006 versus
$13 million in the second quarter of 2005. The $3 million decrease in earnings was due primarily to a $4 million partial phase out of tax credits which resulted from the high level of crude oil prices during the first half of 2006. Year-to-date, Sun
Coke recorded only 61 percent of the benefit of the tax credits that otherwise would have been available without regard to the phase-out. (See Note 2 to the condensed consolidated financial statements.)

Corporate and Other

Corporate Expenses  Corporate
administrative expenses were $11 million after tax in the current three-month period versus $16 million in the second quarter of 2005. The $5 million decrease was primarily due to lower accruals for performance-related incentive compensation.

Net Financing Expenses and Other  Net financing expenses and other were $12 million after tax in the second quarter of 2006 versus $13 million in
the prior-year quarter. The $1 million decline was primarily due to higher interest income ($3 million), partially offset by an increase in interest expense ($2 million).

Analysis of Condensed Consolidated Statements of Income

Revenues  Total revenues were $10.59 billion in the second quarter of 2006 compared to $7.99 billion in the second quarter of 2005. The 33 percent increase was primarily due to higher refined product prices.
Also contributing to the increase were higher crude oil sales in connection with the crude oil gathering and marketing activities of the Companys Logistics operations. Partially offsetting these positive factors were lower refined product
sales volumes.

Costs and Expenses  Total pretax costs and expenses were $9.90 billion in the current quarter compared to $7.59 billion in the second
quarter of 2005. The 30 percent increase was primarily due to higher crude oil and refined product acquisition costs resulting from price increases. Also contributing to the increase in total pretax costs and expenses were higher crude oil costs in
connection with the crude oil gathering and marketing activities of the Companys Logistics operations.

FINANCIAL CONDITION

Cash and Working Capital

At June 30, 2006, Sunoco had cash and cash equivalents of $600 million compared to $919 million at December 31, 2005, and had a working capital deficit of $442



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million compared to a working capital deficit of $523 million at December 31, 2005. The $319 million decrease in cash and cash equivalents was due to a
$533 million net use of cash in investing activities and a $151 million net use of cash in financing activities, partially offset by $365 million of net cash provided by operating activities (cash generation). 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 condensed consolidated balance sheets. The current
replacement cost of all such inventories exceeded their carrying value at June 30, 2006 by $2,766 million. Inventories valued at LIFO, which consist of crude oil, and 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 the first six months of 2006, Sunocos cash generation was $365 million
compared to $571 million in the first six months of 2005. This $206 million decrease in cash generation was primarily due to an increase in working capital uses pertaining to operating activities. Also contributing to the decrease in cash generation
were a $95 million payment of damages to Honeywell in connection with a phenol supply contract dispute and the absence of $48 million of cash proceeds received in the first quarter of 2005 in connection with a power contract restructuring. Partially
offsetting these negative factors was an increase in net income. The increase in working capital uses reflects an increase in crude oil and refined product inventories and higher incentive compensation payments to employees.

Other Cash Flow Information

In the
second quarter of 2005, the Partnership issued 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. In the second quarter of 2006,
the Partnership issued $175 million of senior notes due 2016 and 2.7 million limited partnership units at a price of $43.00 per unit. Proceeds from the 2006 offerings, net of underwriting discounts and offering expenses, totaled approximately
$173 and $110 million, respectively. These proceeds were used by the Partnership in part to repay the outstanding borrowings under its revolving credit facility with the balance used to fund a portion of the Partnerships 2006 growth capital
program. Upon completion of the equity offerings, Sunocos interest in the Partnership, including its 2 percent general partnership interest, decreased to 43 percent.

As of June 30, 2006, Sunoco owned 12.06 million limited partnership units consisting of 6.37 million common units and 5.69 million subordinated units. Distributions on Sunocos subordinated
units are payable only after the minimum quarterly distributions of $.45 per unit 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



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meet the financial tests through the fourth quarter of 2006, all of Sunocos remaining 5.69 million subordinated units would be converted to common
units in 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 $150 million
pretax at June 30, 2006, has been deferred as a component of minority interest in the Companys condensed consolidated balance sheets 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.

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 was scheduled to mature in August 2010. In June 2006, the Facility was amended and its term was extended until August
2011. 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 June 30, 2006, the
Companys tangible net worth was $2.7 billion and its targeted tangible net worth was $1.4 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 June 30, 2006, this ratio was .23 to 1. At June 30, 2006, the Facility was being used to support $103 million of floating-rate notes due 2034.

Sunoco Logistics Partners L.P. has a $300 million revolving credit facility, which matures in 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. At
March 31, 2006, $216 million was outstanding under this credit facility, including $109 million drawn against the facility in the first quarter of 2006 to fund the Partnerships March 2006 acquisition of two separate crude oil pipeline
systems and related storage facilities located in Texas. During the second quarter of 2006, the Partnership used a portion of the proceeds of its May 2006 debt and equity offerings under its shelf registration statement (see Other Cash Flow
Information above) to repay the borrowings under its credit facility. There were no amounts outstanding under this facility at June 30, 2006. The Partnership intends to utilize cash and the facility to finance the $65 million acquisition
from Sunoco of its 55 percent interest in the Mid-Valley Pipeline. The credit facility contains convenants requiring the Partnership to maintain a ratio of up to 4.75 to 1 of its consolidated total debt to



33



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##### Table of Contents

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
June 30, 2006, the Partnerships ratio of its consolidated debt to its consolidated EBITDA was 2.9 to 1 and the interest coverage ratio was 4.7 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 June 30, 2006, $18 million was outstanding under the credit facility. Epsilon has been taking steps to refinance the borrowings under this credit facility and its $120 million term loan that
is also due in September 2006. However, based upon Epsilons discussions with various potential lenders, Sunoco management currently believes it is unlikely that Epsilon will be able to refinance the entire amount of this debt with third-party
borrowings. In the event the outstanding debt is not refinanced by Epsilon, Sunoco as guarantor, will repay the debt and will be entitled to all of the rights and privileges of the former debtholders.

The following table sets forth Sunocos outstanding debt (in millions of dollars):



|                                  |  |                 |       |                     |   |      
|--------------------------------- |  | --------------- | ----- | ------------------- | - | -----
|                                  |  | At June 30 2006 |       | At December 31 2005
|Current portion of long-term debt |  | $               | 195   |                     | $ | 177  
|Long-term debt                    |  |                 | 1,243 |                     |   | 1,234
|                                  |  |                 |       |                     |   |      
|Total debt                        |  | $               | 1,438 |                     | $ | 1,411
|                                  |  |                 |       |                     |   |      

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 which provides the Company with financing flexibility to offer senior and
subordinated debt, common and preferred stock, warrants and trust preferred securities. At June 30, 2006, $1,050 million remains available under this shelf registration statement. Sunoco Logistics Partners L.P. also has a shelf registration
statement, under which the Partnership may sell debt or common units in primary offerings to the public, and Sunoco may sell common units, which represent a portion of its limited partnership interests in the Partnership, in secondary offerings to
the public. Subsequent to the Partnerships May 2006 debt and equity offerings, $210 million remains available to the Partnership under this registration statement for primary offerings and up to five million common units remain available to
Sunoco for secondary offerings. 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.

Off-Balance Sheet Arrangement

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 of Sunocos accounts
receivable. No receivables have been sold to third parties under this facility.



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##### Table of Contents

Capital Expenditures

The Company previously announced that it expected capital expenditures over the 2006-2008 period in Refining and Supply would be approximately $1.9 billion, including
$775 million for income improvement projects. The current status of these capital projects ranges from the preliminary design and engineering phase to the construction phase. During 2006, market conditions for engineering, procurement and
construction of refinery projects have tightened, resulting in increasing costs and project delays. In addition, as more detailed engineering work is completed, increases in the original scope of work have been identified. While a significant change
in the overall level of total capital spending in Refining and Supply over the 2006-2008 period is not expected, the Company currently believes that the cost of many of these capital projects will be significantly higher than originally anticipated.
The pressures on project scope, costs and timing are also likely to result in the extension of project completion dates and the deferral of some lower-return projects. The Company may also elect to cancel or reduce the scope of projects which do not
meet required investment-return criteria.

The three-year Refining and Supply capital plan included 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 (the Philadelphia Project) which was expected to be completed in early 2007 and 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 by 2008 (the Toledo Project). Both projects included significant capital for related base
infrastructure and refinery turnarounds, as well as capital required under a 2005 Consent Decree which settled certain alleged violations at its refineries under the Clean Air Act. The Philadelphia Project is still expected to be completed in early
2007, but its cost is now projected to be approximately $400 million. Phase I of the Toledo Project, which increases the facilitys refining capacity by 20 thousand barrels per day, will also be completed in early 2007 at a cost of
approximately $40 million as originally planned. However, the Company is currently updating the cost and scope data for the balance of the Toledo Project.

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 (in millions of dollars):



|                                                                    |  |                                |       |   |                              |   |       |  
|------------------------------------------------------------------- |  | ------------------------------ | ----- | - | ---------------------------- | - | ----- | -
|                                                                    |  | Six Months Ended June 30, 2006 |       |   | Year Ended December 31, 2005 |  
|Market value of investments at beginning of period                  |  | $                              | 1,196 |   |                              | $ | 1,158 |  
|Increase (reduction) in market value of investments resulting from: |  |                                |       |   |                              |   |       |  
|Net investment income                                               |  |                                | 34    |   |                              |   | 92    |  
|Company contributions                                               |  |                                | 60    |   |                              |   | 100   |  
|Plan benefit payments                                               |  |                                | (82   | ) |                              |   | (154  | )
|                                                                    |  |                                |       |   |                              |   |       |  
|                                                                    |  | $                              | 1,208 |   |                              | $ | 1,196 |  
|                                                                    |  |                                |       |   |                              |   |       |  

Management currently anticipates making $100 million of voluntary contributions to its funded defined benefit
plans for the full year 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.



35



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DIVIDENDS AND SHARE REPURCHASES

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. Share and per-share
data (except par value) presented for all periods reflect the effect of the stock split.

The Company increased the quarterly cash dividend paid on common
stock from $.15 per share ($.60 per year) to $.20 per share ($.80 per year) beginning with the second quarter of 2005 and then to $.25 per share ($1.00 per year) beginning with the second quarter of 2006.

During the first six months of 2006, the Company repurchased 2,843,000 shares of common stock for $198 million under an existing repurchase authorization. At
June 30, 2006, the Company had a remaining authorization from its Board to purchase up to $109 million of Company common stock in the open market from time to time depending on prevailing market conditions and available cash. In July 2006, an
additional $500 million authorization was approved (see Item 2. Unregistered Sales of Equity Securities and Use of Proceeds below).

NEW ACCOUNTING PRONOUNCEMENTS

For a discussion of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109, which must be implemented effective January 1, 2007, see Note 12 to the condensed consolidated financial statements.

FORWARD-LOOKING STATEMENTS

Some of the information included in this quarterly report on Form 10-Q
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. 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 refined product and chemical margins;
|- |  | ------------------------------------------------



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



| |  | Effects of transportation disruptions;
|- |  | --------------------------------------



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##### Table of Contents

| |  | 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 ethanol;
|- |  | ------------------------------------



| |  | 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;
|- |  | -------------------------------------------------------------------------------------------



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##### Table of Contents

| |  | 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;
|- |  | ------------------------------------------------------



| |  | 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 Form 10-Q 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the
Companys exposure to market risk since December 31, 2005.

Item 4. 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



38



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##### Table of Contents

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.

There have been no changes in the Companys internal control
over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Many 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 June 30, 2006.

Item 1A. Risk Factors

There have been no material changes to the risk factors faced by the Company since
December 31, 2005.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The table below provides a summary of
all repurchases by the Company of its common stock during the three-month period ended June 30, 2006:



|           |  |                                                  |  |                              |       |                                                                                                   |       |                                                                                                       |   |    
|---------- |  | ------------------------------------------------ |  | ---------------------------- | ----- | ------------------------------------------------------------------------------------------------- | ----- | ----------------------------------------------------------------------------------------------------- | - | ---
|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 Valueof Shares That May
YetBe Purchased Under thePlans or Programs (In Millions)**
|April 2006 |  |                                                 |  | $                            |      |                                                                                                   |      |                                                                                                       | $ | 259
|May 2006   |  | 1,100                                            |  | $                            | 68.63 |                                                                                                   | 1,098 |                                                                                                       | $ | 184
|June 2006  |  | 1,120                                            |  | $                            | 66.62 |                                                                                                   | 1,120 |                                                                                                       | $ | 109
|           |  |                                                  |  |                              |       |                                                                                                   |       |                                                                                                       |   |    
|Total      |  | 2,220                                            |  | $                            | 67.62 |                                                                                                   | 2,218 |                                                                                                       |   |    
|           |  |                                                  |  |                              |       |                                                                                                   |       |                                                                                                       |   |    

---

|* | All of the shares repurchased during the three-month period ended June 30, 2006 were acquired pursuant to the repurchase program that Sunoco publicly announced on March 3,
2005 (see below), except for 2 thousand shares acquired in May 2006, which were purchased from an employee. These shares were acquired in connection with the settlement of a tax withholding obligation arising from payment of a common stock unit
award.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | On March 3, 2005, the Companys Board of Directors (Board) approved a $500 million share repurchase program with no stated expiration date. On July 6,
2006, Sunoco publicly announced that its Board approved an additional $500 million share repurchase program with no stated expiration date, which is not reflected in the table above.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Item 4. Submission of Matters to a Vote of Security Holders

The Annual Meeting of the Companys
shareholders was held on May 4, 2006. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there was no solicitation in opposition to the Boards solicitations. At this meeting,
the shareholders were requested to: (1) elect a Board of Directors; (2) approve the Sunoco, Inc. Executive Incentive Plan; and (3) ratify the appointment of the independent registered public accounting firm for the fiscal year 2006.
The following action was taken by the Companys shareholders with respect to each of the above items:



| | 1. | Concerning the election of a Board of Directors of the Company, there was a total of 112,723,632 votes cast. The tabulation below sets forth the number of votes cast for or withheld
(abstentions) from each director. There were no broker non-votes.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                |  |              |  |                                  
|--------------- |  | ------------ |  | ---------------------------------
|NAME            |  | Number FOR |  | Number WITHHELD (ABSTENTIONS)
|R. J. Darnall   |  | 110,792,624  |  | 1,931,008                        
|J. G. Drosdick  |  | 106,475,725  |  | 6,247,907                        
|U. O. Fairbairn |  | 109,572,420  |  | 3,151,212                        
|T. P. Gerrity   |  | 102,872,115  |  | 9,851,517                        
|R. B. Greco     |  | 110,872,225  |  | 1,851,407                        
|J. G. Kaiser    |  | 106,737,596  |  | 5,986,036                        
|R. A. Pew       |  | 106,755,061  |  | 5,968,571                        
|G. J. Ratcliffe |  | 110,673,247  |  | 2,050,385                        
|J. W. Rowe      |  | 110,380,346  |  | 2,343,286                        
|J. K. Wulff     |  | 110,893,251  |  | 1,830,381                        



| | 2. | Concerning the motion to approve the Sunoco, Inc. Executive Incentive Plan (EIP), there was a total of 112,723,632 votes cast, with an aggregate of 101,506,358 votes
cast approving the EIP and 9,724,032 votes against. There were 1,493,242 withheld (abstentions). There were no broker non-votes.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Concerning the motion to ratify the appointment of Ernst & Young LLP as the Companys independent registered public accounting firm for the fiscal year 2006, there was
a total of 112,723,632 votes cast, with an aggregate of 106,760,751 votes cast in favor of ratification of such appointment and 5,012,729 votes against. There were 950,152 withheld (abstentions). There were no broker non-votes.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 6. Exhibits

Exhibits:



|     |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | - |  | $900,000,000 Amended and Restated Five-Year Competitive Advance and Revolving Credit Facility Agreement, dated as of June 30, 2006, by and among Sunoco, Inc., as Borrower; JPMorgan Chase
Bank, N.A., as Administrative Agent; Bank of America, N.A., as Syndication Agent; The Bank of Tokyo-Mitsubishi UFJ Ltd., New York Branch, Barclays Bank PLC, and Citibank, as Co-Documentation Agents; J.P. Morgan Securities Inc. and Banc of America
Securities LLC, as Co-Lead Arrangers and Joint Bookrunners; and the other lenders parties thereto.
|     |  |  
|10.2 |  | - |  | Amended Schedule to the Form of Amended and Restated Indemnification Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     



40



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##### Table of Contents

|     |  |   |  |                                                                                                                                                                                                                    
|---- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3 |  | - |  | Amended Schedule 2.1 to the Deferred Compensation and Benefits Trust Agreement.                                                                                                                                    
|     |  |  
|10.4 |  | - |  | Amended Schedule 2.1 to the Directors Deferred Compensation and Benefits Trust Agreement.                                                                                                                         
|     |  |  
|12   |  | - |  | Statements re Sunoco, Inc. and Subsidiaries Computation of Ratio of Earnings to Fixed Charges for the Six-Month Periods Ended June 30, 2006 and 2005.                                                              
|     |  |  
|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.

*******

We are pleased to furnish this Form 10-Q to shareholders who request it by writing to:



|                           
|---------------------------
|Sunoco, Inc.               
|Investor Relations         
|1735 Market Street         
|Philadelphia, PA 19103-7583



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##### Table of Contents

SIGNATURE

Pursuant to the requirements 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/ JOSEPH P. KROTT           
|     |  | Joseph P. Krott               
|     |  | Comptroller                   
|     |  | (Principal Accounting Officer)
|     | 
|DATE |  | August 2, 2006                



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##### Table of Contents

EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|              | 
|10.1          |  | $900,000,000 Amended and Restated Five-Year Competitive Advance and Revolving Credit Facility Agreement, dated as of June 30, 2006, by and among Sunoco, Inc., as Borrower; JPMorgan Chase Bank,
N.A., as Administrative Agent; Bank of America, N.A., as Syndication Agent; The Bank of Tokyo-Mitsubishi UFJ Ltd., New York Branch, Barclays Bank PLC, and Citibank, as Co-Documentation Agents; J.P. Morgan Securities Inc. and Banc of America
Securities LLC, as Co-Lead Arrangers and Joint Bookrunners; and the other lenders parties thereto.
|              | 
|10.2          |  | Amended Schedule to the Form of Amended and Restated Indemnification Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|              | 
|10.3          |  | Amended Schedule 2.1 to the Deferred Compensation and Benefits Trust Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|              | 
|10.4          |  | Amended Schedule 2.1 to the Directors Deferred Compensation and Benefits Trust Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|              | 
|12            |  | Statements re Sunoco, Inc. and Subsidiaries Computation of Ratio of Earnings to Fixed Charges for the Six-Month Periods Ended June 30, 2006 and 2005.                                                                                                                                                                                                                                                                                                                                                                                               
|              | 
|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.                                                                                                                                                                                                                                                                                                                                 



1