Sunoco 2003 Annual Report Download - page 46

Notes to Consolidated Financial Statements Sunoco, Inc. and Subsidiaries
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of Sunoco, Inc.
and subsidiaries (collectively, “Sunoco” or the
“Company”) contain the accounts of all entities that are
controlled (generally more than 50 percent owned). Cor-
porate joint ventures and other investees over which the
Company has the ability to exercise significant influence
but that are not consolidated are accounted for by the
equity method.
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the
United States requires management to make estimates
and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual
amounts could differ from these estimates.
Revenue Recognition
The Company sells various refined products (including
gasoline, middle distillates, residual fuel, petrochemicals
and lubricants), coke and coal and also sells crude oil in
connection with the crude oil gathering and marketing
activities of its logistics operations. In addition, the
Company sells a broad mix of merchandise such as gro-
ceries, fast foods and beverages at its convenience stores
and provides a variety of car care services at its retail
gasoline outlets. Revenues related to the sale of products
are recognized when title passes, while service revenues
are recognized when services are provided. Title passage
generally occurs when products are shipped or delivered
in accordance with the terms of the respective sales
agreements. In addition, revenues are not recognized un-
til sales prices are fixed or determinable and collectability
is reasonably assured.
Crude oil exchange transactions, which are entered into
primarily to acquire crude oil of a desired quality or at a
desired location, are netted in cost of products sold and
operating expenses in the consolidated statements of
operations.
Consumer excise taxes on sales of refined products and
merchandise are included in both revenues and costs and
expenses, with no effect on net income.
Cash Equivalents
Sunoco considers all highly liquid investments with a
remaining maturity of three months or less at the time of
purchase to be cash equivalents. These cash equivalents
consist principally of time deposits and money market
investments.
Inventories
Inventories are valued at the lower of cost or market. The
cost of crude oil and petroleum and chemical product
inventories is determined using the last-in, first-out
method (“LIFO”). The cost of materials, supplies and
other inventories is determined using principally the
average cost method.
Depreciation and Retirements
Plants and equipment are generally depreciated on a
straight-line basis over their estimated useful lives. Gains
and losses on the disposals of fixed assets are generally re-
flected in net income.
Impairment of Long-Lived Assets
Long-lived assets other than those held for sale are re-
viewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the
assets may not be recoverable. An asset is considered to
be impaired when the undiscounted estimated net cash
flows expected to be generated by the asset are less than
its carrying amount. The impairment recognized is the
amount by which the carrying amount exceeds the fair
market value of the impaired asset. Long-lived assets held
for sale are recorded at the lower of their carrying amount
or fair market value less cost to sell. Effective January 1,
2002, Sunoco adopted Statement of Financial Account-
ing Standards No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets” (“SFAS No. 144”)
which, among other things, changed the criteria that
have to be met to classify an asset as held-for-sale. SFAS
No. 144 had no impact on Sunoco’s consolidated finan-
cial statements during 2002.
Goodwill and Intangible Assets
Effective January 1, 2002, Statement of Financial Ac-
counting Standards No. 142, “Goodwill and Other In-
tangible Assets” (“SFAS No. 142”), was adopted. SFAS
No. 142 requires the testing of goodwill, which represents
the excess of the purchase price over the fair value of net
assets acquired, and indefinite-lived intangible assets for
impairment at least annually rather than amortizing
them. Sunoco ceased amortizing goodwill and indefinite-
lived intangible assets effective January 1, 2002 and de-
termined during 2003 and 2002 that such assets were not
impaired. Prior to January 1, 2002, goodwill and
indefinite-lived intangible assets were amortized on a
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