Sunoco 2003 Annual Report Download - page 47

straight-line basis over 40 years or their estimated useful
lives, if shorter. Sunoco’s amortization of goodwill and
indefinite-lived intangible assets amounted to $5 million
after tax during 2001. Intangible assets with finite useful
lives continue to be amortized over their useful lives in a
manner that reflects the pattern in which the economic
benefit of the intangible assets is consumed.
Environmental Remediation
Sunoco accrues environmental remediation costs for
work at identified sites where an assessment has indicated
that cleanup costs are probable and reasonably estimable.
Such accruals are undiscounted and are based on cur-
rently available information, estimated timing of remedial
actions and related inflation assumptions, existing tech-
nology and presently enacted laws and regulations. If a
range of probable environmental cleanup costs exists for
an identified site, the minimum of the range is accrued
unless some other point in the range is more likely in
which case the most likely amount in the range is
accrued.
Maintenance Shutdowns
Maintenance and repair costs in excess of $500 thousand
incurred in connection with major maintenance shut-
downs are capitalized when incurred and amortized over
the period benefited by the maintenance activities.
Derivative Instruments
From time to time, Sunoco uses swaps, options, futures,
forwards and other derivative instruments to hedge its
exposure to crude oil, petroleum product, electricity and
natural gas price volatility and to reduce foreign exchange
risk relating to certain export sales denominated in for-
eign currencies. Such contracts are recognized in the
consolidated balance sheets at their fair value. Changes
in fair value of derivative contracts that are not hedges
are recognized in income as they occur. If the derivative
contracts are designated as hedges, depending on their
nature, the effective portions of changes in their fair val-
ues are either offset in income against the changes in the
fair values of the items being hedged or reflected initially
as a separate component of shareholders’ equity and sub-
sequently recognized in income when the hedged items
are recognized in income. The ineffective portions of
changes in the fair values of derivative contracts des-
ignated as hedges are immediately recognized in income.
Sunoco does not hold or issue derivative instruments for
trading purposes.
Minority Interests in Cokemaking Operations
Cash investments by third parties are recorded as an in-
crease in minority interests in the consolidated balance
sheets. There is no recognition of any gain at the dates
cash investments are made as the third-party investors are
entitled to a preferential return on their investments.
Nonconventional fuel credit and other net tax benefits
generated by the Company’s cokemaking operations and
allocated to third-party investors are recorded as a reduc-
tion in minority interests and are included as income in
the Coke segment. The investors’ preferential return is
recorded as an increase in minority interests and is re-
corded as expense in the Corporate and Other segment.
The net of these two amounts represents a noncash
reduction in minority interests in cokemaking operations,
which is recognized in other income in the consolidated
statements of operations.
Cash payments, representing the distributions of the in-
vestors’ share of cash generated by the cokemaking oper-
ations, also are recorded as a reduction in minority
interests.
Stock-Based Compensation
During the fourth quarter of 2002, Sunoco adopted the
fair value method of accounting for employee stock com-
pensation plans as prescribed by Statement of Financial
Accounting Standards No. 123, “Accounting for Stock-
Based Compensation” (“SFAS No. 123”) and amended by
Statement of Financial Accounting Standards No. 148,
“Accounting for Stock-Based Compensation—Transition
and Disclosure” (“SFAS No. 148”). The Company recog-
nized $6 million of expense ($4 million after tax) in 2002
for all unvested stock options attributable to the vesting
that occurred in 2002 retroactive to January 1, 2002 using
the “modified prospective method” transition rules of
SFAS No. 148. Prior to January 1, 2002, the Company fol-
lowed the intrinsic value method of accounting for em-
ployee stock compensation plans prescribed by
Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB No.
25”). Under APB No. 25, the Company did not recognize
compensation expense for stock options because the ex-
ercise price of the options equaled the market price of the
underlying stock on the date of grant (Note 15).
Asset Retirement Obligations
Effective January 1, 2003, Sunoco adopted the provisions
of Statement of Financial Accounting Standards No. 143,
“Accounting for Asset Retirement Obligations” (“SFAS
No. 143”). This statement significantly changed the
method of accruing costs that an entity is legally obli-
gated to incur associated with the retirement of fixed as-
sets. Under SFAS No. 143, the fair value of a liability for
an asset retirement obligation is recognized in the period
in which it is incurred if a reasonable estimate of fair
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