Sunoco 2004 Annual Report Download - page 53

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 held for sale are recorded at the lower of
their carrying amount or fair market value less cost to sell.
Long-lived assets, other than those held for sale, are 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.
Goodwill and Intangible Assets
Goodwill, which represents the excess of the purchase
price over the fair value of net assets acquired, and
indefinite-lived intangible assets are tested for impair-
ment at least annually rather than being amortized.
Sunoco determined during the 2002-2004 period that no
such assets were impaired. Intangible assets with finite
useful lives are amortized over their useful lives in a man-
ner that reflects the pattern in which the economic bene-
fit of the intangible assets is consumed.
Environmental Remediation
Sunoco accrues environmental remediation costs for work
at identified sites where an assessment has indicated that
cleanup costs are probable and reasonably estimable. Such
accruals are undiscounted and are based on currently
available information, estimated timing of remedial ac-
tions and related inflation assumptions, existing technol-
ogy 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
change in minority interests in cokemaking operations,
which is recognized in other income, net, in the con-
solidated 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
In December 2004, Statement of Financial Accounting
Standards No. 123 (revised 2004), “Share-Based Pay-
ment” (“SFAS No. 123R”) was issued, which revised
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