Sunoco 2004 Annual Report Download - page 54

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, effective for interim periods begin-
ning after June 15, 2005. As Sunoco currently follows the
fair value method of accounting prescribed by SFAS No.
123, adoption of SFAS No. 123R is not expected to have
a significant impact on the Company’s consolidated
financial statements.
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
value can be made. The associated asset retirement costs
are capitalized as part of the carrying amount of the fixed
asset and depreciated over its estimated useful life. Prior
to January 1, 2003, a liability for an asset retirement obli-
gation was recognized using a cost-accumulation
measurement approach.
In conjunction with the adoption of SFAS No. 143 in
January 2003, Sunoco recorded an increase in asset
retirement obligations of $5 million and a related increase
in net properties, plants and equipment of $3 million re-
lated to certain of its branded marketing retail sites, coal
and cokemaking facilities and chemical assets. The $2
million cumulative effect of this accounting change ($1
million after tax) has been included in cost of products
sold and operating expenses in the 2003 consolidated
statement of operations. Sunoco did not reflect the $1
million after-tax charge as a cumulative effect of account-
ing change as it was not material. Other than the cumu-
lative effect, this change did not have a significant impact
on Sunoco’s results of operations during 2003. At De-
cember 31, 2004, Sunoco’s liability for asset retirement
obligations amounted to $9 million. Sunoco has legal as-
set retirement obligations for several other assets, includ-
ing its refineries, pipelines and terminals, for which it is
not possible to estimate when the obligations will be set-
tled. Consequently, the retirement obligations for these
assets cannot be measured at this time.
Guarantees
The accounting recognition provisions of FASB Inter-
pretation No. 45, “Guarantor’s Accounting and Dis-
closure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others” (“FASB Inter-
pretation No. 45”), became effective January 1, 2003 on a
prospective basis. FASB Interpretation No. 45 requires
that a guarantor recognize, at the inception or subsequent
modification of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. Un-
der prior accounting principles, a guarantee would not
result in recognition of a liability until a loss was probable
and reasonably estimable. Adoption of the accounting
recognition provisions of FASB Interpretation No. 45 did
not materially impact Sunoco’s consolidated financial
statements during 2004 and 2003.
Reclassifications
Certain amounts in the prior years’ financial statements
have been reclassified to conform to the current year
presentation.
2. Changes in Business
Acquisitions
Eagle Point Refinery and Related Assets—Effective
January 13, 2004, Sunoco completed the purchase of the
Eagle Point refinery and related assets from El Paso
Corporation (“El Paso”) for $250 million, including in-
ventory. In connection with this transaction, Sunoco also
assumed certain environmental and other liabilities. The
Eagle Point refinery is located in Westville, NJ, near the
Company’s existing Northeast refining operations. Man-
agement believes the acquisition of the Eagle Point refin-
ery complements and enhances the Company’s refining
operations in the Northeast and enables the capture of
significant synergies in Northeast Refining. The related
assets acquired include certain pipeline and other logistics
assets associated with the refinery which Sunoco sub-
sequently sold in March 2004 for $20 million to Sunoco
Logistics Partners L.P. (the “Partnership”), a master lim-
ited partnership which is 62.6 percent owned by Sunoco
and conducts a substantial portion of the Company’s
logistics operations. No gain or loss was recognized on
this transaction.
The purchase price has been allocated to the assets ac-
quired and liabilities assumed based on their relative fair
market values at the acquisition date. The following is a
summary of the effects of the transaction on Sunoco’s
consolidated financial position:
(Millions of Dollars)
Increase in:
Inventories $159
Properties, plants and equipment, net 108
Accrued liabilities (3)
Other deferred credits and liabilities (14)
Cash paid for acquisition $250
Service Stations—In the second quarter of 2004, Sunoco
completed the purchase of 340 retail outlets operated
under the Mobil®brand from ConocoPhillips for $181
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