Sunoco 2005 Annual Report Download - page 37

Set forth below are the estimated increases in pension and postretirement benefits expense
and benefit obligations that would occur in 2006 from a change in the indicated assumptions:
(Dollars in Millions)
Change
in Rate Expense
Benefit
Obligations*
Pension benefits:
Decrease in the discount rate .25% $4 $47
Decrease in the long-term expected rate of return on plan
assets .25% $3 $—
Increase in rate of compensation .25% $2 $11
Postretirement benefits:
Decrease in the discount rate .25% $1 $ 9
Increase in the annual health care cost trend rates 1.00% $1 $12
*Represents the projected benefit obligations for defined benefit plans and the accumulated postretirement benefit obligations for
postretirement benefit plans.
Long-Lived Assets
The cost of plants and equipment is generally depreciated on a straight-line basis over the esti-
mated useful lives of the assets. Useful lives are based on historical experience and are adjusted
when changes in planned use, technological advances or other factors show that a different life
would be more appropriate. Changes in useful lives that do not result in the impairment of an
asset are recognized prospectively. There have been no significant changes in the useful lives of
the Company’s plants and equipment during the 2003-2005 period.
A decision to dispose of an asset may necessitate an impairment review. In this situation,
an impairment would be recognized for any excess of the carrying amount of the long-lived
asset over its fair value less cost to sell.
Long-lived assets, other than those held for sale, are reviewed for impairment whenever
events or circumstances indicate that the carrying amount of the assets may not be
recoverable. Such events and circumstances include, among other factors: operating losses;
unused capacity; market value declines; technological developments resulting in obso-
lescence; changes in demand for the Company’s products or in end-use goods manufac-
tured by others utilizing the Company’s products as raw materials; changes in the
Company’s business plans or those of its major customers, suppliers or other business part-
ners; changes in competition and competitive practices; uncertainties associated with the
United States and world economies; changes in the expected level of environmental capi-
tal, operating or remediation expenditures; and changes in governmental regulations or
actions. Additional factors impacting the economic viability of long-lived assets are de-
scribed under “Forward-Looking Statements” below.
A long-lived asset that is not held for sale is considered to be impaired when the undis-
counted net cash flows expected to be generated by the asset are less than its carrying
amount. Such estimated future cash flows are highly subjective and are based on numerous
assumptions about future operations and market conditions. The impairment recognized is
the amount by which the carrying amount exceeds the fair market value of the impaired
asset. It is also difficult to precisely estimate fair market value because quoted market prices
for the Company’s long-lived assets may not be readily available. Therefore, fair market
value is generally based on the present values of estimated future cash flows using discount
rates commensurate with the risks associated with the assets being reviewed for impairment.
There were no asset impairments during 2005 and 2004. Sunoco had asset impairments
totaling $30 million after tax during 2003. The impairments related to the write-down of
the Company’s plasticizer assets held for sale to their estimated fair values less costs to sell
and the write-down by the Company’s previously one-third-owned BEF joint venture of its
MTBE production facility to its estimated fair value. The estimated fair value of the MTBE
facility declined in 2003 as a result of the expected reduction in MTBE demand due to
35