Sunoco 2005 Annual Report Download - page 38

enacted and anticipated federal and state bans of this gasoline additive. For a further dis-
cussion of these asset impairments, see Note 2 to the consolidated financial statements.
Environmental Remediation Activities
Sunoco is subject to extensive and frequently changing federal, state and local laws and
regulations, including, but not limited to, those relating to the discharge of materials into
the environment or that otherwise relate to the protection of the environment, waste
management and the characteristics and composition of fuels. These laws and regulations
require environmental assessment and/or remediation efforts at many of Sunoco’s facilities
and at formerly owned or third-party sites.
Sunoco’s accrual for environmental remediation activities amounted to $137 million at
December 31, 2005. This accrual is for work at identified sites where an assessment has
indicated that cleanup costs are probable and reasonably estimable. The accrual is undis-
counted and is based on currently available information, estimated timing of remedial ac-
tions and related inflation assumptions, existing technology and presently enacted laws
and regulations. It is often extremely difficult to develop reasonable estimates of future site
remediation costs due to changing regulations, changing technologies and their associated
costs, and changes in the economic environment. In the above instances, if a range of
probable environmental cleanup costs exists for an identified site, FASB Interpretation
No. 14, “Reasonable Estimation of the Amount of a Loss,” requires that the minimum of
the range be accrued unless some other point in the range is more likely, in which case the
most likely amount in the range is accrued. Engineering studies, historical experience and
other factors are used to identify and evaluate remediation alternatives and their related
costs in determining the estimated accruals for environmental remediation activities.
Losses attributable to unasserted claims are also reflected in the accruals to the extent they
are probable of occurrence and reasonably estimable.
Management believes it is reasonably possible (i.e., less than probable but greater than re-
mote) that additional environmental remediation losses will be incurred. At December 31,
2005, the aggregate of the estimated maximum additional reasonably possible losses, which
relate to numerous individual sites, totaled approximately $90 million. However, the Com-
pany believes it is very unlikely that it will realize the maximum reasonably possible loss at
every site. Furthermore, the recognition of additional losses, if and when they were to occur,
would likely extend over many years and, therefore, likely would not have a material impact
on the Company’s financial position.
Management believes that none of the current remediation locations, which are in various
stages of ongoing remediation, is individually material to Sunoco as its largest accrual for
any one Superfund site, operable unit or remediation area was less than $4 million at De-
cember 31, 2005. As a result, Sunoco’s exposure to adverse developments with respect to
any individual site is not expected to be material. However, if changes in environmental
regulations occur, such changes could impact several of Sunoco’s facilities and formerly
owned and third-party sites at the same time. As a result, from time to time, significant
charges against income for environmental remediation may occur.
Under various environmental laws, including the Resource Conservation and Recovery
Act (“RCRA”), Sunoco has initiated corrective remedial action at its facilities, formerly
owned facilities and third-party sites. At the Company’s major manufacturing facilities,
Sunoco has consistently assumed continued industrial use and a containment/remediation
strategy focused on eliminating unacceptable risks to human health or the environment.
The remediation accruals for these sites reflect that strategy. Accruals include amounts to
prevent off-site migration and to contain the impact on the facility property, as well as to
address known, discrete areas requiring remediation within the plants. Activities include
closure of RCRA solid waste management units, recovery of hydrocarbons, handling of
impacted soil, mitigation of surface water impacts and prevention of off-site migration.
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