Sunoco 2005 Annual Report Download - page 51

eligible). The effect will be to accelerate expense recog-
nition compared to the vesting period approach that
Sunoco currently uses that reflects the stated vesting
period. For the year ending December 31, 2006, the
Company currently estimates that its after-tax compensa-
tion expense under this provision of SFAS No. 123R will be
approximately $5-$10 million higher than it would have
been under SFAS No. 123. The future impact of the
non-substantive vesting period will be dependent upon
the value of future stock-based awards granted to employ-
ees who are eligible to retire prior to the normal vesting
periods of the awards. Sunoco currently intends to adopt
SFAS No. 123R effective January 1, 2006. As Sunoco cur-
rently follows the fair value method of accounting pre-
scribed by SFAS No. 123, the other provisions of SFAS
No. 123R are not expected to have a significant impact on
the Company’s consolidated financial statements.
Asset Retirement Obligations
In March 2005, FASB Interpretation No. 47, “Accounting
for Conditional Asset Retirement Obligations” (“FASB
Interpretation No. 47”), was issued. FASB Interpretation
No. 47 clarifies that the term “conditional asset retire-
ment obligation” as used in Statement of Financial Ac-
counting Standards No. 143, “Accounting for Asset
Retirement Obligations,” (“SFAS No. 143”) refers to a legal
obligation to perform an asset retirement activity in
which the timing and/or method of settlement are condi-
tional on a future event that may or may not be within
the control of the entity. FASB Interpretation No. 47
provides that a liability for the fair value of a conditional
asset retirement obligation should be recognized if that
fair value can be reasonably estimated. FASB Inter-
pretation No. 47 also clarifies when an entity would have
sufficient information to reasonably estimate the fair
value of an asset retirement obligation. In conjunction
with the implementation of FASB Interpretation No. 47
at December 31, 2005, Sunoco recorded an increase in
asset retirement obligations of $57 million and a related
increase in net properties, plants and equipment of $47
million primarily attributable to product storage tanks at
Company facilities. The $10 million cumulative effect of
this accounting change ($6 million after tax) has been
included in cost of products sold and operating expenses
in the 2005 consolidated statement of income. Sunoco
did not reflect the $6 million after-tax charge as a cumu-
lative effect of accounting change as it was not material.
At December 31, 2005, Sunoco’s liability for asset
retirement obligations amounted to $66 million, which
included $9 million previously recorded under SFAS
No. 143. Sunoco has legal asset retirement obligations for
several other assets at its refineries, pipelines and termi-
nals, for which it is not possible to estimate when the
obligations will be settled. Consequently, the retirement
obligations for these assets cannot be measured at this
time.
2. Changes in Business and Other Matters
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”), the con-
solidated master limited partnership, which is 47.9 per-
cent 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
million, including inventory. Of the total sites acquired,
50 were owned outright and 62 were subject to long-term
leases. The remaining network consisted of contracts to
supply 34 dealer-owned and operated locations and 194
branded distributor-owned sites. These outlets, which
included 31 sites that are Company-operated and have
convenience stores, are located primarily in Delaware,
Maryland, Virginia and Washington, D.C. These sites are
being re-branded to Sunoco®gasoline and APlus®con-
venience stores over time. In the second quarter of 2003,
Sunoco completed the purchase of 193 Speedway®retail
gasoline sites from a subsidiary of Marathon Ashland Pe-
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