Sunoco 2006 Annual Report Download - page 38

The initial health care cost trend assumptions used to compute the accumulated postretire-
ment benefit obligation were increases of 10.0 percent, 11.0 percent and 10.3 percent at
December 31, 2006, 2005 and 2004, respectively. These trend rates were assumed to de-
cline gradually to 5.5 percent in 2012 and to remain at that level thereafter.
Set forth below are the estimated increases in pension and postretirement benefits expense
and benefit obligations that would occur in 2007 from a change in the indicated
assumptions:
(Dollars in Millions)
Change
in Rate Expense
Benefit
Obligations*
Pension benefits:
Decrease in the discount rate .25% $6 $38
Decrease in the long-term expected rate of return on plan
assets .25% $3 $—
Increase in rate of compensation .25% $2 $8
Postretirement benefits:
Decrease in the discount rate .25% $1 $9
Increase in the annual health care cost trend rates 1.00% $1 $9
*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
estimated 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 2004-2006
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 capital, operating or
environmental remediation expenditures; and changes in governmental regulations or ac-
tions. Additional factors impacting the economic viability of long-lived assets are described
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 impair-
ment. There were no asset impairments during the 2004-2006 period.
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