Sunoco 2009 Annual Report Download - page 83

In 2009, the Company permanently shut down all process units at the Eagle Point refinery. In connection
with this decision, Sunoco recorded a $427 million provision to write down the affected assets to their estimated
fair values and established a $49 million accrual for employee terminations, pension and postretirement
curtailment losses and other related costs. The estimated fair value of the Eagle Point assets is largely based upon
an independent appraiser’s use of observable current replacement costs of similar new equipment adjusted to
reflect the age, condition, maintenance history and estimated remaining useful life. As such, it reflects both
observable and unobservable inputs and is therefore determined to be a level 3 fair value measurement within the
fair value hierarchy under generally accepted accounting principles. Sunoco also recognized a $92 million LIFO
inventory gain ($55 million after tax) from the liquidation of refined product inventories in connection with the
shutdown of the Eagle Point refinery (Note 6).
In 2009, management implemented a previously announced business improvement initiative to reduce costs
and improve business processes. The initiative included all business and operations support functions, as well as
operations at the Philadelphia and Marcus Hook refineries and hourly workers in certain identified areas. In
connection with this initiative, the Company established a pretax accrual of $169 million. Of this amount, $54
million pertained to employee severance and related cash costs, which are expected to be paid out over
approximately one year, and $115 million is attributable to a noncash provision for pension and postretirement
settlement and curtailment losses.
During 2009, Sunoco recorded a $35 million provision to write down to estimated fair value certain other
assets primarily in the Refining and Supply business, established $22 million of accruals related to the shutdown
of Chemical’s polypropylene plant in Bayport, TX (see below) and for costs associated with MTBE litigation and
recognized a $9 million net curtailment gain related to a freeze of pension benefits for most participants in the
Company’s defined benefit pension plans and a phasedown or elimination of postretirement medical benefits,
effective June 30, 2010 (Note 9).
In January 2009, Sunoco decided it would permanently shut down, no later than April 30, 2009, a
polypropylene plant in Bayport, TX which had become uneconomic to operate. In connection with this strategic
decision, in 2008, Sunoco recorded a provision to write down the affected assets to their estimated fair values.
Sunoco also determined during 2008 that the goodwill related to its polypropylene business no longer had value
and, as a result, recorded a provision to write off the remaining goodwill. In addition, the Company recognized a
gain on an insurance recovery related to an MTBE litigation settlement which occurred in 2007 (Note 14).
During 2007, a phenol line at the Haverhill, OH chemical plant that had previously been idled in order to
eliminate less efficient production capacity was permanently shut down as it was determined that it had become
uneconomic to restart this line. In connection with the shutdown, Sunoco recorded a provision to write off the
affected production line. Sunoco also sold its Neville Island, PA terminal facility and recorded a loss on the
divestment and established accruals for enhanced pension benefits associated with employee terminations and for
other exit costs. In addition, the Company settled certain MTBE litigation and established an accrual for the costs
associated with the settlement (Note 14).
The following table summarizes the changes in the accrual for employee terminations and other exit costs
during 2009 (in millions of dollars):
Balance at beginning of period .............................................. $ 12
Additional accruals ....................................................... 118
Payments charged against the accruals ...................................... (58)
Balance at end of period ............................................... $ 72
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