Sunoco 2011 Annual Report Download - page 66

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 and offers by potential purchasers are subject to uncertainty as to
the ultimate likelihood of completing a sale until a binding agreement is executed. Therefore, fair market value is
generally based on a combination of the present values of estimated future cash flows using discount rates
commensurate with the risks associated with the assets being reviewed for impairment, comparable sales
transactions and offers by potential purchasers as adjusted to reflect the probability of completing a sales
transaction. Such estimates also reflect potential alternative uses of the facilities, where appropriate.
Sunoco had asset impairments totaling $1,565, $22 and $285 million after tax during 2011, 2010 and 2009,
respectively. The impairments in 2011 related primarily to asset write-downs at the Company’s Northeast
Refineries in connection with Sunoco’s decision to exit its refining business and at the Company’s discontinued
chemicals facilities prior to their divestments. The impairments in 2010 and 2009 related primarily to asset write-
downs of the Eagle Point refinery which was permanently shut down in the fourth quarter of 2009. Estimates
utilized in 2011 in determining the fair market values of the Northeast Refineries and the discontinued chemicals
facilities were largely based upon discounted projected cash flows, comparable sales transactions and offers by
potential purchasers as adjusted to reflect the probability of completing a sales transaction. The estimates related
to the Northeast Refineries also reflect potential alternative uses of the facilities, where appropriate. Estimates of
the fair market value of the Eagle Point refinery assets utilized in 2010 and 2009 were 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. Since the fair value measurements
utilized during the 2009-2011 period reflected both observable and unobservable inputs, they were determined to
be level 3 fair value measurements within the fair value hierarchy under generally accepted accounting
principles. For a further discussion of these asset impairments, see Note 2 to the Consolidated Financial
Statements (Item 8).
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 $110 million at December 31, 2011. In February 2012, Sunoco announced that it intends to
contribute approximately $250 million by the end of 2012 to establish a segregated environmental fund by means
of a captive insurance company to be used for the remediation of legacy environmental obligations. These legacy
sites that are subject to environmental assessments include formerly owned terminals and other logistics assets,
retail sites that Sunoco no longer operates, closed and/or sold refineries and other formerly owned sites.
Sunoco’s accrual for environmental remediation activities reflects anticipated work at identified sites where
an assessment has indicated that cleanup costs are probable and reasonably estimable. The accrual is
undiscounted and is based on currently available information, estimated timing of remedial actions 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. 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.
Under various environmental laws, including the Resource Conservation and Recovery Act (“RCRA”)
(which relates to solid and hazardous waste treatment, storage and disposal), 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/
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