Sunoco 2011 Annual Report Download - page 79

Download and view the complete annual report

Please find page 79 of the 2011 Sunoco annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 136

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136

have the option of bypassing the qualitative analysis in any period and proceeding directly to the two-step
impairment test. The provisions of this guidance are effective January 1, 2012 for the Company and are not
expected to have a material impact on the consolidated financial statements.
Environmental Remediation
Sunoco accrues environmental remediation costs for work at identified sites where an assessment has
indicated that cleanup costs are probable and reasonably estimable. Such accruals are undiscounted and are based
on currently available information, estimated timing of remedial actions and related inflation assumptions,
existing technology and presently enacted laws and regulations. If a range of probable environmental cleanup
costs exists for an identified site, the minimum of the range is accrued unless some other point in the range is
more likely in which case the most likely amount in the range is accrued.
Maintenance Shutdowns
Maintenance and repair costs in excess of $500 thousand incurred in connection with major maintenance
shutdowns are capitalized when incurred and amortized over the period benefited by the maintenance activities.
Derivative Instruments
From time to time, Sunoco uses swaps, options, futures, forwards and other derivative instruments to hedge
a variety of price risks. Such derivative instruments are used to achieve ratable pricing of crude oil purchases, to
convert certain expected refined product sales to fixed or floating prices, to lock in what Sunoco considers to be
acceptable margins for various refined products and to lock in the price of a portion of the Company’s electricity
and natural gas purchases or sales and transportation costs. Sunoco also uses interest rate swaps from time to
time to manage interest costs and minimize the effects of interest rate fluctuation on cash flows associated with
its credit facilities. Sunoco does not hold or issue derivative instruments for speculative purposes.
While all of these derivative instruments represent economic hedges, certain of these derivatives are not
designated as hedges for accounting purposes. Such derivatives include certain contracts that were entered into
and closed during the same accounting period and contracts for which there is not sufficient correlation to the
related items being economically hedged.
All of the Company’s derivatives are recognized in the consolidated balance sheets at their fair value.
Changes in fair value of derivative instruments that have not been designated as hedges for accounting purposes
are recognized in earnings as they occur. If the derivative instruments are designated as hedges for accounting
purposes, the effective portions of changes in their fair values are reflected initially as a separate component of
equity and subsequently recognized in earnings when the hedged items are recognized in earnings. The
ineffective portions of changes in the fair values of derivative instruments designated as hedges, if any, are
immediately recognized in earnings. The amount of hedge ineffectiveness on derivative contracts during the
2009-2011 period was not material.
Income Tax Uncertainties
The Company recognizes uncertain tax positions in its financial statements when minimum recognition
threshold and measurement attributes are met in accordance with current accounting guidance. Unrecognized tax
benefits and accruals for interest and penalties are included in other deferred credits and liabilities in the
consolidated balance sheets. The Company recognizes interest related to unrecognized tax benefits in interest
cost and debt expense and penalties in income tax expense in the consolidated statements of operations.
Retirement Benefit Liabilities
The funded status of defined benefit and postretirement benefit plans is fully recognized in the consolidated
balance sheets. It is determined by the difference between the fair value of plan assets and the benefit obligation,
with the benefit obligation represented by the projected benefit obligation for defined benefit plans and the
accumulated postretirement benefit obligation for postretirement benefit plans. Actuarial gains (losses) and prior
service benefits (costs) which have not yet been recognized in earnings are recognized as a credit (charge) to the
71