Sunoco 2004 Annual Report Download - page 40

Set forth below are the estimated increases in pension and postretirement benefits expense
and benefit obligations that would occur in 2005 from a change in the indicated assumptions:
(Dollars in Millions)
Change
in Rate Expense
Benefit
Obligations*
Pension benefits:
Decrease in the discount rate .25% $4 $41
Decrease in the long-term expected rate of return on plan
assets .25% $3 $—
Increase in rate of compensation .25% $2 $10
Postretirement benefits:
Decrease in the discount rate .25% $1 $9
Increase in the annual health care cost trend rates 1.00% $1 $10
*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 2002-2004
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 or suppliers; changes in competi-
tion and competitive practices; uncertainties associated with the United States and world
economies; changes in the expected level of environmental capital, operating or re-
mediation expenditures; and changes in governmental regulations or actions. 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 impairment.
There were no asset impairments during 2004. Sunoco had asset impairments totaling $30
and $18 million after tax during 2003 and 2002, respectively. The impairments in 2003
related to the write-down of the Company’s plasticizer assets held for sale to their esti-
mated fair values less costs to sell and the write-down by the Company’s previously one-
third-owned BEF joint venture of its MTBE production facility to its estimated fair value.
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