Sunoco 2007 Annual Report Download - page 36

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 2005-2007
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 as-
set. 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.
Sunoco had an asset impairment totaling $8 million after tax during 2007. The impair-
ment related to the permanent shutdown of a previously idled phenol line at the Compa-
ny’s Haverhill, OH plant that had become uneconomic to restart. For a further discussion
of this asset impairment, see Note 2 to the consolidated financial statements. There were
no asset impairments during the 2005-2006 period.
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 $122 million at
December 31, 2007. This accrual is for work at identified sites where an assessment has
indicated that cleanup costs are probable and reasonably estimable. The accrual is undis-
counted and is based on currently available information, estimated timing of remedial ac-
tions 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
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