Sunoco 2008 Annual Report Download - page 73

Sunoco, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of Sunoco, Inc. and subsidiaries (collectively, “Sunoco” or the
“Company”) contain the accounts of all entities that are controlled and variable interest entities for which the
Company is the primary beneficiary. Corporate joint ventures and other investees over which the Company has
the ability to exercise significant influence that are not consolidated are accounted for by the equity method.
FASB Interpretation No. 46 (revised 2003), “Consolidation of Variable Interest Entities,” (“FASB
Interpretation No. 46R”), defines a variable interest entity (“VIE”) as an entity that either has investor voting
rights that are not proportional to their economic interests or has equity investors that do not provide sufficient
financial resources for the entity to support its activities. FASB Interpretation No. 46R requires a VIE to be
consolidated by a company if that company is the primary beneficiary. The primary beneficiary is the company
that is subject to a majority of the risk of loss from the VIE’s activities or, if no company is subject to a majority
of such risk, the company that is entitled to receive a majority of the VIE’s residual returns.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual amounts could differ from these estimates.
Reclassifications
Certain amounts in the prior years’ financial statements have been reclassified to conform to the current-
year presentation.
Revenue Recognition
The Company sells various refined products (including gasoline, middle distillates, residual fuel,
petrochemicals and lubricants), coke and coal and also sells crude oil in connection with the crude oil gathering
and marketing activities of its logistics operations. In addition, the Company sells a broad mix of merchandise
such as groceries, fast foods and beverages at its convenience stores, operates common carrier pipelines and
provides terminalling services through a publicly traded limited partnership and provides a variety of car care
services at its retail gasoline outlets. Revenues related to the sale of products are recognized when title passes,
while service revenues are recognized when services are provided. Title passage generally occurs when products
are shipped or delivered in accordance with the terms of the respective sales agreements. In addition, revenues
are not recognized until sales prices are fixed or determinable and collectibility is reasonably assured.
Crude oil and refined product exchange transactions, which are entered into primarily to acquire crude oil
and refined products of a desired quality or at a desired location, are netted in cost of products sold and operating
expenses in the consolidated statements of income.
Consumer excise taxes on sales of refined products and merchandise are included in both revenues and costs
and expenses, with no effect on net income.
Cash Equivalents
Sunoco considers all highly liquid investments with a remaining maturity of three months or less at the time
of purchase to be cash equivalents. These cash equivalents consist principally of time deposits and money market
investments.
65