Sunoco 2008 Annual Report Download - page 74

Inventories
Inventories are valued at the lower of cost or market. The cost of crude oil and petroleum and chemical
product inventories is determined using the last-in, first-out method (“LIFO”). The cost of materials, supplies and
other inventories is determined using principally the average-cost method.
Depreciation and Retirements
Plants and equipment are generally depreciated on a straight-line basis over their estimated useful lives.
Gains and losses on the disposals of fixed assets are generally reflected in net income.
Impairment of Long-Lived Assets
Long-lived assets held for sale are recorded at the lower of their carrying amount or fair market value less
cost to sell. Long-lived assets, other than those held for sale, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An asset is
considered to be impaired when the undiscounted estimated net cash flows expected to be generated by the asset
are less than its carrying amount. The impairment recognized is the amount by which the carrying amount
exceeds the fair market value of the impaired asset.
Goodwill and Intangible Assets
Goodwill, which represents the excess of the purchase price over the fair value of net assets acquired, and
indefinite-lived intangible assets are tested for impairment at least annually rather than being amortized. Sunoco
determined that the goodwill pertaining to its polypropylene business was impaired during 2008 (Note 2). No
other goodwill or any indefinite-lived intangible assets was impaired during the 2006-2008 period. Intangible
assets with finite useful lives are amortized over their useful lives in a manner that reflects the pattern in which
the economic benefit of the intangible assets is consumed.
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 commodity price risks. Such contracts are recognized in the consolidated balance sheets at their fair
value. Changes in fair value of derivative contracts that are not hedges are recognized in income as they occur. If
the derivative contracts are designated as hedges, depending on their nature, the effective portions of changes in
their fair values are either offset in income against the changes in the fair values of the items being hedged or
reflected initially as a separate component of shareholders’ equity and subsequently recognized in income when
the hedged items are recognized in income. The ineffective portions of changes in the fair values of derivative
contracts designated as hedges are immediately recognized in income. Sunoco does not hold or issue derivative
instruments for trading purposes.
Income Tax Uncertainties
Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes—an interpretation of FASB Statement No. 109” (“FASB Interpretation No. 48”). This
interpretation clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial
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