Sunoco 2009 Annual Report Download - page 64

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 asset impairments totaling $285, $155 and $8 million after tax during 2009, 2008 and 2007,
respectively. The impairments in 2009 related primarily to the write-down to estimated fair value of the Eagle
Point refinery which was permanently shut down in the fourth quarter of 2009 as well as the write-down of
certain other assets primarily in the Refining and Supply business. The estimated fair value of the Eagle Point
assets is largely based upon an independent appraiser’s use of observable current replacement costs of similar
new equipment adjusted to reflect the age, condition, maintenance history and estimated remaining useful life. As
such, it reflects both observable and unobservable inputs and is therefore determined to be a level 3 fair value
measurement within the fair value hierarchy under generally accepted accounting principles. The impairments in
2008 related to the discontinued Tulsa refining operations, which were sold on June 1, 2009; a polypropylene
plant in Bayport, TX which was permanently shut down in March 2009; goodwill related to the Company’s
polypropylene business; and certain retail marketing properties held for sale in the Company’s Retail Portfolio
Management program. The impairment in 2007 related to the permanent shutdown of a previously idled phenol
line at the Company’s Haverhill, OH plant. For a further discussion of these asset impairments, see Note 2 to the
Consolidated Financial Statements (Item 8).
Sunoco also conducted impairment tests for its chemical assets during 2009. Since the criteria for assets
held for sale had not been met at December 31, 2009, the assets were tested to see if their undiscounted cash
flows exceeded their carrying amounts.
With regard to its polypropylene chemical assets, the undiscounted cash flows were estimated assuming that
a potential sale or continued operations were approximately equally likely. Sunoco’s best estimate of future
operating cash flows was prepared based upon the Company’s operating plan for the next three years and
margins realized during the most recent six-year business cycle. Under this scenario, the undiscounted cash flows
were significantly greater than the related carrying amounts and no impairment was necessary. On February 1,
2010, Sunoco entered into an agreement to sell its polypropylene business to Braskem S.A. for approximately
$350 million in cash. Sunoco expects to record a pretax loss on the sale in the first quarter of 2010 of
approximately $185-$195 million.
The impairment test for the phenol chemicals business was prepared based upon Sunoco’s best estimate of
future operating cash flows from its phenol plants over their expected useful lives. The estimate of future
undiscounted cash flows was prepared based upon the Company’s operating plan for the next three years and
margins realized during the most recent six-year business cycle. While the undiscounted cash flows exceeded the
carrying amounts of the assets, the margin was relatively narrow. The Company is currently pursuing
opportunities to increase the profitability of this business. However, given the sensitivity of the most recent
impairment test, if phenol sales volumes and margins do not return to their historical levels, a significant
writedown of the phenol assets could be required.
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 $116 million at December 31, 2009.
This accrual is for work at identified sites where an assessment has indicated that cleanup costs are probable and
56