Sunoco 2010 Annual Report Download - page 69

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.
Sunoco had asset impairments totaling $22, $285 and $155 million after tax during 2010, 2009 and 2008,
respectively. The impairments in 2010 related primarily to additional asset write-downs attributable to a decline
in the fair market value of certain assets of the Eagle Point refinery which was permanently shut down in the
fourth quarter of 2009. The impairments in 2009 related primarily to the write-down to estimated fair value of the
Eagle Point refinery as well as the write-down of certain other assets primarily in the Refining and Supply
business. Estimates of the fair market value of the Eagle Point assets utilized in 2010 and 2009 were 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
reflected both observable and unobservable inputs and was 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. For a further discussion of these asset impairments, see Note 2 to the Consolidated
Financial Statements (Item 8).
The Toledo refinery assets included in the disposal group, consisting primarily of refinery assets, crude oil,
refined product and materials and supplies inventories and goodwill, were classified as held for sale at
December 31, 2010. The aggregate fair value less cost to sell exceeded the related carrying amount of the
disposal group and, as a result, no impairment was recognized. The estimated fair value of the disposal group was
based upon the expected proceeds as indicated in the Toledo sales agreement.
Sunoco also conducted impairment tests for its phenol chemical assets during 2010. The impairment test
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.
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. The carrying amount of the
phenol facilities was $419 million at December 31, 2010.
SunCoke Energy is currently conducting an engineering study to evaluate the expected physical life of the
coke ovens at its Indiana Harbor operation. Some ovens and associated equipment are heaving and settling
differentially as a result of the instability of the ground on which it was constructed. This differential movement
has reduced production and required corrective action to certain ovens, ancillary equipment and structures.
Higher maintenance costs are expected to continue as a result of this condition. SunCoke Energy has completed a
capital project to improve the stability of certain boiler supports and the emission shed supports, which
previously had been damaged as a result of such differential movement. In addition, an oven repair and
maintenance program has been implemented to limit further deterioration to the ovens. The engineering study at
Indiana Harbor is expected to be completed during the first quarter of 2011. At this time, the likely outcome of
the study cannot be determined. Possible results include additional maintenance spending to continue operations
at the current operating levels, a change in the useful life of all or part of the plant, or the impairment of one or
more oven batteries which could be followed by capital spending to retain the current plant capacity. The
carrying amount of the Indiana Harbor coke facility was $119 million at December 31, 2010.
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