Sunoco 2010 Annual Report Download - page 87

assets to their estimated fair values and to establish accruals for employee terminations, pension and
postretirement curtailment losses and other related costs. The estimated fair value of the Eagle Point assets was
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. Since
the fair value reflected both observable and unobservable inputs, it was determined to be a level 3 fair value
measurement within the fair value hierarchy under generally accepted accounting principles. During 2009,
Sunoco also recognized a $92 million LIFO inventory gain ($55 million after tax) from the liquidation of refined
product inventories in connection with the shutdown of the Eagle Point refinery (Note 6). In 2010, the Company
recorded an additional $57 million provision ($34 million after tax) primarily for additional asset write-downs
and contract losses in connection with excess barge capacity resulting from the shutdown of the Eagle Point
refining operations and recognized a $168 million LIFO inventory gain ($100 million after tax) largely
attributable to the Eagle Point shutdown.
In 2009, management implemented a business improvement initiative to reduce costs and improve business
processes. The initiative included all business and operations support functions, as well as operations at the
Philadelphia and Marcus Hook refineries and hourly workers in certain identified areas. In connection with this
initiative, the Company recorded a $169 million provision ($100 million after tax) in 2009 for employee
terminations, pension and postretirement settlement and curtailment losses and other related costs. In 2010,
Sunoco recorded an additional $68 million provision ($40 million after tax) consisting of $48 million ($29
million after tax) primarily for pension settlement losses and $20 million ($11 million after tax) for employee
terminations and other restructuring costs.
In 2010, the Company recognized a $16 million gain ($9 million after tax) on an insurance settlement
related to MTBE coverage (Note 14).
During 2009, Sunoco also recorded a $35 million provision to write down to estimated fair value certain
other assets primarily in the Refining and Supply business, established $16 million of accruals for costs
associated with MTBE litigation and recognized a $9 million net curtailment gain related to a freeze of pension
benefits for most participants in the Company’s defined benefit pension plans and a phasedown or elimination of
postretirement medical benefits (Note 9).
In 2008, the Company recognized an $18 million gain ($11 million after tax) on an insurance recovery
related to an MTBE litigation settlement which occurred in 2007 (Note 14).
The following table summarizes the changes in the accrual for employee terminations and other exit costs
during 2010 and 2009 (in millions of dollars):
2010 2009
Balance at beginning of period ...................................... $ 68 $ 12
Additional accruals ............................................... 54 114
Payments charged against the accruals .............................. (50) (58)
Balance at end of period ......................................... $ 72 $ 68
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