FORM 10-K IMPERIAL OIL LIMITED

8. Other long-term obligations
millions of dollars 2004 2003
Employee retirement benefits (note 7) (a) 1 052 847
Asset retirement obligations and other environmental liabilities ( b ) 380 393
Other obligations 93 74
Total other long-term obligations 1 525 1 314
( a ) Total re c o rded employee re t i rement benefits obligations also include $48 million in current liabilities (2003 – $44 million).
( b ) Total asset re t i rement obligations and other environmental liabilities also include $76 million in current liabilities (2003 – $69 million). The estimated
cash flows of asset re t i rement obligations have been discounted at six percent. The total undiscounted amount of the estimated cash flows re q u i re d
to settle the obligations is $970 million. Payments to settle the obligations occur on an ongoing basis and will continue over the lives of the operating
assets, which can exceed 25 years. The change in asset re t i rement obligations liability is as follows:
millions of dollars 2 0 0 4 2 0 0 3
Asset re t i rement obligations liability at January 1 327 341
A d d i t i o n s 16 –
A c c re t i o n 22 20
S e t t l e m e n t ( 37 ) ( 34 )
Asset re t i rement obligations liability at December 31 3 2 8 3 2 7
9. Derivatives and financial instruments
No significant energy derivatives, foreign-exchange forward contracts or currency and interest-rate swaps were transacted in the past
three years. The company maintains a system of controls that includes a policy covering the authorization, reporting and monitoring of
derivative activity.
The fair value of the company’s financial instruments is determined by re f e rence to various market data and other appropriate valuation
techniques. There are no material diff e rences between the fair values of the company’s financial instruments and the re c o rded book value.
10. Incentive compensation programs
Incentive compensation programs are designed to retain selected employees, reward them for high performance and promote individual
contributions to sustained improvement in the company’s future business performance and shareholder value.
Incentive share units, deferred share units, earnings bonus units and restricted stock units
Incentive share units have value if the market price of the company’s common shares when the unit is exercised exceeds the market value
when the unit was issued. The issue price of incentive share units is the closing price of the company’s shares on the To ronto Stock
Exchange on the grant date. Up to 50 percent of the units may be exercised after one year from issuance; an additional 25 percent may be
e x e rcised after two years; and the remaining 25 percent may be exercised after three years. Incentive share units are eligible for exerc i s e
up to 10 years from issuance. The units may expire earlier if employment is terminated other than by re t i rement, death or disability.
The deferred share unit plan is made available to selected executives and nonemployee directors. The selected executives can elect to
receive all or part of their performance bonus compensation in units, and the nonemployee directors can elect to receive all or part of
their directors’ fees in units. The number of units granted to executives is determined by dividing the amount of the bonus elected to be
received as deferred share units by the average of the closing prices of the company’s shares on the Toronto Stock Exchange for the
five consecutive trading days immediately prior to the date that the bonus would have been paid. The number of units granted to a
nonemployee director is determined at the end of each calendar quarter by dividing the amount of directors’ fees for the calendar quarter
that the nonemployee director elected to receive as deferred share units by the average closing price of the company’s shares for the
five consecutive trading days immediately prior to the last day of the calendar quarter. Additional units are granted based on the cash
dividend payable on the company’s shares divided by the average closing price immediately prior to the payment date for that dividend
and multiplying the resulting number by the number of deferred share units held by the recipient.
Deferred share units cannot be exercised until after termination of employment with the company or resignation as a director and must
be exercised no later than December 31 of the year following termination or resignation. On the exercise date, the cash value to be
received for the units is determined based on the average closing price of the company’s shares for the five consecutive trading days
immediately prior to the date of exercise.
The earnings bonus unit plan is available to selected executives. Each earnings bonus unit entitles the recipient to receive an amount
equal to the company’s cumulative net earnings per common share as announced each quarter beginning after the grant. Payout occurs
on the fifth anniversary of the grant or when the maximum settlement value per unit is reached, if earlier. Earnings bonus units may
expire if employment is terminated other than by death or disability.
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