Sunoco 2014 Annual Report Download - page 57

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A purchase obligation is an enforceable and legally binding agreement to purchase goods and services that specifies
significant terms, including: fixed or expected quantities to be purchased; market-related pricing provisions; and a specified
term. Our purchase obligations consist primarily of non-cancelable contracts to purchase crude oil, refined products and NGLs
for terms of one year or less by our acquisition and marketing businesses.
A significant portion of the above purchase obligations relate to actual crude oil purchases for the month of January 2015.
The remaining crude oil purchase obligation amounts are based on the quantities committed to be purchased, assuming adequate
well production for the remainder of the year, at December 31, 2014 crude oil prices. Actual amounts to be paid in regards to
these obligations will be based upon market prices or formula-based market prices during the period of purchase. For further
discussion of our Crude Oil Acquisition and Marketing activities, see Item 1. "Business—Crude Oil Acquisition and Marketing."
Off-Balance Sheet Arrangements
We have not entered into any transactions, agreements or other contractual arrangements that would result in off-balance
sheet liabilities.
Environmental Matters
Operation of the pipelines, terminals, and associated facilities are subject to stringent and complex federal, state, and local
laws and regulations governing the discharge of materials into the environment or otherwise relating to protection of the
environment. As a result of compliance with these laws and regulations, liabilities have been accrued for estimated site
restoration costs to be incurred in the future at the facilities and properties, including liabilities for environmental remediation
obligations. Under our accounting policies, liabilities are recorded when site restoration and environmental remediation and
cleanup obligations are either known or considered probable and can be reasonably estimated. For a discussion of the accrued
liabilities and charges against income related to these activities, see Note 11 to the consolidated financial statements included in
Item 8. "Financial Statements and Supplementary Data."
Under the terms of the Omnibus Agreement and in connection with the contribution of assets to us by affiliates of Sunoco,
Sunoco has agreed to indemnify us for 30 years from environmental and toxic tort liabilities related to the assets contributed that
arise from the operation of such assets prior to closing of the February 2002 initial public offering ("IPO"). See "Agreements
with Related Parties."
For more information concerning environmental matters, see Item 1. "Business—Environmental Regulation."
Impact of Inflation
Although the impact of inflation has slowed in recent years, it is still a factor in the United States economy and may
increase the cost to acquire or replace properties, plants, and equipment and may increase the costs of labor and supplies. To the
extent permitted by competition, regulation, and existing agreements, we have and will continue to pass along increased costs to
customers in the form of higher fees.
Critical Accounting Policies
A summary of our significant accounting policies is included in Note 2 to the consolidated financial statements included in
Item 8. "Financial Statements and Supplementary Data." Management believes that the application of these policies on a
consistent basis enables us to provide the users of the consolidated financial statements with useful and reliable information
about our operating results and financial condition. The preparation of our consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses,
and the disclosures of contingent assets and liabilities. Significant items that are subject to such estimates and assumptions
include long-lived assets (including intangible assets), goodwill, and environmental remediation activities. Although
management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under
the circumstances, actual results may differ from the estimates on which our consolidated financial statements are prepared at
any given point in time.
The critical accounting policies identified by our management are as follows:
Long-Lived Assets. The cost of long-lived assets (less estimated salvage value, in the case of properties, plants and
equipment), is generally depreciated on a straight-line basis over the estimated useful lives of the assets. Useful lives are based
on historical experience, contract expiration or other reasonable basis, and are adjusted when changes in planned use,
technological advances or other factors indicate that a different life would be more appropriate. Changes in useful lives that do
not result in the impairment of an asset are recognized prospectively.