Sunoco 2014 Annual Report Download - page 89

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The following table summarizes the fair value assumptions associated with the performance-based awards issued during
the periods presented. The awards granted subsequent to October 5, 2012 were not performance-based awards.
Predecessor
Period from January 1,
2012 to October 4, 2012
Expected unit-price volatility 22.8%
Distribution yield 4.6%
Risk-free interest rate 0.3%
Weighted average fair value of performance units granted during the year $34.94
Expected unit-price volatility was based on the daily historical volatility of the Partnership's common units, generally for
the three years prior to the grant date. The distribution yield represents the Partnership's annualized distribution yield on the
average closing price of the Partnership's common units 30 days prior to the date of grant. The risk-free interest rate was based
on the zero-coupon U.S. Treasury bond, with a term equal to the remaining contractual term of the restricted unit awards.
Based on the unit grants and performance factor adjustments outlined in the table above, the Partnership recognized unit-
based compensation expense related to the LTIP within operating expenses and selling, general and administrative expenses in
the consolidated statements of comprehensive income of $16, $14, $2 and $6 million for the years ended December 31, 2014
and 2013, and the periods from October 5, 2012 to December 31, 2012 and from January 1, 2012 to October 4, 2012,
respectively. The tandem DERs associated with the restricted unit grants are recognized as a reduction of equity when earned.
15. Derivatives and Risk Management
The Partnership is exposed to various risks, including volatility in the prices of the products that the Partnership markets,
counterparty credit risk and changes in interest rates.
Price Risk Management
The Partnership is exposed to risks associated with changes in the market price of crude oil, refined products and NGLs.
These risks are primarily associated with price volatility related to pre-existing or anticipated purchases, sales and storage.
Price changes are often caused by shifts in the supply and demand for these commodities, as well as their locations. In order to
manage such exposure, the Partnership's policy is (i) to only purchase crude oil, refined products and NGLs for which sales
contracts have been executed or for which ready markets exist, (ii) to structure sales contracts so that price fluctuations do not
materially impact the margins earned, and (iii) not to acquire and hold physical inventory, futures contracts or other derivative
instruments for the purpose of speculating on commodity price changes. Although the Partnership seeks to maintain a balanced
inventory position within its commodity inventories, net unbalances may occur for short periods of time due to production,
transportation and delivery variances. When physical inventory builds or draws do occur, the Partnership continuously manages
the variance to a balanced position over a period of time.
The physical contracts related to the Partnership's crude oil, refined products and NGLs businesses that qualify as
derivatives have been designated as normal purchases and sales and are accounted for using accrual accounting under United
States' generally accepted accounting principles. The Partnership accounts for derivatives that do not qualify as normal
purchases and sales at fair value. The Partnership currently does not utilize derivative instruments to manage its exposure to
prices related to crude oil purchase and sale activities. All derivative balances are presented on a gross basis.
Pursuant to the Partnership's approved risk management policy, derivative contracts, such as swaps, futures and other
derivative instruments, may be used to hedge or reduce exposure to price risk associated with acquired inventory or forecasted
physical transactions. The Partnership utilizes derivative instruments to mitigate the risk associated with market movements in
the price of refined products and NGLs. These derivative contracts act as a hedging mechanism against the volatility of prices
by allowing the Partnership to transfer this price risk to counterparties who are able and willing to bear it. Since the first quarter
2013, the Partnership has not designated any of its derivative contracts as hedges for accounting purposes. Therefore, all
realized and unrealized gains and losses from these derivative contracts are recognized in the consolidated statement of
comprehensive income during the current period. For refined products derivative contracts that were designated and qualified
as cash flow hedges prior to the first quarter 2013, the portion of the gain or loss on the derivative contract that was effective in
offsetting the variable cash flows associated with the hedged forecasted transaction was reported as a component of other
comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction