Sunoco 2012 Annual Report Download - page 101

(1) The Partnership had deferred hedging losses of approximately $17 million in the accumulated other
comprehensive loss component of equity prior to the acquisition of the general partner by ETP. These
deferred losses were eliminated in connection with the adjustment of the Partnership’s assets and liabilities
to fair value (Note 1). In addition, the Partnership did not re-designate its cash flow hedging derivatives
which were open on the acquisition date. The Partnership’s earnings for the period from October 5, 2012 to
December 31, 2012 included approximately $12 million of hedging gains resulting from the elimination of
the deferred hedging losses of such positions and the non-hedge designation subsequent to the acquisition
date.
Credit Risk Management
The Partnership maintains credit policies with regard to its counterparties that management believes minimize
the overall credit risk through credit analysis, credit approvals, credit limits and monitoring procedures. The
Partnership’s counterparties consist primarily of financial institutions and major integrated oil companies. This
concentration of counterparties may impact the Partnership’s overall exposure to credit risk, either positively or
negatively, in that the counterparties may be similarly affected by changes in economic, regulatory or other
conditions. At December 31, 2012 and 2011, the Partnership did not hold any over-the-counter derivatives.
Interest Rate Risk Management
The Partnership has interest rate risk exposure for changes in interest rates related to its outstanding
borrowings. The Partnership manages its exposure to changes in interest rates through the use of a combination
of fixed-rate and variable-rate debt. At December 31, 2012, the Partnership had $139 million of consolidated
variable-rate borrowings under its revolving credit facilities.
16. Fair Value Measurements
The estimated fair value of financial instruments has been determined based on the Partnership’s assessment
of available market information and appropriate valuation methodologies. The Partnership’s current assets (other
than derivatives and inventories) and current liabilities are financial instruments and most of these items are
recorded at cost in the consolidated balance sheets. The estimated fair value of these financial instruments
approximates their carrying value due to their short-term nature. The Partnership’s derivatives are measured and
recorded at fair value based on observable market prices (Note 15). The estimated fair value of the senior notes is
determined using observable market prices, as these notes are actively traded. The estimated aggregate fair value
of the senior notes at December 31, 2012 was $1.64 billion, compared to the carrying amount of $1.59 billion.
The estimated aggregate fair value of the senior notes at December 31, 2011 was $1.91 billion, compared to the
carrying amount of $1.70 billion.
17. Concentration of Credit Risk
The Partnership’s trade relationships are primarily with major integrated oil companies, independent oil
companies and other pipelines and wholesalers. These concentrations of customers may affect the Partnership’s
overall credit risk in that the customers may be similarly affected by changes in economic, regulatory or other
factors. The Partnership maintains credit policies with regard to its counterparties that management believes
minimizes the overall credit risk through credit analysis, credit approvals, credit limits and monitoring
procedures. The credit positions of the Partnership’s customers are analyzed prior to the extension of credit and
periodically after it has been extended. For certain transactions the Partnership may utilize letters of credit,
prepayments and guarantees.
In 2012 and 2011, approximately 18 and 20 percent of the Partnership’s total revenues, respectively, were
derived from crude oil sales to an individual customer. While this concentration has the ability to negatively
impact revenues going forward, management does not anticipate a material adverse effect in the Partnership’s
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