Sunoco 2012 Annual Report Download - page 60

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 for terms of one year or less by our Crude Oil Acquisition and Marketing segment and non-
cancelable contracts to purchase butane for terms of one year or less by our refined products acquisition and
marketing business.
A significant portion of the above purchase obligations relate to actual crude oil purchases for the month of
January 2013. 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, 2012 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 property, plant, 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
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