Sunoco 2012 Annual Report Download - page 61

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.
The Partnership’s long-lived assets include identifiable intangible assets which are comprised of customer
relationships, which consist of throughput contracts and historical shipping rights, and technology related assets,
which consist of patented technology associated with the Partnership’s butane blending services. Customer
relationship intangible assets represent the estimated economic value assigned to certain relationships acquired in
connection with business combinations or asset purchases whereby (i) the Partnership acquired information about
or access to customers, (ii) the customers now have the ability to transact business with the Partnership and
(iii) the Partnership is positioned due to limited competition to provide products or services to the customers.
Technology related intangible assets are the Partnership’s patents for the blending of butane into refined
products. These patents are amortized over their remaining legal lives. The value assigned to these intangible
assets is amortized on a straight-line basis over their respective economic lives through depreciation and
amortization expense, over a weighted average amortization period of approximately 17 years.
Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying
amount of the assets may not be recoverable. Such events and circumstances include, among other factors:
operating losses; unused capacity; market value declines; technological developments resulting in obsolescence;
changes in demand for products manufactured by others utilizing our services or for our products; changes in
competition and competitive practices; uncertainties associated with the United States and world economies;
changes in the expected level of environmental capital, operating or remediation expenditures; and changes in
governmental regulations or actions. Additional factors impacting the economic viability of long-lived assets are
discussed under “Forward-Looking Statements” in this document.
A long-lived asset is considered to be impaired when the undiscounted net cash flows expected to be
generated by the asset are less than its carrying amount. Such estimated future cash flows are highly subjective
and are based on numerous assumptions about future operations and market conditions. The impairment
recognized is the amount by which the carrying amount exceeds the fair market value of the impaired asset. It is
also difficult to precisely estimate fair market value because quoted market prices for our long-lived assets may
not be readily available. Therefore, fair market value is generally based on the present values of estimated future
cash flows using discount rates commensurate with the risks associated with the assets being reviewed for
impairment.
In 2012, the Partnership recognized a non-cash impairment charge of $9 million related to a cancelled
software project for the crude oil acquisition and marketing business and a refined products pipeline project in
Texas. In 2011, the Partnership recognized a $42 million charge for certain crude oil terminal assets which would
have been negatively impacted if Sunoco had permanently idled its Philadelphia refinery. The charge included a
$31 million non-cash impairment for asset write-downs at the Fort Mifflin Terminal Complex and $11 million
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