Sunoco 2012 Annual Report Download - page 62

for regulatory obligations which would have been incurred if these assets were permanently idled. In September
2012, Sunoco completed the formation of PES, a joint venture with The Carlyle Group, which enabled the
Philadelphia refinery to continue operating. As a result, we reversed $10 million of regulatory obligations in the
second quarter of 2012 which were no longer expected to be incurred. For further discussion, see “Agreements
with Related Parties” discussed below. In 2010, we recognized an impairment of $3 million related to the
cancellation of a terminal construction project.
Goodwill. Goodwill represents the excess of consideration transferred plus the fair value of noncontrolling
interests of an acquired business over the fair value of net assets acquired. Goodwill is not amortized; however it
is tested for impairment annually or more often if warranted by events or changes in circumstances indicating
that the carrying value may exceed the estimated fair value.
Management’s process of evaluating goodwill for impairment involves estimating the fair value of the
Partnership’s reporting units that contain goodwill. Inherent in estimating the fair value for each reporting unit
are certain judgments and estimates relating to market multiples for comparable businesses, including
management’s interpretation of current economic indicators and market conditions, and assumptions about the
Partnership’s strategic plans with regard to its operations. To the extent additional information arises, market
conditions change or the Partnership’s strategies change, it is possible that the conclusion regarding whether the
goodwill is impaired could change and result in future goodwill impairment charges.
Fair value is estimated using a market multiple methodology whereby multiples of business enterprise value
to EBITDA of comparable companies are used to estimate the fair value of the reporting units. Management
establishes fair value by comparing the reporting unit to other companies that are similar, from an operational or
industry standpoint, and considers the risk characteristics in order to determine the risk profile relative to the
comparable companies as a group. The most significant assumptions are the market multiplies.
Environmental Remediation. At December 31, 2012, our accrual for environmental remediation activities
was $3 million. This accrual is for work at identified sites where an assessment has indicated that cleanup costs
are probable and reasonably estimable. The accrual is undiscounted and is based on currently available
information, estimated timing of remedial actions and related inflation assumptions, existing technology and
presently enacted laws and regulations. It is often extremely difficult to develop reasonable estimates of future
site remediation costs due to changing regulations, changing technologies and their associated costs, and changes
in the economic environment. In the above instances, if a range of probable environmental cleanup costs exists
for an identified site, the minimum of the range is accrued unless some other point or points in the range are more
likely, in which case the most likely amount in the range is accrued. Engineering studies, historical experience
and other factors are used to identify and evaluate remediation alternatives and their related costs in determining
the estimated accruals for environmental remediation activities. Losses attributable to unasserted claims are also
reflected in the accruals to the extent their occurrence is probable and reasonably estimable.
Management believes that none of the current remediation locations are material, individually or in the
aggregate, to our financial position at December 31, 2012. As a result, our exposure to adverse developments
with respect to any individual site is not expected to be material. However, if changes in environmental
regulations occur, such changes could impact several of our facilities. As a result, from time to time, significant
charges against income for environmental remediation may occur.
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, in whole or in part, 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 IPO. We have agreed to indemnify Sunoco and its affiliates for events and conditions associated with the
operation of the assets that occur on or after the closing of the IPO and for environmental and toxic tort liabilities
to the extent Sunoco is not required to indemnify us. See “Agreements with Related Parties” for additional
information.
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