Sunoco 2012 Annual Report Download - page 65

• our obligation 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 related to the assets to the extent Sunoco is not required to indemnify us.
Administrative Services
We have no employees, and reimburse the general partner and its affiliates for certain costs and other direct
expenses incurred on our behalf. In addition, we have incurred additional general and administrative costs which
we pay directly.
Under the Omnibus Agreement, we pay Sunoco an annual administrative fee that includes expenses incurred
by Sunoco and its affiliates to perform centralized corporate functions, such as legal, accounting, treasury,
engineering, information technology, insurance, and other corporate services, including the administration of
employee benefit plans. This fee was $5, $13, $13 and $5 million for the periods from October 5, 2012 to
December 31, 2012, from January 1, 2012 to October 4, 2012, and for the years ended December 31, 2011 and
2010, respectively. These fees do not include the costs of shared insurance programs (which are allocated to us
based upon our share of the cash premiums incurred), the salaries of pipeline and terminal personnel or other
employees of the general partner, or the cost of their employee benefits.
The initial term of Section 4.1 of the Omnibus Agreement (which concerns our obligation to pay the annual
fee for provision of certain general and administrative services) was through the end of 2004. The parties have
extended the term of Section 4.1 annually by one year in each year following 2004. The 2012 annual fee
increased to $18 million to cover additional consolidation of services provided by Sunoco that were previously
provided by third parties and included an allocation of senior management costs. The costs may be increased if
the acquisition or construction of new assets or businesses requires an increase in the level of general and
administrative services received by us. In the event that we are unable to obtain such services from Sunoco or
other third parties at or below the current cost, our results of operations and financial condition may be adversely
impacted.
In addition to the fees for the centralized corporate functions, selling, general and administrative expenses in
the consolidated statements of comprehensive income include the allocation of shared insurance costs of $2, $5,
$4 and $4 million for the periods from October 5, 2012 to December 31, 2012, from January 1, 2012 to
October 4, 2012, and for the years ended December 31, 2011 and 2010, respectively. Our share of allocated
Sunoco employee benefit plan expenses, including non-contributory defined benefit retirement plans, defined
contribution 401(k) plans, employee and retiree medical, dental and life insurance plans, incentive compensation
plans and other such benefits was $10, $28, $26 and $29 million for the periods from October 5, 2012 to
December 31, 2012, from January 1, 2012 to October 4, 2012, and for the years ended December 31, 2011 and
2010, respectively. These expenses are reflected in cost of products sold and operating expenses and selling,
general and administrative expenses in the consolidated statements of comprehensive income.
Indemnification
Under the terms of the Omnibus Agreement and in connection with the contribution of assets 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 IPO. Sunoco is obligated
to indemnify us for 100 percent of all losses asserted within the first 21 years of closing of the IPO. Sunoco’s
share of liability for claims asserted thereafter will decrease by 10 percent a year. For example, for a claim
asserted during the twenty-third year after closing of the IPO, Sunoco would be required to indemnify us for
80 percent of the loss. There is no monetary cap on the amount of indemnity coverage provided by Sunoco. In
addition, this indemnification applies to the following, purchased from Sunoco subsequent to the IPO: interests in
the Mesa Pipeline system, Mid-Valley, West Texas Gulf and Inland, as well as the Eagle Point tank farm. Any
environmental and toxic tort liabilities not covered by this indemnity will be our responsibility. Total future costs
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