Sunoco 2012 Annual Report Download - page 81

Long-Term Incentive Plan
The Partnership accounts for the compensation cost of all unit-based payment awards at fair value and
reports the related expense within selling, general and administrative expenses in the consolidated statements of
comprehensive income. Unit-based compensation cost for awards of restricted units is derived from the fair
market value of common units on the grant date using a Monte Carlo Simulation if the payout is determined by
market criteria related to unit proxies or grant date market price of the underlying unit. The Partnership
recognizes unit-based compensation cost as expense ratably on a straight-line basis over the requisite service
period. In accordance with the terms of certain awards issued prior to 2013, the recognition of compensation cost
is accelerated in the period the participant becomes retirement-eligible.
Asset Retirement Obligations
Asset retirement obligations (“AROs”) represent the fair value of a liability related to the retirement of long-
lived assets and are recorded at the time a legal obligation is incurred. A corresponding asset is also recorded at
that time and is depreciated over the remaining useful life of the related asset. The fair value of any ARO is
determined based on estimates and assumptions related to retirement costs, which the Partnership bases on
historical retirement costs, future inflation rates and credit-adjusted risk-free interest rates. These fair value
assessments are considered to be level 3 measurements as they are based on both observable and unobservable
inputs. Changes in the liability are recorded for the passage of time (accretion) or for revisions to cash flows
originally estimated to settle the ARO.
The Partnership’s consolidated balance sheets included liabilities for asset retirement obligations, as a
component of other deferred credits and liabilities, of $41 and $51 million at December 31, 2012 and 2011,
respectively. The decrease in the balance from 2011 to 2012 was attributable to the $10 million reversal of
certain regulatory obligations which were no longer expected to be incurred as a result of Sunoco’s joint venture
with The Carlyle Group. The Partnership believes it may have additional asset retirement obligations related to
its pipeline assets and storage tanks, for which it is not possible to estimate whether or when the retirement
obligations will be settled. Consequently, these retirement obligations cannot be measured at this time.
Fair Value Measurements
The Partnership determines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. The Partnership utilizes
valuation techniques that maximize the use of observable inputs (levels 1 and 2) and minimize the use of
unobservable inputs (level 3) within the fair value hierarchy established by the FASB. The Partnership generally
applies a “market approach” to determine fair value. This method uses pricing and other information generated
by market transactions for identical or comparable assets and liabilities. Assets and liabilities are classified
within the fair value hierarchy based on the lowest level (least observable) input that is significant to the
measurement in its entirety.
In May 2011, the FASB issued a new accounting standard update which amended the fair value
measurement guidance and included enhanced disclosure requirements. The most significant change in
disclosures was an expansion of the information required for level 3 measurements based on unobservable inputs.
The Partnership adopted the amended guidance on January 1, 2012. The adoption of the amended guidance did
not have a material impact on the Partnership’s consolidated financial statements and disclosures.
Comprehensive Income
In June 2011, the FASB codified guidance related to the presentation of comprehensive income. The
guidance requires entities to present net income and other comprehensive income in a single continuous
statement of comprehensive income or in two separate, but consecutive, statements. The components of net
income and other comprehensive income are presented in the Partnership’s consolidated statements of
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