Sunoco 2012 Annual Report Download - page 98

The total fair value of restricted unit awards vested 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 was $18,
$2, $18, and $9 million, respectively. As of December 31, 2012, estimated compensation cost related to non-
vested awards not yet recognized was $10 million, and the weighted average period over which this cost is
expected to be recognized in expense is 2.5 years. The number of restricted stock units outstanding and the total
compensation cost related to non-vested awards not yet recognized reflects the Partnership’s estimates of
performance factors for certain restricted unit awards.
The estimated fair value of restricted units under the LTIP is determined based upon the nature of the award.
For performance-based awards, the fair value is determined using the grant date market price of the Partnership’s
common units. For market-based awards, the fair value is determined using a Monte Carlo simulation.
The Partnership recognizes compensation expense on a straight-line basis over the requisite service period,
and estimates forfeitures over the requisite service period when recognizing compensation expense.
The following table summarizes the fair value assumptions associated with the performance based awards
issued during the periods presented. The awards granted in the period from October 5, 2012 to December 31,
2012 were not performance based awards.
Predecessor
Period from
January 1, 2012 to
October 4, 2012
Year Ended December 31,
2011 2010
Expected unit-price volatility .................... 22.8% 24.6% 25.9%
Distribution yield ............................. 4.6% 5.4% 6.4%
Risk-free interest rate .......................... 0.3% 1.0% 1.6%
Weighted average fair value of performance units
granted during the year ...................... $34.94 $31.51 $25.16
Expected unit-price volatility is based on the daily historical volatility of the Partnership’s common units,
generally for the three years prior to the grant date. The distribution yield represents the Partnership’s annualized
distribution yield on the average closing price of the Partnership’s common units 30 days prior to the date of
grant. The risk-free interest rate is based on the zero-coupon U.S. Treasury bond, with a term equal to the
remaining contractual term of the restricted unit awards.
The Partnership recognized unit-based compensation expense within selling, general and administrative
expenses in the consolidated statements of comprehensive income related to the LTIP of $2, $6, $6 and $5
million in 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, related to the unit grants and performance factor
adjustments noted in the table above. Each of the restricted unit grants also have tandem DERs which are
recognized as a reduction of equity when earned.
15. Derivatives and Risk Management
The Partnership is exposed to various market risks, including volatility in crude oil and refined product
prices, counterparty credit risk and interest rates. In order to manage such exposure, the Partnership’s policy is
(i) to only purchase crude oil and refined products for which sales contracts have been executed or for which
ready markets exist, (ii) to structure sales contracts so that price fluctuations do not materially impact the margins
earned, and (iii) not to acquire and hold physical inventory, futures contracts or other derivative instruments for
the purpose of speculating on commodity price changes. Although the Partnership seeks to maintain a balanced
inventory position within its commodity inventories, net unbalances may occur for short periods of time due to
production, transportation and delivery variances. When physical inventory builds or draws do occur, the
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