Sunoco 2013 Annual Report Download - page 53

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restoration costs to be incurred in the future at the facilities and properties, including liabilities for environmental remediation
obligations. Under our accounting policies, liabilities are recorded when site restoration and environmental remediation and
cleanup obligations are either known or considered probable and can be reasonably estimated. For a discussion of the accrued
liabilities and charges against income related to these activities, see Note 11 to the consolidated financial statements included in
Item 8. "Financial Statements and Supplementary Data."
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 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 February 2002 initial public offering ("IPO"). See
"Agreements with Related Parties."
For more information concerning environmental matters, see Item 1. "Business—Environmental Regulation."
Impact of Inflation
Although the impact of inflation has slowed in recent years, it is still a factor in the United States economy and may
increase the cost to acquire or replace properties, plants, and equipment and may increase the costs of labor and supplies. To the
extent permitted by competition, regulation, and existing agreements, we have and will continue to pass along increased costs
to customers in the form of higher fees.
Critical Accounting Policies
A summary of our significant accounting policies is included in Note 2 to the consolidated financial statements included
in Item 8. "Financial Statements and Supplementary Data." Management believes that the application of these policies on a
consistent basis enables us to provide the users of the consolidated financial statements with useful and reliable information
about our operating results and financial condition. The 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.
Our long-lived assets include identifiable intangible assets, which are comprised of customer relationships consisting of
throughput contracts and historical shipping rights, and technology related assets, which consist of patented technology
associated with our 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) we acquired
information about or access to customers, (ii) the customers now have the ability to transact business with us and (iii) we are
positioned due to limited competition to provide products or services to the customers. The customer relationship intangible
assets are amortized on a straight-line basis over their respective economic lives. Technology related intangible assets consist of
our 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 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, but are not limited to: 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