Sunoco 2013 Annual Report Download - page 54

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amount exceeds the fair market value of the impaired asset. It is also difficult to precisely estimate fair market value because
quoted market prices for our long-lived assets may not be readily available. Therefore, fair market value is generally based on
the present values of estimated future cash flows using discount rates commensurate with the risks associated with the assets
being reviewed for impairment.
In 2012, we recognized a non-cash impairment charge of $9 million related to a cancelled software project for the crude
oil acquisition and marketing business and a refined products pipeline project in Texas. In 2011, we recognized a $42 million
charge for certain crude oil terminal assets which would have been negatively impacted if Sunoco had permanently idled its
Philadelphia refinery. The charge included a $31 million non-cash impairment for asset write-downs at the Fort Mifflin
Terminal Complex and $11 million 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
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 our 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 our strategic plans with regard to our operations. To the extent additional information arises,
market conditions change or our 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, 2013, our accrual for environmental remediation activities was $5 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 regarding 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 projects are material, individually or in the aggregate, to our
financial position at December 31, 2013. 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.
In summary, total future costs for environmental remediation activities will depend upon, among other things, the
identification of any additional sites; the determination of the extent of the contamination at each site; the timing and nature of
required remedial actions; the technology available and needed to meet the various existing legal requirements; the nature and
terms of cost sharing arrangements with other potentially responsible parties; the nature and extent of future environmental
laws; inflation rates and the determination of our liability at the sites, if any, in light of the number, participation level and
financial viability of other parties.