Sunoco 2013 Annual Report Download - page 57

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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 and various
other assets. Any environmental and toxic tort liabilities not covered by this indemnity will be our responsibility. 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 extent of future environmental
laws; inflation rates; and the determination of the liability at multiparty sites, if any, in light of the number, participation levels,
and financial viability of other parties. 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.
Sunoco has also agreed to indemnify us for liabilities relating to:
• the assets contributed to SXL, other than environmental and toxic tort liabilities, that arise out of the operation of
the assets prior to the closing of the IPO and that are asserted within ten years after the closing of the IPO;
• certain defects in title to the assets contributed to SXL and failure to obtain certain consents and permits necessary
to conduct the business that arise within ten years after the closing of the IPO;
• legal actions related to the period prior to the IPO currently pending against Sunoco or its affiliates; and
• events and conditions associated with any assets retained by Sunoco or its affiliates.
Treasury Services Agreement
We have a treasury services agreement with Sunoco pursuant to which, among other things, we participate in Sunoco's
centralized cash management program. Under this program, all of the cash receipts and cash disbursements are processed,
together with those of Sunoco and its subsidiaries, through Sunoco’s cash accounts with a corresponding credit or charge to an
affiliated account. The affiliated balances are settled periodically, but no less frequently than monthly. Amounts due from
Sunoco and its subsidiaries earn interest at a rate equal to the average rate of our third-party money market investments, while
amounts due to Sunoco and its subsidiaries bear interest at a rate equal to the interest rate provided in the $1.50 billion Credit
Facility. In the fourth quarter 2013, we established separate cash accounts to process our own cash receipts and disbursements.
Upon completion of the transition for our customers and vendors in 2014, we will cease participation in Sunoco's cash
management program.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including changing interest rates and volatility in crude oil, refined products and
NGL commodity prices. To manage such exposure, interest rates, inventory levels and expectations of future commodity prices
are monitored when making decisions with respect to risk management.
Interest Rate Risk
We have interest-rate risk exposure for changes in interest rates relating to our outstanding borrowings. We manage our
exposure to changing interest rates through the use of a combination of fixed- and variable-rate debt. At December 31, 2013,
we had $235 million of variable-rate borrowings under our revolving credit facilities. Outstanding borrowings bear interest cost
of LIBOR plus an applicable margin. An increase in short-term interest rates will have a negative impact on funds borrowed
under variable-rate debt arrangements. The weighted average variable interest rate on our variable-rate borrowings was 2
percent at December 31, 2013. A one percent change in the weighted average rate would have impacted annual interest expense
by approximately $2 million.
At December 31, 2013, we had $2.15 billion of fixed-rate borrowings which was comprised of our outstanding senior
notes. This amount excludes the $120 million premium resulting from the adjustment of our assets and liabilities to fair value
resulting from the application of push-down accounting in connection with the acquisition of the general partner by ETP. The
estimated fair value of our senior notes was $2.17 billion at December 31, 2013. A hypothetical one-percent decrease in interest
rates would increase the fair value of our fixed-rate borrowings at December 31, 2013 by approximately $205 million.
Commodity Market Risk
We are exposed to volatility in crude oil, refined products and NGL commodity prices. To manage such exposures,
inventory levels and expectations of future commodity prices are monitored when making decisions with respect to risk
management and inventory carried. Our policy is to purchase only commodity products for which we have a market and to
structure our sales contracts so that price fluctuations for those products do not materially affect the margins we receive. We