Sunoco 2013 Annual Report Download - page 70

68
Assets acquired and liabilities assumed in connection with acquisitions from entities under common control are recorded
by the Partnership at the entity's net carrying value. The Partnership records any difference between the consideration paid and
the carrying value of the net assets and liabilities as a distribution from or contribution to equity.
The Partnership's asset acquisitions are recorded at the purchase price, which is allocated to the acquired assets and
assumed liabilities based on their relative estimated fair values.
Assets acquired and liabilities assumed include tangible and intangible assets, and contingent assets and liabilities. The
estimated fair values of these assets and liabilities are determined based on observable inputs such as quoted market prices,
information from comparable transactions, offers made by other prospective acquirers in the cases where the Partnership has
certain rights to acquire additional interests in existing investments, and the replacement cost of assets in the same condition or
stage of usefulness; or on unobservable inputs such as expected future cash flows or internally developed estimates of value.
The Partnership's fair value measurements are classified within the fair value hierarchy established by GAAP based on the
lowest level (least observable) input that is significant to the measurement in its entirety.
See Note 3 for additional information concerning the Partnership's recent acquisitions.
Impairment of Long-Lived Assets
Long-lived assets, other than those held for sale, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be recoverable. An asset is considered to be impaired
when the undiscounted estimated net cash flows expected to be generated by the asset are less than its carrying amount. The
impairment recognized is the amount by which the carrying amount exceeds the estimated fair value of the impaired asset.
Long-lived assets held for sale are recorded at the lower of their carrying amount or estimated fair value less cost to sell the
assets.
In September 2011, Sunoco announced its intention to exit its refining business in the northeast and initiated a process to
sell its refineries located in Philadelphia and Marcus Hook, Pennsylvania. In December 2011, the main processing units at the
Marcus Hook refinery were idled indefinitely. Management assessed the impact that Sunoco's decision to exit its refining
business in the northeast would have on the Partnership's assets that historically served the refineries and determined that the
Partnership's refined products pipeline and terminal assets continued to have expected future cash flows that support their
carrying values. However, the Partnership recognized a $42 million charge in the fourth quarter 2011 for crude oil terminal
assets which would have been negatively impacted if the Philadelphia refinery was permanently idled. 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 the assets were permanently idled. In September 2012, Sunoco completed the
formation of Philadelphia Energy Solutions ("PES"), a joint venture with The Carlyle Group, which enabled the Philadelphia
refinery to continue operating. During the second quarter 2012, the Partnership reversed $10 million of regulatory obligations
which were no longer expected to be incurred.
The impairment recognized by the Partnership in 2011 was calculated using fair value assumptions, including comparable
land sale transactions and current replacement costs of similar new equipment, adjusted to reflect the age, condition,
maintenance history and estimated useful life of the assets. Since the fair value assessment reflected both observable and
unobservable inputs, it was determined to be a level 3 fair value measurement within the fair value hierarchy under current
accounting guidance.
The Partnership also recognized an impairment charge of $9 million in 2012. These charges related to the cancellation of
a software project and other costs associated with the write-off of assets that the Partnership could not deploy elsewhere within
its operations.
Goodwill
Goodwill, which represents the excess of the purchase price in a business combination over the fair value of net assets
acquired, is tested for impairment annually in the fourth quarter, or more often if events or changes in circumstances indicate
that the carrying value of goodwill may exceed its estimated fair value. The Partnership determined during 2013, 2012 and
2011 that goodwill was not impaired.
Management's process of evaluating goodwill for impairment involves estimating the fair value of the Partnership's
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, management's interpretation of current economic indicators
and market conditions, and assumptions about the Partnership's strategic plans with regard to its operations. To the extent
additional information arises, market conditions change or the Partnership's 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 the ratios of business enterprise value to earnings
before interest, taxes, depreciation and amortization ("EBITDA") of comparable companies are used to estimate the fair value