Sunoco 2013 Annual Report Download - page 72

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Long-Term Incentive Plan
The Partnership accounts for the compensation cost associated with all unit-based payment awards at fair value and
reports the related expense within selling, general and administrative expenses in the consolidated statements of comprehensive
income. Unit-based compensation cost for awards of restricted units is based on either the fair market value of common units
on the grant date using a Monte Carlo Simulation (if the payout is determined by market criteria relative to unit proxies), or the
grant date market price of the underlying unit. The Partnership recognizes unit-based compensation expense on a straight-line
basis over the requisite service period. In accordance with the terms of certain awards issued prior to 2013, the recognition of
compensation cost is accelerated for participants who become retirement-eligible during the applicable vesting period.
Asset Retirement Obligations
Asset retirement obligations ("AROs") represent the fair value of liabilities related to the future retirement of long-lived
assets and are recorded at the time a legal obligation is incurred. A corresponding asset is recorded concurrently and is
depreciated over the remaining useful life of the related long-lived asset. The fair value of the ARO is determined based on
estimates and assumptions regarding retirement costs related to the Partnership's pipelines and storage tanks. The Partnership
bases these estimates on historical retirement costs, future inflation rates and credit-adjusted risk-free interest rates. These fair
value assessments are considered to be level 3 measurements as they are based on both observable and unobservable inputs.
Changes in the liability are recorded for the passage of time (accretion) or for revisions to cash flows originally estimated to
settle the ARO.
The Partnership's consolidated balance sheets include AROs as a component of other deferred credits and liabilities of
$41 million at December 31, 2013 and 2012. The Partnership believes it may have additional asset retirement obligations
related to its pipeline assets and storage tanks for which it is not possible to estimate whether or when the retirement obligations
will be settled. Consequently, these retirement obligations cannot be measured at this time.
Fair Value Measurements
The Partnership determines fair value as the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. The Partnership utilizes valuation techniques that
maximize the use of observable inputs (levels 1 and 2) and minimize the use of unobservable inputs (level 3) within the fair
value hierarchy established by the Financial Accounting Standards Board ("FASB"). The Partnership generally applies a
"market approach" to determine fair value. This method uses pricing and other information related to market transactions for
identical or comparable assets and liabilities. Assets and liabilities are classified within the fair value hierarchy based on the
lowest level (least observable) input that is significant to the measurement in its entirety.
Comprehensive Income
The components of net income and other comprehensive income are presented in the Partnership's consolidated
statements of comprehensive income. In February 2013, the FASB codified guidance related to the presentation and disclosure
of components reclassified out of accumulated other comprehensive income (loss). The adoption of the new guidance, effective
for the Partnership beginning January 1, 2013, did not have a material impact on the Partnership's consolidated financial
statements and disclosures.
Lease Accounting
The Partnership accounts for arrangements that convey the right to use property, plant or equipment for a stated period of
time as leases. Whether an arrangement contains a lease is determined at inception of the arrangement based on all of the facts
and circumstances. The Partnership reassesses whether an arrangement contains a lease after the inception of the arrangement
only if (a) there is a change in the contractual terms, (b) a renewal option is exercised or an extension is agreed to by the parties
to the arrangement, (c) there is a change in the determination of whether or not fulfillment is dependent on specified property,
plant, or equipment, or (d) there is a substantial physical change to the specified property, plant, or equipment. The Partnership
continually analyzes its new and existing arrangements to evaluate whether they contain leases. Revenue or expense from
arrangements where the Partnership is the lessor or lessee, respectively, is recognized ratably over the term of the underlying
arrangement.