Sunoco 2015 Annual Report Download - page 62

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Management's process for evaluating goodwill for impairment involves estimating the fair value of our reporting units that
contain goodwill. During the fourth quarter 2015, we realigned our reporting segments and, in accordance with accounting
guidance, were required to test our goodwill balance for impairment both before and after the change in our reportable segments.
As a result of the recent volatility within the energy markets, we utilized the assistance of a third party valuation firm in 2015 to
develop models to estimate the fair value of each of our reporting units that contain goodwill.
During 2015, fair value was estimated using a combination of the discounted cash flow and the market multiple
methodologies. Under the discounted cash flow methodology, fair value was estimated using the present value of Management's
projected cash flows for each reporting unit which was calculated using the expected return a market participant would require
for each reporting segment. Under the market multiple methodology, a selection of peer group companies, which are similar
from an operational or industry perspective, were considered in estimating market multiples. These multiples were applied to
Management's projected Adjusted EBITDA in order to estimate fair value. Prior to the 2015 impairment test, fair value was
estimated using a market multiple methodology whereby ratios of business enterprise value to EBITDA of comparable
companies was used to estimate the fair value of our reporting units. Management established fair value by comparing the
reporting unit to other companies that are similar, from an operational or industry perspective, and by considering risk
characteristics in order to determine the risk profile relative to the comparable companies as a group.
There were no goodwill impairments identified during the 2013 through 2015 period. For additional information on our
current year impairment test, see Note 2 to the consolidated financial statements included in Item 8. "Financial Statements and
Supplementary Data."
Environmental Remediation
At December 31, 2015, our accrual for environmental remediation activities was $6 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, 2015. 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.
New Accounting Pronouncements
For a discussion of recently issued accounting pronouncements, see Note 2 to the consolidated financial statements
included in Item 8. "Financial Statements and Supplementary Data."