Sunoco 2015 Annual Report Download - page 77

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Management's process for evaluating goodwill for impairment involves estimating the fair value of the Partnership's
reporting units that include goodwill. During the fourth quarter 2015, the Partnership realigned its reporting segments and, in
accordance with accounting guidance, was required to test its goodwill balance for impairment both before and after the change
in its reportable segments. As a result of the recent volatility within the energy markets, the Partnership utilized the assistance
of a third party valuation firm to develop models to estimate the fair value of each of its reporting units that contain goodwill.
Inherent in estimating fair value for each reporting unit are certain judgments and estimates relating the market multiples
for comparable businesses, management's interpretation of current economic indicators, and market conditions and assumptions
about the Partnership's strategic plans with regards to its operations. To the extent additional information arises, market
conditions change or the Partnership's strategies change, it is possible the conclusion regarding whether the goodwill is
impaired could change and result in future goodwill impairment charges.
During 2015, fair value of the reporting units was estimated using a combination of the discounted cash flow and 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 unit. 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. For the 2015 impairment test, the fair
value of the Partnership's legacy Crude Oil Acquisition and Marketing segment was determined to be approximately 3 percent
less than its carrying value. In accordance with accounting guidance, if the fair value of the reporting unit is estimated to be less
than its carrying value, a second test is performed to estimate the fair value of the reporting unit's assets and liabilities, which
includes determining an implied goodwill value. The Partnership performed the second test and determined that the implied fair
value of the Crude Oil Acquisition and Marketing segment's goodwill exceeded its current carrying value. As a result, the
Partnership determined that its goodwill balance was not impaired for the period ended December 31, 2015.
Prior to 2015, the Partnership utilized a market multiple methodology to estimate the fair value of its reporting units.
Under this approach, ratios of business enterprise value to EBITDA of comparable companies was used to estimate the fair
value. Management established the estimated 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. For the periods ended December 31, 2013 and 2014, the Partnership determined that
goodwill was not impaired.
See Note 9 for additional information on the Partnership's goodwill balance.
Intangible Assets
The Partnership has acquired intangible assets, such as customer relationships and patents related to butane blending
technology. The value assigned to these intangible assets is amortized on a straight-line basis over their respective economic
lives through depreciation and amortization expense in the consolidated statements of comprehensive income.
Environmental Remediation
The Partnership accrues environmental remediation costs for work at identified sites where an assessment has indicated
that cleanup costs are probable and reasonably estimable. Such accruals are undiscounted and are based on currently available
information, estimated timing of remedial actions and related inflation assumptions, existing technology and presently enacted
laws and regulations. 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 this range is
accrued.
Income Taxes
The Partnership is not a taxable entity for U.S. federal income tax purposes, or for the majority of states that impose
income taxes. Rather, income taxes are generally assessed at the partner level. There are some states in which the Partnership
operates where it is subject to state and local income taxes. Substantially all of the income tax amounts reflected in the
Partnership's consolidated financial statements are related to the operations of Inland, Mid-Valley and West Texas Gulf, all of
which are subject to income taxes for federal and state purposes at the corporate level. The effective tax rates for these entities
approximate the federal statutory rate of 35 percent.
The Partnership recognizes a tax benefit from uncertain positions only if it is more likely than not that the position is
sustainable, based solely on its technical merits and consideration of the relevant taxing authorities' widely understood
administrative practices and precedents. The tax benefits recognized from such positions are measured based on the largest
benefit that has a greater than 50 percent likelihood of being realized upon settlement.