UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                       to                     

Commission file number 1-31219

SUNOCO LOGISTICS PARTNERS L.P.

Delaware		23-3096839
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
Mellon Bank Center
1735 Market Street, Suite LL, Philadelphia, PA		19103-7583
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (866) 248-4344

Former name, former address and formal fiscal year, if changed since last report: Not Applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer o     Accelerated filer þ      Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o  No þ

At August 2, 2006, the number of the registrant’s Common Units outstanding was 22,844,051, and its Subordinated Units outstanding was 5,691,819.

 

 

SUNOCO LOGISTICS PARTNERS L.P.

INDEX

		Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the Three Months Ended June 30, 2006 and 2005 (unaudited)			3
Condensed Consolidated Statements of Income for the Six Months Ended June 30, 2006 and 2005 (unaudited)			4
Condensed Consolidated Balance Sheets at June 30, 2006 (unaudited) and December 31, 2005			5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005 (unaudited)			6
Notes to Condensed Consolidated Financial Statements (unaudited)			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 3. Quantitative and Qualitative Disclosures about Market Risk			34
Item 4. Controls and Procedures			35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			36
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 3. Defaults Upon Senior Securities			36
Item 4. Submission of Matters to a Vote of Security Holders			36
Item 5. Other Information			36
Item 6. Exhibits			37
SIGNATURE			38
Membership Interest Purchase Agreement
Statement of Computation of Ratio of Earnings to Fixed Charges
Chief Executive Officer Certification
Chief Financial Officer Certification
Chief Executive Officer and Chief Financial Officer Certification

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

SUNOCO LOGISTICS PARTNERS L.P.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(in thousands, except unit and per unit amounts)

		Three Months Ended
		June 30,
		2006				2005
Revenues
Sales and other operating revenue:
Affiliates (Note 3)		$	518,439			$	495,010
Unaffiliated customers			973,057				585,435
Other income			3,872				4,089
Total Revenues			1,495,368				1,084,534
Costs and Expenses
Cost of products sold and operating expenses			1,439,674				1,041,388
Depreciation and amortization			9,211				7,493
Selling, general and administrative expenses			13,522				12,507
Total Costs and Expenses			1,462,407				1,061,388
Operating Income			32,961				23,146
Net interest cost paid to affiliates (Note 3)			414				87
Other interest cost and debt expense, net			7,416				5,265
Capitalized interest			(1,189	)			—
Net Income		$	26,320			$	17,794
Calculation of Limited Partners’ interest in Net Income (Note 4):
Net Income		$	26,320			$	17,794
Less: General Partner’s interest in Net Income			(4,101	)			(1,156	)
Limited Partners’ interest in Net Income		$	22,219			$	16,638
Net Income per Limited Partner unit:
Basic		$	0.81			$	0.69
Diluted		$	0.81			$	0.68
Weighted average Limited Partners’ units outstanding (Note 4):
Basic			27,466,092				24,144,043
Diluted			27,589,644				24,303,921

(See Accompanying Notes)

SUNOCO LOGISTICS PARTNERS L.P.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(in thousands, except unit and per unit amounts)

		Six Months Ended
		June 30,
		2006				2005
Revenues
Sales and other operating revenue:
Affiliates (Note 3)		$	996,760			$	971,933
Unaffiliated customers			1,755,707				1,120,361
Other income			6,263				7,716
Total Revenues			2,758,730				2,100,010
Costs and Expenses
Cost of products sold and operating expenses			2,654,460				2,016,299
Depreciation and amortization			18,157				15,615
Selling, general and administrative expenses			28,525				24,424
Total Costs and Expenses			2,701,142				2,056,338
Operating Income			57,588				43,672
Net interest cost paid to affiliates (Note 3)			723				152
Other interest cost and debt expense, net			13,866				10,428
Capitalized interest			(1,745	)			—
Net Income		$	44,744			$	33,092
Calculation of Limited Partners’ interest in Net Income (Note 4):
Net Income		$	44,744			$	33,092
Less: General Partner’s interest in Net Income			(5,445	)			(2,078	)
Limited Partners’ interest in Net Income		$	39,299			$	31,014
Net Income per Limited Partner unit:
Basic		$	1.48			$	1.29
Diluted		$	1.48			$	1.28
Weighted average Limited Partners’ units outstanding (Note 4):
Basic			26,499,007				24,116,585
Diluted			26,623,554				24,295,440

(See Accompanying Notes)

SUNOCO LOGISTICS PARTNERS L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

		June 30,				December 31,
		2006				2005
		(UNAUDITED)
Assets
Current Assets
Cash and cash equivalents		$	25,442			$	21,645
Advances to affiliates (Note 3)			7,754				—
Accounts receivable, affiliated companies (Note 3)			165,344				136,536
Accounts receivable, net			808,126				584,509
Inventories:
Crude oil			29,219				27,561
Materials, supplies and other			725				700
Total Current Assets			1,036,610				770,951
Properties, plants and equipment			1,440,323				1,287,542
Less accumulated depreciation and amortization			(481,895	)			(472,706	)
Properties, plants and equipment, net			958,428				814,836
Investment in affiliates (Note 5)			69,071				69,097
Deferred charges and other assets			31,232				25,801
Total Assets		$	2,095,341			$	1,680,685
Liabilities and Partners’ Capital
Current Liabilities
Accounts payable		$	958,315			$	720,127
Accrued liabilities			28,489				32,884
Accrued taxes other than income			23,853				20,986
Advances from affiliates (Note 3)			—				5,750
Total Current Liabilities			1,010,657				779,747
Long-term debt (Note 6)			423,813				355,573
Other deferred credits and liabilities			23,343				21,954
Commitments and contingent liabilities (Note 7)
Total Liabilities			1,457,813				1,157,274
Partners’ Capital:
Limited partners’ interest			627,027				515,512
General partner’s interest			10,501				7,899
Total Partners’ Capital			637,528				523,411
Total Liabilities and Partners’ Capital		$	2,095,341			$	1,680,685

(See Accompanying Notes)

SUNOCO LOGISTICS PARTNERS L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

		Six Months Ended
		June 30 ,
		2006				2005
Cash Flows from Operating Activities:
Net Income		$	44,744			$	33,092
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			18,157				15,615
Restricted unit incentive plan expense			2,572				1,642
Changes in working capital pertaining to operating activities net of the effect of acquisitions:
Accounts receivable, affiliated companies			(28,808	)			2,512
Accounts receivable, net			(223,617	)			(167,205	)
Inventories			506				2,347
Accounts payable and accrued liabilities			233,554				143,373
Accrued taxes other than income			2,867				1,034
Other			(3,762	)			(2,533	)
Net cash provided by operating activities			46,213				29,877
Cash Flows from Investing Activities:
Capital expenditures			(53,759	)			(17,930	)
Acquisitions			(108,900	)			—
Net cash used in investing activities			(162,659	)			(17,930	)
Cash Flows from Financing Activities:
Distributions paid to Limited Partners and General Partner			(45,047	)			(32,013	)
Payments of statutory withholding on net issuance of Limited Partner units under restricted unit incentive plan			(1,443	)			(2,863	)
Net proceeds from issuance of Limited Partner units			110,357				99,203
Redemption of Limited Partner units from Sunoco			—				(99,203	)
Contributions from General Partner for Limited Partner unit transactions			2,426				137
Net proceeds from issuance of Senior Notes			173,307				—
Repayments from (advances to) affiliates, net			(13,504	)			14,449
Borrowings under credit facility			109,500				—
Repayments under credit facility			(216,100	)			—
Contributions from affiliate			747				895
Net cash provided by /(used in) financing activities			120,243				(19,395	)
Net change in cash and cash equivalents			3,797				(7,448	)
Cash and cash equivalents at beginning of year			21,645				52,660
Cash and cash equivalents at end of period		$	25,442			$	45,212

(See Accompanying Notes)

SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. Basis of Presentation

     Sunoco Logistics Partners L.P. (the “Partnership”) is a publicly traded Delaware limited partnership formed by Sunoco, Inc. (“Sunoco”) in October 2001 to acquire a substantial portion of Sunoco’s logistics business. The Partnership owns and operates a geographically diverse portfolio of complementary assets, consisting of refined product pipelines, terminalling and storage assets, crude oil pipelines, and crude oil acquisition and marketing assets located in the Northeast, Midwest and South Central United States.

     The consolidated financial statements reflect the results of Sunoco Logistics Partners L.P. and its wholly-owned partnerships, including Sunoco Logistics Partners Operations L.P. (the “Operating Partnership”). Equity ownership interests in corporate joint ventures, which are not consolidated, are accounted for under the equity method.

     The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and accounting principles generally accepted in the United States for interim financial reporting. They do not include all disclosures normally made in financial statements contained in Form 10-K. In management’s opinion, all adjustments necessary for a fair presentation of the results of operations, financial position and cash flows for the periods shown have been made. All such adjustments are of a normal recurring nature. Results for the three and six months ended June 30, 2006 are not necessarily indicative of results for the full year 2006.

2. Acquisitions

Millenium and Kilgore Pipeline Acquisition

     On March 1, 2006, the Partnership purchased a Texas crude oil pipeline system from affiliates of Black Hills Energy, Inc. for approximately $40.9 million. The system consists of (a) the Millennium Pipeline, a 200-mile, 12-inch crude oil pipeline with 65,000 barrels per day operating capacity, originating near the Partnership’s Nederland Terminal, and terminating at Longview Texas; (b) the Kilgore Pipeline, a 190-mile, 10-inch crude oil pipeline with 35,000 barrels per day capacity originating in Kilgore, Texas and terminating at refineries in the Houston, Texas region; (c) approximately 800,000 shell barrels of storage capacity at Kilgore, and Longview, Texas, 340,000 of which are active; (d) a crude oil sales and marketing business; and (e) crude oil line fill and working inventory.

     The purchase price of the acquisition was initially funded with borrowings under the Partnership’s Credit Facility, and has been allocated within the Western Pipeline System business segment to the assets acquired based on their relative fair values at the acquisition date. The following is a summary of the effects of the transaction on the Partnership’s consolidated financial position (in thousands of dollars):

Increase in:
Inventories		$	2,189
Properties, plants and equipment, net			38,711
Cash paid for acquisition		$	40,900

     The results of the acquisition are included in the financial statements from the date of acquisition.

Amdel and White Oil Pipeline Acquisition

     On March 1, 2006, the Partnership also acquired a Texas crude oil pipeline system from Alon USA Energy, Inc. for approximately $68.0 million. The system consists of (a) the Amdel Pipeline, a 503-mile, 10-inch common carrier crude oil pipeline with 27,000 barrels per day operating capacity, originating at the Nederland Terminal, and terminating at Midland, Texas, and (b) the White Oil Pipeline, a 25-mile, 10-inch crude oil pipeline with 40,000 barrels per day operating capacity, originating at the Amdel Pipeline and terminating at Alon’s Big Spring, Texas refinery. Alon has also agreed to ship a minimum of 15,000 barrels per day under a 10-year, throughput and deficiency agreement on the pipelines. The Partnership

expects shipments on the Amdel pipeline to begin during the third quarter 2006. The pipelines were idle at the time of purchase and were re-commissioned by the Partnership during the second quarter 2006. The Partnership also began construction to expand capacity on the Amdel Pipeline from 27,000 to 40,000 barrels per day, which it expects to complete by the end of 2006, and to construct new tankage at the Nederland Terminal to service these new volumes more efficiently. This capital program, including re-commissioning and expansion of the pipeline and the new tankage, is expected to total approximately $17 million. The purchase price of the acquisition was initially funded with borrowings under the Partnership’s Credit Facility, and has been allocated to property, plants and equipment based on the relative fair value of the assets acquired on the acquisition date within the Western Pipeline System business segment.

Mesa Pipe Line System Interest Acquisition

     On December 5, 2005, the Partnership purchased a subsidiary of Sunoco which owned a 7.2 percent undivided interest in the Mesa Pipe Line system for approximately $1.3 million. The Mesa Pipe Line system consists of an 80-mile, 24-inch crude oil pipeline from Midland, Texas to Colorado City, Texas, with an operating capacity of 316,000 barrels per day, and approximately 800,000 barrels of tankage at Midland. The Mesa pipeline connects to the West Texas Gulf pipeline, which supplies crude oil to the Mid-Valley pipeline. On December 29, 2005, the Partnership purchased an additional 29.8 percent interest in Mesa from Chevron for $5.3 million, increasing its combined interest to 37.0 percent. The purchase prices of the acquisitions were initially funded with $6.6 million of borrowings under the Partnership’s Credit Facility, and were allocated on a preliminary basis to property, plants and equipment within the Western Pipeline System business segment. The results of the acquisitions are included in the financial statements from the dates of acquisition.

     The Partnership and Plains All American Pipeline are the owners of the undivided interest in Mesa. On April 21, 2006, the Partnership and Plains All American Pipeline agreed to extend the Mesa operating agreement, previously scheduled to expire on June 30, 2006, until December 31, 2009.

Corsicana to Wichita Falls Pipeline Acquisition

     On August 1, 2005, the Partnership purchased, from an affiliate of Exxon Mobil Corporation, a crude oil pipeline system and storage facilities located in Texas for $100.0 million. The pipeline system consists primarily of a 187-mile, 16-inch pipeline with an operating capacity of 125,000 barrels per day. It originates at a crude oil terminal in Corsicana, Texas and terminates at Wichita Falls, Texas. The storage facilities include the Corsicana terminal, which has 2.9 million barrels of shell capacity for crude oil, and the Ringgold, Texas terminal, which consists of 0.5 million barrels of shell capacity for crude oil. In addition, the Partnership invested approximately $16.0 million in 2005 to construct a new 20-mile, 24-inch pipeline to connect the Corsicana to Wichita Falls pipeline to the West Texas Gulf pipeline, in which the Partnership has a 43.8% ownership interest. The purchase price of the acquisition was initially funded with $75.0 million of borrowings under the Partnership’s Credit Facility and $25.0 million of cash on hand. In August 2005, $56.5 million of proceeds were raised in an offering of common units (see Note 9), and were used to pay down a portion of these borrowings on the Credit Facility. The purchase price was allocated to property, plants and equipment within the Western Pipeline System business segment. The results of the acquisition are included in the financial statements from the date of acquisition.

Syracuse Terminal Acquisition

     On April 17, 2006, the Partnership signed a definitive agreement to purchase a 50 percent interest in a refined products terminal located in Syracuse, New York from Mobil Pipe Line Company, an affiliate of Exxon Mobil Corporation. Total terminal storage is approximately 550 thousand barrels. The transaction is subject to normal conditions to closing for assets of this nature. Closing is now expected to occur in the third quarter of 2006.

3. Related Party Transactions

     Advances To and From Affiliates

     The Partnership has a treasury services agreement with Sunoco pursuant to which it, among other things, participates in Sunoco’s centralized cash management program. Under this program, all of the Partnership’s cash receipts and cash disbursements are processed, together with those of Sunoco and its other subsidiaries, through Sunoco’s cash accounts with a corresponding credit or charge to an intercompany account. The intercompany balances are settled periodically, but no less frequently than monthly. Amounts due from Sunoco earn interest at a rate equal to the average rate of the Partnership’s third-party money market investments, while amounts due to Sunoco bear interest at a rate equal to the interest rate provided in the Partnership’s revolving credit facility (see Note 6).

     Selling, general and administrative expenses in the condensed consolidated statements of income include costs incurred by Sunoco for the provision of certain centralized corporate functions such as legal, accounting, treasury, engineering, information technology, insurance and other corporate services, including the administration of employee benefit plans. These are provided to the Partnership under an omnibus agreement (“Omnibus Agreement”) with Sunoco for an annual administrative fee. The fee for the annual period ended December 31, 2005 was $8.4 million. In January 2006, the parties extended the term of Section 4.1 of the Omnibus Agreement (which concerns the Partnership’s obligation to pay the annual fee for provision of certain general and administrative services) by one year. The annual administrative fee applicable to this one-year extension is $7.7 million, which reflects the Partnership directly incurring some of these general and administrative costs. These costs may be increased if the acquisition or construction of new assets or businesses requires an increase in the level of general and administrative services received by the Partnership. There can be no assurance that Section 4.1 of the Omnibus Agreement will be extended beyond 2006, or that, if extended, the administrative fee charged by Sunoco will be at or below the current administrative fee. In the event that the Partnership is unable to obtain such services from Sunoco or third parties at or below the current cost, the Partnership’s financial condition and results of operations may be adversely impacted.

     The annual administrative fee does not include the costs of shared insurance programs, which are allocated to the Partnership based upon its share of the cash premiums incurred. This fee also does not include salaries of pipeline and terminal personnel or other employees of the general partner, or the cost of their employee benefits. These employees are employees of the Partnership’s general partner or its affiliates, which are wholly-owned subsidiaries of Sunoco. The Partnership has no employees. Allocated Sunoco employee benefit plan expenses for employees who work in the pipeline, terminalling, storage and crude oil gathering operations, including senior executives, include non-contributory defined benefit retirement plans, defined contribution 401(k) plans, employee and retiree medical, dental and life insurance plans, incentive compensation plans, and other such benefits. The Partnership is reimbursing Sunoco for these costs and other direct expenses incurred on its behalf. These expenses are reflected in cost of products sold and operating expenses and selling, general and administrative expenses in the condensed consolidated statements of income.

     Accounts Receivable, Affiliated Companies

     Affiliated revenues in the condensed consolidated statements of income consist of sales of crude oil as well as the provision of crude oil and refined product pipeline transportation, terminalling and storage services to Sunoco, Inc. (R&M) (“Sunoco R&M”). Sales of crude oil are computed using the formula-based pricing mechanism of a supply agreement with Sunoco R&M. Management of the Partnership believes these terms in the aggregate to be comparable to those that could be negotiated with an unrelated third party. Pipeline revenues are generally determined using posted tariffs. The Partnership has throughput agreements with Sunoco R&M under which the Partnership is charging Sunoco R&M fees for services provided under these agreements comparable to those charged in arm’s-length, third-party transactions. Under these agreements, Sunoco R&M has agreed to pay the Partnership a minimum level of revenues for transporting and terminalling refined products and crude oil for the period specified in the agreements.

     Under other agreements between the parties, Sunoco R&M is, among other things, purchasing from the Partnership, at market-based rates, particular grades of crude oil that the Partnership’s crude oil acquisition and marketing business purchases for delivery to certain pipelines. These agreements automatically renew on a monthly basis unless terminated by either party on 30 days written notice. Sunoco R&M also leases the Partnership’s 58 miles of interrefinery pipelines between Sunoco R&M’s Philadelphia and Marcus Hook refineries for a term of 20 years, ending in 2022.

     Capital Contributions

     The Partnership has agreements with Sunoco R&M which requires Sunoco R&M to, among other things, reimburse the Partnership for certain expenditures. These agreements include:

	•		the Omnibus Agreement, which requires Sunoco R&M to, among other things, reimburse the Partnership for up to $10.0 million of expenditures required at the Marcus Hook Tank Farm and the Darby Creek Tank Farm to maintain compliance with existing industry standards and regulatory requirements. During the second quarter 2006, the Partnership received $0.1 million under this arrangement and reached the $10.0 million limit. The Partnership does not expect to receive any future reimbursements under this arrangement;
	•		the Interrefinery Lease Agreement, which requires Sunoco R&M to reimburse the Partnership for any non-routine maintenance expenditures incurred, as defined, during the term of the agreement; and

•

the Eagle Point purchase agreement, which requires Sunoco R&M to reimburse the Partnership for certain maintenance capital and expenses incurred regarding the assets acquired, as defined, up to $5.0 million through March 2014. The Partnership has received $0.6 million to date under this agreement.

     These expenditures, which were recorded as maintenance capital and operating expenses, were as follows (in thousands of dollars):

		Six Months Ended
		June 30,
		2006				2005
Maintenance capital		$	747			$	895
Operating expenses			—				—
		$	747			$	895

     The reimbursement of these amounts was recorded by the Partnership as capital contributions to Partners’ Capital within the condensed consolidated balance sheet at June 30, 2006.

     In May 2006, the Partnership sold 2.4 million common units in a public offering. In June 2006, the Partnership sold an additional 280,000 common units to cover over-allotments in connection with the May 2006 sale (see Note 9). As a result of this issuance of 2.680 million common units, the general partner contributed $2.4 million to the Partnership to maintain its 2.0 percent general partner interest. The Partnership recorded this amount as a capital contribution to Partners’ Capital within its condensed consolidated balance sheet.

     In August 2005, the Partnership sold 1.5 million common units in a public offering. In September 2005, the Partnership sold an additional 125,000 common units to cover over-allotments in connection with the August 2005 sale. As a result of this issuance of 1.625 million common units, the general partner contributed $1.3 million to the Partnership to maintain its 2.0 percent general partner interest. The Partnership recorded this amount as a capital contribution to Partners’ Capital within its condensed consolidated balance sheet.

     In February 2006 and 2005, the Partnership issued 0.1 million and 0.2 million common units, respectively, to participants in the Sunoco Partners LLC Long-Term Incentive Plan (“LTIP”) upon completion of award vesting requirements. As a result of these net issuances of common units, the general partner contributed $0.1 million in each period to the Partnership to maintain its 2.0 percent general partner interest. The Partnership recorded these amounts as capital contributions to Partners’ Capital within its condensed consolidated balance sheets.

     Asset Acquisition

     On December 5, 2005, the Partnership acquired a subsidiary of Sunoco, which owned a 7.2 percent undivided interest in the Mesa Pipe Line system for approximately $1.3 million (see Note 2). Since the acquisition was from a related party, the interest in the entity was recorded by the Partnership at Sunoco’s historical cost of $0.2 million, and the $1.1 million difference between the purchase price and the cost basis of the assets was recorded by the Partnership as a capital distribution.

     Redemption of Common Units

     In May and June 2005, the Partnership sold a total of 2.775 million common units in a public offering. The net proceeds from the sale were used to redeem 2.775 million common units owned by Sunoco for $99.6 million. Also in connection with the equity offering, Sunoco agreed to reimburse the Partnership for transaction costs incurred by the Partnership. Reimbursement of these costs of $0.4 million occurred during the third quarter of 2005 when the transaction costs were finalized, and the reimbursement was accounted for as an increase to Partners’ Capital within the Partnership’s condensed consolidated balance sheet.

     Conversion of Subordinated Units

     A total of 5,691,820 subordinated limited partner units, equal to one-half of the originally issued subordinated units held by the general partner, were converted to common units, 2,845,910 each on February 15, 2006 and February 15, 2005, as the Partnership met the requirements set forth in the partnership agreement (see Note 10).

4. Net Income Per Unit Data

     Except as discussed in the following paragraph, basic and diluted net income per limited partner unit is calculated by dividing net income, after deducting the amount allocated to the general partner’s interest, by the weighted-average number of limited partner common and subordinated units outstanding during the period.

     Emerging Issues Task Force Issue No. 03-06 (“EITF 03-06”) “Participating Securities and the Two-Class Method under FASB Statement No. 128” addresses the computation of earnings per share by entities that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the entity. EITF 03-06 provides that the general partner’s interest in net income is to be calculated based on the amount that would be allocated to the general partner if all the net income for the period were distributed, and not on the basis of actual cash distributions for the period. The Partnership applied EITF 03-06 prospectively beginning with the third quarter of 2005. The application of EITF 03-06 may have an impact on earnings per limited partner unit in future periods if there are material differences between net income and actual cash distributions or if other participating securities are issued. The effect of applying EITF 03-06 to periods prior to the third quarter of 2005, however, would not have been material.

     The general partner’s interest in net income consists of its 2.0 percent general partner interest and “incentive distributions”, which are increasing percentages, up to 50 percent of quarterly distributions in excess of $0.50 per limited partner unit (see Note 10). The general partner was allocated net income of $4.1 million (representing 15.6 percent of total net income for the period) and $1.2 million (representing 6.5 percent of total net income for the period) for the three months ended June 30, 2006 and 2005, respectively, and $5.4 million (representing 12.2 percent of total net income for the period) and $2.1 million (representing 6.3 percent of total net income for the period) for the six months ended June 30, 2006 and 2005, respectively. Diluted net income per limited partner unit is calculated by dividing net income applicable to limited partners’ by the sum of the weighted-average number of common and subordinated units outstanding and the dilutive effect of incentive unit awards, as calculated by the treasury stock method.

     The following table sets forth the reconciliation of the weighted average number of limited partner units used to compute basic net income per limited partner unit to those used to compute diluted net income per limited partner unit for the three and six months ended June 30, 2006 and 2005:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Weighted average number of limited partner units outstanding — basic			27,466,092				24,144,043				26,499,007				24,116,585
Add effect of dilutive unit incentive awards			123,552				159,878				124,547				178,855
Weighted average number of limited partner units – diluted			27,589,644				24,303,921				26,623,554				24,295,440

5. Investment in Affiliates

     The Partnership’s ownership percentages in corporate joint ventures as of June 30, 2006 and December 31, 2005 are as follows:

		Equity
		Ownership
		Percentage
Explorer Pipeline Company			9.4	%
Wolverine Pipe Line Company			31.5	%
West Shore Pipe Line Company			12.3	%
Yellowstone Pipe Line Company			14.0	%
West Texas Gulf Pipe Line Company			43.8	%

     The following table provides summarized combined statement of income data on a 100 percent basis for the Partnership’s corporate joint venture interests for the three and six months ended June 30, 2006 and 2005 (in thousands of dollars):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Income Statement Data:
Total revenues		$	96,497			$	99,219			$	179,583			$	186,240
Net income		$	24,162			$	28,797			$	44,900			$	53,234

     The following table provides summarized combined balance sheet data on a 100 percent basis for the Partnership’s corporate joint venture interests as of June 30, 2006 and December 31, 2005 (in thousands of dollars):

		June 30,				December 31,
		2006				2005
Balance Sheet Data:
Current assets		$	106,166			$	100,241
Non-current assets		$	461,731			$	468,994
Current liabilities		$	84,671			$	80,054
Non-current liabilities		$	425,889			$	437,004
Net equity		$	57,337			$	52,177

     The Partnership’s investments in Wolverine, West Shore, Yellowstone, and West Texas Gulf at June 30, 2006 include an excess investment amount of approximately $55.3 million, net of accumulated amortization of $2.3 million. The excess investment is the difference between the investment balance and the Partnership’s proportionate share of the net assets of the entities. The excess investment was allocated to the underlying tangible and intangible assets. Other than land and indefinite-lived intangible assets, all amounts allocated, principally to pipeline and related assets, are amortized using the straight-line method over their estimated useful life of 40 years and included within depreciation and amortization in the condensed consolidated statements of income.

6. Long-Term Debt

     The components of long-term debt are as follows (in thousands of dollars):

		June 30,				December 31,
		2006				2005
Credit Facility		$	—			$	106,600
Senior Notes — 7.25%, due February 15, 2012			250,000				250,000
Senior Notes — 6.125%, due May 15, 2016			175,000				—
Less unamortized bond discount			(1,187	)			(1,027	)
		$	423,813			$	355,573

     Sunoco Logistics Partners Operations L.P. (the “Operating Partnership”), a wholly-owned entity of the Partnership, has a $300 million Credit Facility available to fund the Operating Partnership’s working capital requirements, to finance future acquisitions and for general partnership purposes. It may also be used to fund the quarterly distribution to a maximum of $20.0 million. Borrowing under this distribution sublimit must be reduced to zero each year for a 15-day period. The Credit Facility matures in November 2010 and may be prepaid at any time. It bears interest at the Operating Partnership’s option, at either (i) LIBOR plus an applicable margin or (ii) the higher of the federal funds rate plus 0.50 percent or the Citibank prime rate (each plus the applicable margin). There were no borrowings outstanding under the Credit Facility at June 30, 2006. The Credit Facility contains various covenants limiting the Operating Partnership’s ability to incur indebtedness; grant certain liens; make certain loans, acquisitions and investments; make any material change to the nature of its business; acquire another company; or enter into a merger or sale of assets, including the sale or transfer of interests in the Operating Partnership’s subsidiaries. The Credit Facility also contains covenants (each as defined in the credit agreement) requiring the Operating Partnership to maintain, on a rolling four-quarter basis, a maximum total debt to EBITDA ratio of 4.75 to 1, which can generally be increased to 5.25 to 1 during an acquisition period; and an interest coverage ratio of at least 3.0 to 1. The Operating Partnership is in compliance with these covenants as of June 30, 2006. The Partnership’s ratio of total debt to EBITDA was 2.9 to 1 and the interest coverage ratio was 4.7 to 1 at June 30, 2006.

     On March 1, 2006, the Partnership completed its acquisition of two Texas crude oil pipeline systems for approximately $108.9 million (see Note 2). The Partnership initially financed these transactions with $109.5 million of borrowings under the Credit Facility. All of the $216.1 million in borrowings outstanding under the Credit Facility were repaid in May 2006 with

proceeds from the Senior Notes offering described below, together with a portion of the net proceeds from the concurrent offering of 2.68 million limited partner common units (see Note 9).

     During May 2006, the Operating Partnership issued $175 million of 6.125 percent Senior Notes, due May 15, 2016 at 99.858 percent of the principal amount, for net proceeds of $173.3 million after the underwriter’s commission and legal, accounting and other transaction expenses. The discount is amortized on a straight-line basis over the term of the Senior Notes and is included within interest expense in the condensed consolidated statements of income. The Senior Notes are redeemable, at a make-whole premium, and are not subject to sinking fund provisions. The Senior Notes contain various covenants limiting the Operating Partnership’s ability to incur certain liens, engage in sale/leaseback transactions, or merge, consolidate or sell substantially all of its assets. The Operating Partnership is in compliance with these covenants as of June 30, 2006. In addition, the Senior Notes are also subject to repurchase by the Operating Partnership, at the option of the holders of the Senior Notes, at a price equal to 100 percent of their principal amount, plus accrued and unpaid interest upon a change of control to a non-investment grade entity. The net proceeds from the Senior Notes, together with the $110.4 million in net proceeds from the concurrent offering of 2.68 million limited partner common units, were used to repay all of the $216.1 million in outstanding borrowings under the Partnership’s Credit Facility The balance of the proceeds from the offerings are being used to fund the Partnership’s organic growth program and for general Partnership purposes, including to finance pending and future acquisitions.

     The Partnership and the operating partnerships of the Operating Partnership serve as joint and several guarantors of the Senior Notes and of any obligations under the Credit Facility. The guarantees are full and unconditional. See Note 13 for supplemental condensed consolidating financial information.

7. Commitments and Contingent Liabilities

     The Partnership is subject to numerous federal, state and local laws which regulate the discharge of materials into the environment or that otherwise relate to the protection of the environment. These laws and regulations result in liabilities and loss contingencies for remediation at the Partnership’s facilities and at third-party or formerly owned sites. The accrued liability for environmental remediation in the condensed consolidated balance sheets was $0.6 million as of June 30, 2006 and December 31, 2005. There are no liabilities attributable to unasserted claims, nor have any recoveries from insurance been assumed.

     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 any 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 Partnership’s liability at multi-party sites, if any, in light of uncertainties with respect to joint and several liability, and the number, participation levels and financial viability of other parties. As discussed below, the Partnership’s future costs will also be impacted by an indemnification from Sunoco.

     Sunoco has indemnified the Partnership for 30 years from environmental and toxic tort liabilities related to the assets contributed to the Partnership that arise from the operation of such assets prior to the closing of the Partnership’s initial public offering (“IPO”) on February 8, 2002. Sunoco has indemnified the Partnership for 100 percent of all such losses asserted within the first 21 years of closing of the February 2002 IPO. Sunoco’s share of liability for claims asserted thereafter will decrease by 10 percent a year. For example, for a claim asserted during the twenty-third year after closing of the February 2002 IPO, Sunoco would be required to indemnify the Partnership for 80 percent of its loss. There is no monetary cap on the amount of indemnity coverage provided by Sunoco. The Partnership has agreed to indemnify Sunoco and its affiliates for events and conditions associated with the operation of the Partnership’s assets that occur on or after the closing of the February 2002 IPO and for environmental and toxic tort liabilities to the extent Sunoco is not required to indemnify the Partnership.

     Sunoco has also indemnified the Partnership for liabilities, other than environmental and toxic tort liabilities related to the assets contributed to the Partnership, that arise out of Sunoco’s ownership and operation of the assets prior to the closing of the February 2002 IPO and that are asserted within 10 years after closing of the February 2002 IPO. In addition, Sunoco has indemnified the Partnership from liabilities relating to certain defects in title to the assets contributed to the Partnership and associated with failure to obtain certain consents and permits necessary to conduct its business that arise within 10 years after closing of the February 2002 IPO as well as from liabilities relating to legal actions pending against Sunoco or its affiliates as of February 2, 2002, or events and conditions associated with any assets retained by Sunoco or its affiliates.

     Management of the Partnership does not believe that any liabilities which may arise from claims indemnified by Sunoco would be material in relation to the consolidated financial position of the Partnership at June 30, 2006.

     There are certain other pending legal proceedings related to matters arising after the February 2002 IPO which are not indemnified by Sunoco. Management believes that any liabilities that may arise from these legal proceedings will not be material in relation to the consolidated financial position of the Partnership at June 30, 2006.

8. Management Incentive Plan

     Sunoco Partners LLC, the general partner of the Partnership, has adopted the Sunoco Partners LLC Long-Term Incentive Plan (“LTIP”) for employees and directors of the general partner who perform services for the Partnership. The LTIP is administered by the independent directors of the Compensation Committee of the general partner’s board of directors with respect to employee awards, and by the non-independent members of the general partners’ board of directors with respect to awards granted to the independent directors. The LTIP currently permits the grant of restricted units and unit options covering an aggregate of 1,250,000 common units. There have been no grants of unit options since the inception of the LTIP. Restricted unit awards under the Partnership’s LTIP generally vest upon completion of a three-year service period. For performance-based awards, adjustments for attainment of performance targets can range from 0–200 percent of the award grant, and are payable in common units. Restricted unit awards may also include tandem distribution equivalent rights (“DERs”) at the discretion of the Compensation Committee. Subject to applicable vesting criteria, a DER entitles the grantee to a cash payment equal to cash distributions paid on an outstanding common unit during the period the restricted unit is outstanding. DERs are recognized as a reduction of Partners’ Capital as they become vested.

     As of June 30, 2006, there were approximately 0.2 million unvested restricted stock units outstanding with a weighted average grant-date fair value of $39.71 per unit, and a contractual life of three years. As of June 30, 2006, total compensation cost related to non-vested awards not yet recognized was $2.7 million, and the weighted-average period over which this cost is expected to be recognized in expense is 1.8 years. The number of restricted stock units outstanding and the total compensation cost related to non-vested awards not yet recognized reflect the Partnership’s estimates of performance factors pertaining to performance-based restricted unit awards.

     Effective January 1, 2006, the Partnership adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), using the modified-prospective method. SFAS No. 123R revised the accounting for stock-based compensation required by Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Among other things, SFAS No. 123R requires a fair-value-based method of accounting for share-based payment transactions, which is similar to the method followed by the Partnership under the provisions of SFAS No. 123.

     SFAS No. 123R also requires the use of a non-substantive vesting period approach for new share-based payment awards that vest when an employee becomes retirement eligible, as is the case under the Partnership’s Long-Term Incentive Plan (i.e., the vesting period cannot exceed the date an employee becomes retirement eligible). The effect will be to accelerate expense recognition compared to the vesting period approach that the Partnership previously followed under SFAS No. 123. As a result of adopting Statement 123(R) on January 1, 2006, the Partnership’s net income is $0.9 million lower for the three and six months ended June 30, 2006, than if it had continued to account for share-based compensation under SFAS No. 123. Basic and diluted earnings per unit are each $0.01 lower for the three months ended June 30, 2006 and are $0.02 and $0.01 lower for the six months ended June 30, 2006, respectively, than if the Partnership had continued to account for share-based compensation under SFAS No. 123. The future impact of the non-substantive vesting period will be dependent upon the value of future stock-based awards granted to employees who are eligible to retire prior to the normal vesting periods of the awards.

     The Partnership recognized share-based compensation expense related to the LTIP of approximately $2.6 million in the first six months of 2006 under SFAS No. 123R and $1.6 million for the first six months of 2005 under SFAS No.123. During the year ended December 31, 2005, approximately 118,400 awards under the LTIP vested. During the first quarter of 2006, the Partnership issued 86,827 new common units (after netting for taxes of approximately $1.4 million) and made DER-related payments of approximately $0.7 million in connection with the vesting.

9. Equity Offerings

     In May 2006, the Partnership sold 2.4 million common units in a public offering at a price of $43.00 per unit. In June 2006, the Partnership sold an additional 280,000 common units to cover over-allotments in connection with the May 2006 sale. The purchase price for the over allotment was equal to the offering price in the May 2006 sale. The units were issued under the Partnership’s Form S-3 shelf registration statement declared effective by the SEC in April 2006. The total sale of units resulted in gross proceeds of $115.2 million, and net proceeds of $110.4 million, after the underwriters’ commission

and legal, accounting and other transaction expenses. Net proceeds of the offering, together with the $173.3 million in net proceeds from the concurrent offering of Senior Notes (see Note 6), were used to repay $216.1 million of the debt incurred under the revolving credit facility, to fund the Partnership’s 2006 organic growth program, and for general partnership purposes. Also as a result of the issuance of these units, the general partner contributed $2.4 million to the Partnership to maintain its 2.0 percent general partner interest.

     At June 30, 2006, Sunoco’s ownership in the Partnership, including its 2.0 percent general partner interest, was 43.4 percent.

10. Cash Distributions

     Within 45 days after the end of each quarter, the Partnership distributes all cash on hand at the end of the quarter, less reserves established by the general partner in its discretion. This is defined as “available cash” in the partnership agreement. The general partner has broad discretion to establish cash reserves that it determines are necessary or appropriate to properly conduct the Partnership’s business. The Partnership will make quarterly distributions to the extent there is sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to the general partner.

     The Partnership had 5,691,819 subordinated units issued as of June 30, 2006, all of which were held by the general partner and for which there is no established public trading market.

     The Partnership originally issued 11,383,639 subordinated units to its general partner in connection with the 2002 IPO. The subordination period is generally defined in the partnership agreement as the period that ends on the first day of any quarter beginning after December 31, 2006 if (1) the Partnership has distributed at least the minimum quarterly distribution on all outstanding units with respect to each of the immediately preceding three consecutive, non-overlapping four-quarter periods; and (2) the adjusted operating surplus, as defined in the partnership agreement, during such periods equals or exceeds the amount that would have been sufficient to enable the Partnership to distribute the minimum quarterly distribution on all outstanding units on a fully diluted basis and the related distribution on the 2 percent general partner interest during those periods. In addition, under the partnership agreement, one quarter of the subordinated units may convert to common units on a one-for-one basis after both December 31, 2004 and December 31, 2005, if the Partnership meets the required tests for the preceding three consecutive, non-overlapping four-quarter periods. When the subordination period ends, the rights of the holders of subordinated units will no longer be subordinated to the rights of the holders of common units and the subordinated units may be converted into common units.

     During the subordination period, the Partnership will generally pay cash distributions each quarter in the following manner:

	•		First, 98 percent to the holders of common units and 2 percent to the general partner, until each common unit has received a minimum quarterly distribution of $0.45, plus any arrearages from prior quarters;
	•		Second, 98 percent to the holders of subordinated units and 2 percent to the general partner, until each subordinated unit has received a minimum quarterly distribution of $0.45; and
	•		Thereafter, in the manner discussed below.

     The Partnership has met the minimum quarterly distribution requirements on all outstanding units for each of the three consecutive, non-overlapping four-quarter periods ended December 31, 2004 and 2005. As a result, a total of 5,691,820 subordinated units were converted into common units on a one-for-one basis, 2,845,910 each on February 15, 2005 and February 15, 2006. As of June 30, 2006, there are 5,691,819 subordinated units outstanding, all of which may be converted in February 2007 as long as the Partnership continues to meet the financial tests noted above for each of the three consecutive, non-overlapping four-quarter periods ending December 31, 2006.

     After the subordination period, the Partnership will, in general, pay cash distributions each quarter in the following manner:

		Percentage of Distributions
Quarterly Cash Distribution Amount per Unit		Unitholders				General Partner
Up to minimum quarterly distribution ($0.45 per Unit)			98	%			2	%
Above $0.45 per Unit up to $0.50 per Unit			98	%			2	%
Above $0.50 per Unit up to $0.575 per Unit			85	%			15	%
Above $0.575 per Unit up to $0.70 per Unit			75	%			25	%
Above $0.70 per Unit			50	%			50	%

     If cash distributions exceed $0.50 per unit in a quarter, the general partner will receive increasing percentages, up to 50 percent, of the cash distributed in excess of that amount. These distributions are referred to as “incentive distributions”. The amounts shown in the table under “Percentage of Distributions” are the percentage interests of the general partner and the unitholders in any available cash from operating surplus that is distributed up to and including the corresponding amount in the column “Quarterly Cash Distribution Amount per Unit,” until the available cash that is distributed reaches the next target distribution level, if any. The percentage interests shown for the unitholders and the general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution.

     Distributions paid by the Partnership for the period from January 1, 2005 through June 30, 2006 were as follows:

		Cash								Total Cash
		Distribution				Total Cash				Distribution to
Date Cash		per Limited				Distribution to				the General
Distribution Paid		Partner Unit				Limited Partners				Partner
						($ in millions)				($ in millions)
February 14, 2005		$	0.625			$	15.0			$	1.0
May 13, 2005		$	0.625			$	15.1			$	1.0
August 12, 2005		$	0.6375			$	15.4			$	1.1
November 12, 2005		$	0.675			$	17.4			$	1.5
February 14, 2006		$	0.7125			$	18.4			$	2.0
May 15, 2006		$	0.75			$	21.4			$	3.3

     On July 27, 2006, Sunoco Partners LLC, the general partner of Sunoco Logistics Partners L.P., declared a cash distribution of $0.775 per common and subordinated partnership unit ($3.10 annualized), representing the distribution for the second quarter of 2006. The $26.1 million distribution, including $4.0 million to the general partner, will be paid on August 14, 2006 to unitholders of record at the close of business on August 7, 2006.

11. Exit Costs Associated with Western Pipeline Headquarters Relocation

     On June 10, 2005, the Partnership announced its intention to relocate its Western area headquarters operations from Tulsa, Oklahoma to the Houston, Texas area. The Partnership offered to relocate all affected employees. The Partnership substantially completed the relocation during the first quarter 2006.

     The total non-recurring expenses incurred in connection with the relocation plan amounted to $4.9 million, including $2.9 recognized during the first quarter 2006. These costs consist primarily of employee relocation costs, one-time termination benefits and new hire expenses. These costs are included in selling, general and administrative expenses in the condensed statement of income, and are included in the operating results for the Western Pipeline System segment. In addition, the total capital expenditures associated with the move amounted to $5.5 million, including $2.8 million in the first quarter 2006. These capital expenditures include furniture and equipment, communication infrastructure and a pipeline control center. The Partnership did not incur any costs related to the move in the second quarter of 2006, and does not expect the remaining costs related to the relocation to be material.

12. Business Segment Information

     The following table sets forth condensed statement of income information concerning the Partnership’s business segments and reconciles total segment operating income to net income for the three months ended June 30, 2006 and 2005, respectively (in thousands of dollars):

		Three Months Ended
		June 30,
		2006				2005
Segment Operating Income
Eastern Pipeline System:
Sales and other operating revenue:
Affiliates		$	18,949			$	18,305
Unaffiliated customers			6,274				5,136
Other income			2,859				3,179
Total Revenues			28,082				26,620
Operating expenses			9,583				11,119
Depreciation and amortization			2,568				2,607
Selling, general and administrative expenses			4,604				4,740
Total Costs and Expenses			16,755				18,466
Operating Income		$	11,327			$	8,154
Terminal Facilities:
Sales and other operating revenue:
Affiliates		$	20,803			$	19,142
Unaffiliated customers			9,574				8,744
Total Revenues			30,377				27,886
Operating expenses			12,739				11,751
Depreciation and amortization			3,880				3,431
Selling, general and administrative expenses			3,883				3,454
Total Costs and Expenses			20,502				18,636
Operating Income		$	9,875			$	9,250
Western Pipeline System:
Sales and other operating revenue:
Affiliates		$	478,687			$	457,563
Unaffiliated customers			957,209				571,555
Other income			1,013				910
Total Revenues			1,436,909				1,030,028
Cost of products sold and operating expenses			1,417,352				1,018,518
Depreciation and amortization			2,763				1,455
Selling, general and administrative expenses			5,035				4,313
Total Costs and Expenses			1,425,150				1,024,286
Operating Income		$	11,759			$	5,742
Reconciliation of Segment Operating Income to Net Income:
Operating Income:
Eastern Pipeline System		$	11,327			$	8,154
Terminal Facilities			9,875				9,250
Western Pipeline System			11,759				5,742
Total segment operating income			32,961				23,146
Net interest expense			6,641				5,352
Net Income		$	26,320			$	17,794

		Six Months Ended
		June 30,
		2006				2005
Segment Operating Income
Eastern Pipeline System:
Sales and other operating revenue:
Affiliates		$	37,387			$	36,366
Unaffiliated customers			13,112				10,579
Other income			4,831				6,250
Total Revenues			55,330				53,195
Operating expenses			20,232				21,736
Depreciation and amortization			5,218				5,206
Selling, general and administrative expenses			8,672				9,399
Total Costs and Expenses			34,122				36,341
Operating Income		$	21,208			$	16,854
Terminal Facilities:
Sales and other operating revenue:
Affiliates		$	39,959			$	38,455
Unaffiliated customers			19,531				17,358
Other Income			7				1
Total Revenues			59,497				55,814
Operating expenses			25,296				22,790
Depreciation and amortization			7,580				7,515
Selling, general and administrative expenses			7,356				6,722
Total Costs and Expenses			40,232				37,027
Operating Income		$	19,265			$	18,787
Western Pipeline System:
Sales and other operating revenue:
Affiliates		$	919,414			$	897,112
Unaffiliated customers			1,723,064				1,092,424
Other income			1,425				1,465
Total Revenues			2,643,903				1,991,001
Cost of products sold and operating expenses			2,608,932				1,971,773
Depreciation and amortization			5,359				2,894
Selling, general and administrative expenses			12,497				8,303
Total Costs and Expenses			2,626,788				1,982,970
Operating Income		$	17,115			$	8,031
Reconciliation of Segment Operating Income to Net Income:
Operating Income:
Eastern Pipeline System		$	21,208			$	16,854
Terminal Facilities			19,265				18,787
Western Pipeline System			17,115				8,031
Total segment operating income			57,588				43,672
Net interest expense			12,844				10,580
Net Income		$	44,744			$	33,092

     The following table provides the identifiable assets for each segment as of June 30, 2006 and December 31, 2005 (in thousands):

		June 30,				December 31,
		2006				2005
Eastern Pipeline System		$	347,566			$	343,591
Terminal Facilities		$	321,328			$	293,119
Western Pipeline System		$	1,384,706			$	1,016,915
Corporate and other		$	41,741			$	27,060
Total identifiable assets		$	2,095,341			$	1,680,685

     Corporate and other assets consist primarily of cash and cash equivalents, advances to affiliates and deferred charges.

13. Supplemental Condensed Consolidating Financial Information

     The Partnership and the operating subsidiaries of the Operating Partnership serve as joint and several guarantors of the 6.125% and 7.25% Senior Notes and of any obligations under the Credit Facility. The guarantees are full and unconditional. Given that certain, but not all subsidiaries of the Partnership are guarantors, the Partnership is required to present the following supplemental condensed consolidating financial information. For purposes of the following footnote, Sunoco Logistics Partners, L.P. is referred to as “Parent” and Sunoco Logistics Partners Operations L.P. is referred to as “Subsidiary Issuer.” Sunoco Partners Marketing and Terminals L.P. and Sunoco Pipeline L.P. are collectively referred to as the “Guarantor Subsidiaries” and Sunoco Logistics Partners GP LLC, Sunoco Logistics Partners Operations GP LLC and Sunoco Partners Lease Acquisition & Marketing LLC are referred to as “Non-Guarantor Subsidiaries.” Sun Pipe Line Services (Out) LLC, previously considered a Non-Guarantor Subsidiary, was merged into Sunoco Pipeline L.P. in the second quarter 2006.

     The following supplemental condensed consolidating financial information (in thousands) reflects the Parent’s separate accounts, the Subsidiary Issuer’s separate accounts, the combined accounts of the Guarantor Subsidiaries, the combined accounts of the Non-Guarantor Subsidiaries, the combined consolidating adjustments and eliminations and the Parent’s consolidated accounts for the dates and periods indicated. For purposes of the following condensed consolidating information, the Parent’s investments in its subsidiaries and the Subsidiary Issuer’s investments in its subsidiaries are accounted for under the equity method of accounting.

Statement of Income
Three Months Ended June 30, 2006
(unaudited)

														Non-
						Subsidiary				Subsidiary				Guarantor				Consolidating
		Parent				Issuer				Guarantors				Subsidiaries				Adjustments				Total
Revenues
Sales and other operating revenue:
Affiliates		$	—			$	—			$	518,197			$	242			$	—			$	518,439
Unaffiliated customers			—				—				972,319				738				—				973,057
Equity in earnings of subsidiaries			25,720				32,373				—				3				(58,096	)			—
Other income			—				—				3,872				—				—				3,872
Total Revenues			25,720				32,373				1,494,388				983				(58,096	)			1,495,368
Costs and Expenses
Cost of products sold and operating expenses			—				—				1,439,324				350				—				1,439,674
Depreciation and amortization			—				—				9,181				30				—				9,211
Selling, general and administrative expenses			—				—				13,519				3				—				13,522
Total Costs and Expenses			—				—				1,462,024				383				—				1,462,407
Operating Income			25,720				32,373				32,364				600				(58,096	)			32,961
Net interest cost paid to/ (received from) affiliates			—				426				(12	)			—				—				414
Other interest cost and debt expenses, net			—				7,416				—				—				—				7,416
Capitalized interest			—				(1,189	)			—				—				—				(1,189	)
Net Income		$	25,720			$	25,720			$	32,376			$	600			$	(58,096	)		$	26,320

Statement of Income
Three Months Ended June 30, 2005
(unaudited)

														Non-
						Subsidiary				Subsidiary				Guarantor				Consolidating
		Parent				Issuer				Guarantors				Subsidiaries				Adjustments				Total
Revenues
Sales and other operating revenue:
Affiliates		$	—			$	—			$	495,010			$	—			$	—			$	495,010
Unaffiliated customers			—				—				585,435				—				—				585,435
Equity in earnings of subsidiaries			17,786				23,879				—				2				(41,667	)			—
Other income			—				—				4,089				—				—				4,089
Total Revenues			17,786				23,879				1,084,534				2				(41,667	)			1,084,534
Costs and Expenses
Cost of products sold and operating expenses			—				—				1,041,393				(5	)			—				1,041,388
Depreciation and amortization			—				—				7,493				—				—				7,493
Selling, general and administrative expenses			—				—				12,507				—				—				12,507
Total Costs and Expenses			—				—				1,061,393				(5	)			—				1,061,388
Operating Income			17,786				23,879				23,141				7				(41,667	)			23,146
Net interest cost paid to/ (received from) affiliates			—				828				(741	)			—				—				87
Other interest cost and debt expenses, net			—				5,265				—				—				—				5,265
Net Income		$	17,786			$	17,786			$	23,882			$	7			$	(41,667	)		$	17,794

Statement of Income
Six Months Ended June 30, 2006
(unaudited)

														Non-
						Subsidiary				Subsidiary				Guarantor				Consolidating
		Parent				Issuer				Guarantors				Subsidiaries				Adjustments				Total
Revenues
Sales and other operating revenue:
Affiliates		$	—			$	—			$	996,298			$	462			$	—			$	996,760
Unaffiliated customers			—				—				1,754,686				1,021				—				1,755,707
Equity in earnings of subsidiaries			43,891				57,237				—				6				(101,134	)			—
Other income			—				—				6,263				—				—				6,263
Total Revenues			43,891				57,237				2,757,247				1,489				(101,134	)			2,758,730
Costs and Expenses
Cost of products sold and operating expenses			—				—				2,653,888				572				—				2,654,460
Depreciation and amortization			—				—				18,096				61				—				18,157
Selling, general and administrative expenses			—				—				28,522				3				—				28,525
Total Costs and Expenses			—				—				2,700,506				636				—				2,701,142
Operating Income			43,891				57,237				56,741				853				(101,134	)			57,588
Net interest cost paid to/ (received from) affiliates			—				1,225				(502	)			—				—				723
Other interest cost and debt expenses, net			—				13,866				—				—				—				13,866
Capitalized interest			—				(1,745	)			—				—				—				(1,745	)
Net Income		$	43,891			$	43,891			$	57,243			$	853			$	(101,134	)		$	44,744

Statement of Income
Six Months Ended June 30, 2005
(unaudited)

														Non-
						Subsidiary				Subsidiary				Guarantor				Consolidating
		Parent				Issuer				Guarantors				Subsidiaries				Adjustments				Total
Revenues
Sales and other operating revenue:
Affiliates		$	—			$	—			$	971,933			$	—			$	—			$	971,933
Unaffiliated customers			—				—				1,120,361				—				—				1,120,361
Equity in earnings of subsidiaries			33,082				44,922				—				4				(78,008	)			—
Other income			—				—				7,716				—				—				7,716
Total Revenues			33,082				44,922				2,100,010				4				(78,008	)			2,100,010
Costs and Expenses
Cost of products sold and operating expenses			—				—				2,016,304				(5	)			—				2,016,299
Depreciation and amortization			—				—				15,615				—				—				15,615
Selling, general and administrative expenses			—				—				24,424				—				—				24,424
Total Costs and Expenses			—				—				2,056,343				(5	)			—				2,056,338
Operating Income			33,082				44,922				43,667				9				(78,008	)			43,672
Net interest cost paid to/ (received from) affiliates			—				1,412				(1,260	)			—				—				152
Other interest cost and debt expenses, net			—				10,428				—				—				—				10,428
Net Income		$	33,082			$	33,082			$	44,927			$	9			$	(78,008	)		$	33,092