e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2006
OR
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o |
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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.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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23-3096839
(I.R.S. Employer
Identification No.) |
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Mellon Bank Center
1735 Market Street, Suite LL, Philadelphia, PA
(Address of principal executive offices)
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19103-7583
(Zip Code) |
Registrants 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 November 2, 2006, the number of the registrants Common Units outstanding was 22,844,051, and
its Subordinated Units outstanding was 5,691,819.
SUNOCO LOGISTICS PARTNERS L.P.
INDEX
2
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)
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Three Months Ended |
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September 30, |
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2006 |
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2005 |
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Revenues |
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Sales and other operating revenue: |
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Affiliates (Note 3) |
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$ |
484,710 |
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$ |
525,486 |
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Unaffiliated customers |
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1,118,932 |
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721,160 |
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Other income |
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5,281 |
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4,039 |
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Total Revenues |
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1,608,923 |
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1,250,685 |
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Costs and Expenses |
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Cost of products sold and operating expenses |
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1,561,819 |
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1,207,769 |
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Depreciation and amortization |
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9,079 |
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8,785 |
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Selling, general and administrative expenses |
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13,391 |
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14,005 |
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Total Costs and Expenses |
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1,584,289 |
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1,230,559 |
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Operating Income |
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24,634 |
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20,126 |
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Net interest cost paid to affiliates (Note 3) |
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324 |
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75 |
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Other interest cost and debt expense, net |
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7,354 |
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5,484 |
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Capitalized interest |
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(720 |
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(126 |
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Net Income |
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$ |
17,676 |
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$ |
14,693 |
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Calculation of Limited Partners interest in Net Income (Note 4): |
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Net Income |
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$ |
17,676 |
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$ |
14,693 |
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Less: General Partners interest in Net Income |
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(819 |
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(495 |
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Limited Partners interest in Net Income |
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$ |
16,857 |
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$ |
14,198 |
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Net Income per Limited Partner unit: |
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Basic |
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$ |
0.59 |
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$ |
0.57 |
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Diluted |
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$ |
0.59 |
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$ |
0.56 |
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Weighted average Limited Partners units outstanding (Note 4): |
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Basic |
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28,535,870 |
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25,111,434 |
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Diluted |
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28,663,319 |
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25,269,275 |
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(See Accompanying Notes)
3
SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except unit and per unit amounts)
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Nine Months Ended |
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September 30, |
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2006 |
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2005 |
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Revenues |
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Sales and other operating revenue: |
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Affiliates (Note 3) |
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$ |
1,481,470 |
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$ |
1,497,419 |
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Unaffiliated customers |
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2,874,639 |
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1,841,522 |
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Other income |
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11,544 |
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11,754 |
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Total Revenues |
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4,367,653 |
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3,350,695 |
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Costs and Expenses |
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Cost of products sold and operating expenses |
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4,216,279 |
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3,224,068 |
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Depreciation and amortization |
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27,236 |
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24,400 |
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Selling, general and administrative expenses |
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41,916 |
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38,429 |
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Total Costs and Expenses |
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4,285,431 |
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3,286,897 |
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Operating Income |
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82,222 |
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63,798 |
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Net interest cost paid to affiliates (Note 3) |
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1,047 |
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194 |
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Other interest cost and debt expense, net |
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21,220 |
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15,945 |
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Capitalized interest |
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(2,465 |
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(126 |
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Net Income |
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$ |
62,420 |
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$ |
47,785 |
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Calculation of Limited Partners interest in Net Income (Note 4): |
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Net Income |
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$ |
62,420 |
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$ |
47,785 |
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Less: General Partners interest in Net Income |
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(6,264 |
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(2,573 |
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Limited Partners interest in Net Income |
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$ |
56,156 |
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$ |
45,212 |
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Net Income per Limited Partner unit: |
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Basic |
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$ |
2.06 |
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$ |
1.86 |
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Diluted |
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$ |
2.05 |
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$ |
1.83 |
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Weighted average Limited Partners units outstanding (Note 4): |
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Basic |
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27,296,067 |
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24,452,350 |
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Diluted |
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27,421,581 |
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24,624,200 |
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(See Accompanying Notes)
4
SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
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September 30, |
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December 31, |
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2006 |
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2005 |
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(UNAUDITED) |
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Assets |
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Current Assets |
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Cash and cash equivalents |
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$ |
18,807 |
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$ |
21,645 |
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Advances to affiliates (Note 3) |
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2,049 |
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Accounts receivable, affiliated companies (Note 3) |
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140,535 |
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136,536 |
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Accounts receivable, net |
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759,449 |
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584,509 |
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Inventories: |
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Crude oil |
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40,016 |
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27,561 |
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Materials, supplies and other |
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733 |
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700 |
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Total Current Assets |
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961,589 |
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770,951 |
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Properties, plants and equipment |
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1,472,337 |
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1,287,542 |
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Less accumulated depreciation and amortization |
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(490,431 |
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(472,706 |
) |
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Properties, plants and equipment, net |
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981,906 |
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814,836 |
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Investment in affiliates (Note 5) |
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81,597 |
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69,097 |
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Deferred charges and other assets |
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33,988 |
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25,801 |
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Total Assets |
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$ |
2,059,080 |
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$ |
1,680,685 |
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Liabilities and Partners Capital |
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Current Liabilities |
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Accounts payable |
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$ |
936,022 |
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$ |
720,127 |
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Accrued liabilities |
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29,960 |
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32,884 |
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Accrued taxes other than income |
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22,549 |
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20,986 |
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Advances from affiliates (Note 3) |
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5,750 |
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Total Current Liabilities |
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988,531 |
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779,747 |
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Long-term debt (Note 6) |
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469,862 |
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355,573 |
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Other deferred credits and liabilities |
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23,484 |
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21,954 |
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Commitments and contingent liabilities (Note 7) |
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Total Liabilities |
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1,481,877 |
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1,157,274 |
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Partners Capital: |
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Limited partners interest |
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570,923 |
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515,512 |
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General partners interest |
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6,280 |
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7,899 |
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Total Partners Capital |
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577,203 |
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523,411 |
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Total Liabilities and Partners Capital |
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$ |
2,059,080 |
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$ |
1,680,685 |
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(See Accompanying Notes)
5
SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
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Nine Months Ended |
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September 30 , |
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2006 |
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2005 |
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Cash Flows from Operating Activities: |
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Net Income |
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$ |
62,420 |
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$ |
47,785 |
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation and amortization |
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27,236 |
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24,400 |
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Restricted unit incentive plan expense |
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2,905 |
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2,220 |
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Changes in working capital pertaining to operating activities net of the effect of acquisitions: |
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Accounts receivable, affiliated companies |
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(3,999 |
) |
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(19,033 |
) |
Accounts receivable, net |
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(174,940 |
) |
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(217,822 |
) |
Inventories |
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(10,299 |
) |
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(7,810 |
) |
Accounts payable and accrued liabilities |
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212,633 |
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214,947 |
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Accrued taxes other than income |
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1,563 |
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|
5,430 |
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Other |
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(6,863 |
) |
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(4,146 |
) |
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Net cash provided by operating activities |
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110,656 |
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45,971 |
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Cash Flows from Investing Activities: |
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Capital expenditures |
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(85,825 |
) |
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(33,373 |
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Acquisitions |
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(121,382 |
) |
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(100,857 |
) |
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Net cash used in investing activities |
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(207,207 |
) |
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(134,230 |
) |
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Cash Flows from Financing Activities: |
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Distributions paid to Limited Partners and General Partner |
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(71,160 |
) |
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(48,474 |
) |
Payments of statutory withholding on net issuance of Limited Partner units under restricted unit incentive plan |
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(1,443 |
) |
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(2,863 |
) |
Net proceeds from issuance of Limited Partner units |
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|
110,338 |
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|
159,879 |
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Redemption of Limited Partner units from Sunoco |
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(99,203 |
) |
Contributions from General Partner for Limited Partner unit transactions |
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|
2,427 |
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|
1,429 |
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Net proceeds from issuance of Senior Notes |
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|
173,307 |
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Repayments from (advances to) affiliates, net |
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|
(7,799 |
) |
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|
12,761 |
|
Borrowings under credit facility |
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|
155,500 |
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|
|
75,000 |
|
Repayments under credit facility |
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|
(216,100 |
) |
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|
(56,500 |
) |
Contributions from / (Distributions to) affiliate |
|
|
(51,357 |
) |
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|
842 |
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|
|
|
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Net cash provided by financing activities |
|
|
93,713 |
|
|
|
42,871 |
|
|
|
|
|
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|
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Net change in cash and cash equivalents |
|
|
(2,838 |
) |
|
|
(45,388 |
) |
Cash and cash equivalents at beginning of year |
|
|
21,645 |
|
|
|
52,660 |
|
|
|
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Cash and cash equivalents at end of period |
|
$ |
18,807 |
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|
$ |
7,272 |
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|
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|
(See Accompanying Notes)
6
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
Sunocos 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 managements 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 nine months ended September 30, 2006 are not necessarily indicative of results for the full
year 2006.
2. Acquisitions
Mid-Valley Pipeline Acquisition
On August 21, 2006, the Partnership purchased from Sunoco a 100 percent interest in Sun Pipe
Line Company of Delaware LLC, the owner of a 55.3 percent equity interest in Mid-Valley Pipeline
Company (Mid-Valley) for $65 million, subject to certain adjustments five years following the
date of closing, based upon performance of Sunoco. Mid-Valley owns a 994-mile pipeline, which originates in Longview, Texas and
terminates in Samaria, Michigan, and has operating capacity of
approximately 238,000 barrels per day and 4.2
million barrels of shell storage capacity. Mid-Valley provides crude oil to a number of
refineries, primarily in the Midwest United States. The Partnership will continue to be the
operator of the Mid-Valley pipeline.
The purchase price of the acquisition was initially funded with $46.0 million in borrowings
under the Partnerships Credit Facility and with cash on hand, and has been included in the Western
Pipeline System business segment. Since the acquisition was from a related party, the interest in
the entity was recorded by the Partnership at Sunocos historical cost of $12.5 million and the
$52.5 million difference between the purchase price and the cost basis of the assets was recorded
by the Partnership as a capital distribution. The results of the acquisition are included in the
financial statements from the date of acquisition.
Millennium 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
approximately 65,000 barrels per day operating
capacity, originating near the Partnerships Nederland Terminal, and terminating at Longview Texas;
(b) the Kilgore Pipeline, a 190-mile, 10-inch crude oil pipeline with approximately 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,
approximately 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
Partnerships Credit Facility, and has been included in the Western Pipeline System business
segment. The purchase price has been allocated 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
Partnerships consolidated financial position (in thousands of dollars):
7
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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 approximately 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 approximately 40,000 barrels per day operating capacity,
originating at the Amdel Pipeline and terminating at Alons Big Spring, Texas refinery. Alon has
also agreed to ship a minimum of 15,000 barrels per day on the pipelines under a 10-year,
throughput and deficiency agreement. The pipelines were idle at the time of purchase and were
re-commissioned by the Partnership during the second quarter 2006. The pipelines are currently
being filled and are expected to begin making deliveries during the fourth quarter 2006. The
Partnership also began construction to expand capacity on the Amdel Pipeline from approximately 27,000 to 40,000
barrels per day, which it expects to be completed by the first quarter of 2007, and to construct
new tankage at the Nederland Terminal to service these new volumes more efficiently. The purchase
price of the acquisition was initially funded with borrowings under the Partnerships 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 approximately 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 Partnerships 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 approximately 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 Partnerships 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.
8
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 fourth 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 Sunocos centralized cash management program. Under this program, all
of the Partnerships cash receipts and cash disbursements are processed, together with those of
Sunoco and its other subsidiaries, through Sunocos 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 Partnerships third-party money market investments, while amounts due to Sunoco bear
interest at a rate equal to the interest rate provided in the Partnerships 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 Partnerships 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 Partnerships
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 Partnerships
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 arms-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 Partnerships
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 Partnerships 58 miles of interrefinery pipelines
between Sunoco R&Ms Philadelphia and Marcus Hook refineries for a term of 20 years, ending in
2022.
9
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 any operating expenses and capital expenditures in excess of $8.0 million
per year in each calendar year from 2002 to 2006 that are made to comply with the DOTs
pipeline integrity management rule, subject to a maximum aggregate reimbursement of $15.0
million over the five-year period ending December 31, 2006. For the nine months ended
September 2006, the Partnership received $0.4 million under
this arrangement. The Partnership has received a cumulative
reimbursement of $12.1 million under this arrangement; |
|
|
|
|
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. For the nine months ended September 2006, the Partnership
received $0.1 million under this arrangement and reached the $10.0 million limit; |
|
|
|
|
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
$1.1 million to date under this agreement. |
These expenditures, which were recorded as maintenance capital and operating expenses,
were as follows (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Maintenance capital |
|
$ |
1,723 |
|
|
$ |
842 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,723 |
|
|
$ |
842 |
|
|
|
|
|
|
|
|
The reimbursement of these amounts was recorded by the Partnership as capital
contributions to Partners Capital within the condensed consolidated balance sheet at September 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 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 August 21, 2006, the Partnership acquired a subsidiary of Sunoco, which owned a 55.3
percent equity interest in the Mid-Valley Pipeline Company (Mid-Valley) for $65 million, subject
to certain adjustments five years following the date of
10
closing (see Note 2). Since the
acquisition was from a related party, the interest in the entity was recorded by the Partnership
at Sunocos historical cost of $12.5 million and the $52.5 million difference between the
purchase price and the cost basis of the assets was recorded by the Partnership as a capital
distribution.
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 Sunocos 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
Partnerships 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
Basic and diluted net income per limited partner unit is calculated by dividing net
income, after deducting the amount allocated to the general partners interest, by the
weighted-average number of limited partner common and subordinated units outstanding during the
period.
The general partners 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 $0.8 million (representing 4.6 percent of total net income for
the period) and $0.5 million (representing 3.4 percent of total net income for the period) for the
three months ended September 30, 2006 and 2005, respectively.
The general partner was allocated net income of $6.3 million (representing 10.0
percent of total net income for the period) and $2.6 million (representing 5.4 percent of total net
income for the period) for the nine months ended September 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 nine months ended September
30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Weighted average number of limited partner units outstanding basic |
|
|
28,535,870 |
|
|
|
25,111,434 |
|
|
|
27,296,067 |
|
|
|
24,452,350 |
|
Add effect of dilutive unit incentive awards |
|
|
127,449 |
|
|
|
157,841 |
|
|
|
125,514 |
|
|
|
171,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of limited partner units diluted |
|
|
28,663,319 |
|
|
|
25,269,275 |
|
|
|
27,421,581 |
|
|
|
24,624,200 |
|
5. Investment in Affiliates
The Partnerships ownership percentages in corporate joint ventures as of September 30,
2006 and December 31, 2005 are as follows:
11
|
|
|
|
|
|
|
Equity |
|
|
Ownership |
|
|
Percentage |
Explorer Pipeline Company |
|
|
9.4 |
% |
West Shore Pipe Line Company |
|
|
12.3 |
% |
Yellowstone Pipe Line Company |
|
|
14.0 |
% |
Wolverine Pipe Line Company |
|
|
31.5 |
% |
West Texas Gulf Pipe Line Company |
|
|
43.8 |
% |
Mid-Valley Pipeline Company (1) |
|
|
55.3 |
% |
|
|
|
(1) |
|
Ownership of Mid-Valley Pipeline Company relates only to the period ended
September 30, 2006 as the acquisition was completed in August 2006. |
The following table provides summarized combined statement of income data on a 100 percent
basis for the Partnerships corporate joint venture interests for the three and nine months ended
September 30, 2006 and 2005 (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
135,873 |
|
|
$ |
98,580 |
|
|
$ |
342,339 |
|
|
$ |
284,820 |
|
Net income |
|
$ |
36,986 |
|
|
$ |
24,296 |
|
|
$ |
87,643 |
|
|
$ |
77,530 |
|
The following table provides summarized combined balance sheet data on a 100 percent
basis for the Partnerships corporate joint venture interests as of September 30, 2006 and December
31, 2005 (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
2006 |
|
2005 |
Balance Sheet Data: |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
117,981 |
|
|
$ |
100,241 |
|
Non-current assets |
|
$ |
486,681 |
|
|
$ |
468,994 |
|
Current liabilities |
|
$ |
111,534 |
|
|
$ |
80,054 |
|
Non-current liabilities |
|
$ |
408,589 |
|
|
$ |
437,004 |
|
Net equity |
|
$ |
84,539 |
|
|
$ |
52,177 |
|
The Partnerships investments in Wolverine, West Shore, Yellowstone, and West Texas Gulf
at September 30, 2006 include an excess investment amount of approximately $55.1 million, net of
accumulated amortization of $2.5 million. The excess investment is the difference between the
investment balance and the Partnerships 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):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Credit Facility |
|
$ |
46,000 |
|
|
$ |
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 |
|
|
(1,138 |
) |
|
|
(1,027 |
) |
|
|
|
|
|
|
|
|
|
$ |
469,862 |
|
|
$ |
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
Partnerships working capital requirements, to finance future
12
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 Partnerships 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 $46.0 million of outstanding borrowings under the Credit
Facility at September 30, 2006. The Credit Facility contains various covenants limiting the
Operating Partnerships 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 Partnerships 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 September 30, 2006.
The Partnerships ratio of total debt to EBITDA was 3.0 to 1 and the interest coverage ratio was
4.6 to 1 at September 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 underwriters 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 Partnerships 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 September
30, 2006. 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
Partnerships Credit Facility. The
balance of the proceeds from the offerings are being used to fund the Partnerships organic growth
program and for general Partnership purposes, including to finance pending and future acquisitions.
On August 21, 2006, the Partnership purchased from Sunoco a 100 percent interest in Sun Pipe
Line Company of Delaware LLC, the owner of a 55.3 percent equity interest in Mid-Valley Pipeline
Company (Mid-Valley) for $65 million, subject to certain adjustments five years following the
date of closing (see Note 2). The purchase price of the acquisition was initially funded with
$46.0 million in borrowings under the Partnerships Credit Facility and with cash on hand.
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 Partnerships facilities and at third-party or formerly owned sites. The accrued
liability for environmental remediation in the condensed consolidated balance sheets was $0.5
million and $0.6 million as of September 30, 2006 and December 31, 2005, respectively. 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 Partnerships 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 Partnerships 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 Partnerships initial
13
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. Sunocos 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 Partnerships 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
Sunocos 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 September 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 September 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 partners 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 Partnerships
LTIP generally vest upon completion of a three-year service period. For performance-based awards,
adjustments for attainment of performance targets can range from 0200 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 September 30, 2006, there were approximately 0.2 million unvested restricted stock units
outstanding with a weighted average grant-date fair value of $39.59 per unit, and a contractual
life of three years. As of September 30, 2006, total compensation cost related to non-vested awards
not yet recognized was $1.9 million, and the weighted-average period over which this cost is
expected to be recognized in expense is 1.6 years. The number of restricted stock units outstanding
and the total compensation cost related to non-vested awards not yet recognized reflect the
Partnerships 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 Partnerships 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 Partnerships net income is
$0.8 million lower for the nine months ended September 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 $.01 lower for the nine months ended September 30, 2006 than if the
14
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 $2.9 million in the first nine months of 2006 under SFAS No. 123R and $2.2 million
for the first nine 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.
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
Partnerships 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 Partnerships 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 September 30, 2006, Sunocos 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 Partnerships 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 September 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.
|
15
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 September 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:
|
|
|
|
|
|
|
|
|
Quarterly Cash Distribution Amount per Unit |
|
Percentage of Distributions |
|
|
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 $0.50 per unit in a quarter, the general partner will
receive increasing percentages, up to 50 percent, of the cash distributed in excess of that amount.
These distributions are referred to as incentive distributions. The amounts shown in the table
under Percentage of Distributions are the percentage interests of the general partner and the
unitholders in any available cash from operating surplus that is distributed up to and including
the corresponding amount in the column Quarterly Cash Distribution Amount per Unit, until the
available cash that is distributed reaches the next target distribution level, if any. The
percentage interests shown for the unitholders and the general partner for the minimum quarterly
distribution are also applicable to quarterly distribution amounts that are less than the minimum
quarterly distribution.
Distributions paid by the Partnership for the period from January 1, 2005 through
September 30, 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
Total Cash |
|
|
Distribution |
|
Total Cash |
|
Distribution to |
Date Cash |
|
per Limited |
|
Distribution to |
|
the General |
Distribution Paid |
|
Partner Unit |
|
Limited Partners |
|
Partner |
|
|
|
|
|
|
($ 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 14, 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 |
|
August 14, 2006 |
|
$ |
0.775 |
|
|
$ |
22.1 |
|
|
$ |
4.0 |
|
On October 23, 2006, Sunoco Partners LLC, the general partner of Sunoco Logistics
Partners L.P., declared a cash distribution of $0.7875 per common and subordinated partnership unit
($3.15 annualized), representing the distribution for the third quarter 2006. The $26.8 million
distribution, including $4.4 million to the general partner, will be paid on November 14, 2006 to
unitholders of record at the close of business on November 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 million 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 material costs related to the move in the second and third quarter of
2006, and does not expect the remaining costs related to the relocation to be material.
16
12. Business Segment Information
The following table sets forth condensed statement of income information concerning the
Partnerships business segments and reconciles total segment operating income to net income for the
three months ended September 30, 2006 and 2005, respectively (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Segment Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Pipeline System: |
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
Affiliates |
|
$ |
19,408 |
|
|
$ |
19,205 |
|
Unaffiliated customers |
|
|
7,358 |
|
|
|
5,149 |
|
Other income |
|
|
3,387 |
|
|
|
3,246 |
|
|
|
|
|
|
|
|
Total Revenues |
|
|
30,153 |
|
|
|
27,600 |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
11,975 |
|
|
|
12,550 |
|
Depreciation and amortization |
|
|
2,199 |
|
|
|
2,616 |
|
Selling, general and administrative expenses |
|
|
4,377 |
|
|
|
4,743 |
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
18,551 |
|
|
|
19,909 |
|
|
|
|
|
|
|
|
Operating Income |
|
$ |
11,602 |
|
|
$ |
7,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminal Facilities: |
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
Affiliates |
|
$ |
21,120 |
|
|
$ |
19,874 |
|
Unaffiliated customers |
|
|
10,537 |
|
|
|
8,608 |
|
|
|
|
|
|
|
|
Total Revenues |
|
|
31,657 |
|
|
|
28,482 |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
14,269 |
|
|
|
13,207 |
|
Depreciation and amortization |
|
|
3,797 |
|
|
|
3,759 |
|
Selling, general and administrative expenses |
|
|
3,914 |
|
|
|
3,511 |
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
21,980 |
|
|
|
20,477 |
|
|
|
|
|
|
|
|
Operating Income |
|
$ |
9,677 |
|
|
$ |
8,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Pipeline System: |
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
Affiliates |
|
$ |
444,182 |
|
|
$ |
486,407 |
|
Unaffiliated customers |
|
|
1,101,037 |
|
|
|
707,480 |
|
Other income |
|
|
1,894 |
|
|
|
716 |
|
|
|
|
|
|
|
|
Total Revenues |
|
|
1,547,113 |
|
|
|
1,194,603 |
|
|
|
|
|
|
|
|
Cost of products sold and operating expenses |
|
|
1,535,575 |
|
|
|
1,182,012 |
|
Depreciation and amortization |
|
|
3,083 |
|
|
|
2,410 |
|
Selling, general and administrative expenses |
|
|
5,100 |
|
|
|
5,751 |
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
1,543,758 |
|
|
|
1,190,173 |
|
|
|
|
|
|
|
|
Operating Income |
|
$ |
3,355 |
|
|
$ |
4,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Segment Operating Income to Net Income: |
|
|
|
|
|
|
|
|
Operating Income: |
|
|
|
|
|
|
|
|
Eastern Pipeline System |
|
$ |
11,602 |
|
|
$ |
7,691 |
|
Terminal Facilities |
|
|
9,677 |
|
|
|
8,005 |
|
Western Pipeline System |
|
|
3,355 |
|
|
|
4,430 |
|
|
|
|
|
|
|
|
Total segment operating income |
|
|
24,634 |
|
|
|
20,126 |
|
Net interest expense |
|
|
6,958 |
|
|
|
5,433 |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
17,676 |
|
|
$ |
14,693 |
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Segment Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Pipeline System: |
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
Affiliates |
|
$ |
56,795 |
|
|
$ |
55,571 |
|
Unaffiliated customers |
|
|
20,470 |
|
|
|
15,728 |
|
Other income |
|
|
8,218 |
|
|
|
9,496 |
|
|
|
|
|
|
|
|
Total Revenues |
|
|
85,483 |
|
|
|
80,795 |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
32,207 |
|
|
|
34,286 |
|
Depreciation and amortization |
|
|
7,417 |
|
|
|
7,822 |
|
Selling, general and administrative expenses |
|
|
13,049 |
|
|
|
14,142 |
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
52,673 |
|
|
|
56,250 |
|
|
|
|
|
|
|
|
Operating Income |
|
$ |
32,810 |
|
|
$ |
24,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminal Facilities: |
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
Affiliates |
|
$ |
61,079 |
|
|
$ |
58,329 |
|
Unaffiliated customers |
|
|
30,068 |
|
|
|
25,890 |
|
Other Income |
|
|
7 |
|
|
|
77 |
|
|
|
|
|
|
|
|
Total Revenues |
|
|
91,154 |
|
|
|
84,296 |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
39,565 |
|
|
|
35,997 |
|
Depreciation and amortization |
|
|
11,377 |
|
|
|
11,274 |
|
Selling, general and administrative expenses |
|
|
11,270 |
|
|
|
10,233 |
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
62,212 |
|
|
|
57,504 |
|
|
|
|
|
|
|
|
Operating Income |
|
$ |
28,942 |
|
|
$ |
26,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Pipeline System: |
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
Affiliates |
|
$ |
1,363,596 |
|
|
$ |
1,383,519 |
|
Unaffiliated customers |
|
|
2,824,101 |
|
|
|
1,799,904 |
|
Other income |
|
|
3,319 |
|
|
|
2,181 |
|
|
|
|
|
|
|
|
Total Revenues |
|
|
4,191,016 |
|
|
|
3,185,604 |
|
|
|
|
|
|
|
|
Cost of products sold and operating expenses |
|
|
4,144,507 |
|
|
|
3,153,785 |
|
Depreciation and amortization |
|
|
8,442 |
|
|
|
5,304 |
|
Selling, general and administrative expenses |
|
|
17,597 |
|
|
|
14,054 |
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
4,170,546 |
|
|
|
3,173,143 |
|
|
|
|
|
|
|
|
Operating Income |
|
$ |
20,470 |
|
|
$ |
12,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Segment Operating Income to Net Income: |
|
|
|
|
|
|
|
|
Operating Income: |
|
|
|
|
|
|
|
|
Eastern Pipeline System |
|
$ |
32,810 |
|
|
$ |
24,545 |
|
Terminal Facilities |
|
|
28,942 |
|
|
|
26,792 |
|
Western Pipeline System |
|
|
20,470 |
|
|
|
12,461 |
|
|
|
|
|
|
|
|
Total segment operating income |
|
|
82,222 |
|
|
|
63,798 |
|
Net interest expense |
|
|
19,802 |
|
|
|
16,013 |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
62,420 |
|
|
$ |
47,785 |
|
|
|
|
|
|
|
|
18
The following table provides the identifiable assets for each segment as of September 30,
2006 and December 31, 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Eastern Pipeline System |
|
$ |
357,051 |
|
|
$ |
343,591 |
|
Terminal Facilities |
|
|
329,791 |
|
|
|
293,119 |
|
Western Pipeline System |
|
|
1,342,455 |
|
|
|
1,016,915 |
|
Corporate and other |
|
|
29,783 |
|
|
|
27,060 |
|
|
|
|
|
|
|
|
Total identifiable assets |
|
$ |
2,059,080 |
|
|
$ |
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., Sunoco
Pipeline L.P., Sun Pipeline Company of Delaware LLC and Sunoco Pipeline Acquisition LLC are
collectively referred to as the Subsidiary Guarantors. 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.
The following supplemental condensed consolidating financial information (in thousands)
reflects the Parents separate accounts, the Subsidiary Issuers separate accounts, the combined
accounts of the Subsidiary Guarantors, the combined accounts of the Non-Guarantor Subsidiaries, the
combined consolidating adjustments and eliminations and the Parents consolidated accounts for the
dates and periods indicated. For purposes of the following condensed consolidating information, the
Parents investments in its subsidiaries and the Subsidiary Issuers investments in its
subsidiaries are accounted for under the equity method of accounting.
19
Statement of Income
Three Months Ended September 30, 2006
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Subsidiary |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliates |
|
$ |
|
|
|
$ |
|
|
|
$ |
484,710 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
484,710 |
|
Unaffiliated customers |
|
|
|
|
|
|
|
|
|
|
1,118,932 |
|
|
|
|
|
|
|
|
|
|
|
1,118,932 |
|
Equity in earnings of subsidiaries |
|
|
17,676 |
|
|
|
24,242 |
|
|
|
|
|
|
|
2 |
|
|
|
(41,920 |
) |
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
5,281 |
|
|
|
|
|
|
|
|
|
|
|
5,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
17,676 |
|
|
|
24,242 |
|
|
|
1,608,923 |
|
|
|
2 |
|
|
|
(41,920 |
) |
|
|
1,608,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold and operating expenses |
|
|
|
|
|
|
|
|
|
|
1,561,819 |
|
|
|
|
|
|
|
|
|
|
|
1,561,819 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
9,079 |
|
|
|
|
|
|
|
|
|
|
|
9,079 |
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
13,391 |
|
|
|
|
|
|
|
|
|
|
|
13,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
1,584,289 |
|
|
|
|
|
|
|
|
|
|
|
1,584,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
17,676 |
|
|
|
24,242 |
|
|
|
24,634 |
|
|
|
2 |
|
|
|
(41,920 |
) |
|
|
24,634 |
|
Net interest
cost paid to / (received from) affiliates |
|
|
|
|
|
|
(68 |
) |
|
|
390 |
|
|
|
2 |
|
|
|
|
|
|
|
324 |
|
Other interest cost and debt expenses, net |
|
|
|
|
|
|
7,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,354 |
|
Capitalized interest |
|
|
|
|
|
|
(720 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(720 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
17,676 |
|
|
$ |
17,676 |
|
|
$ |
24,244 |
|
|
$ |
|
|
|
$ |
(41,920 |
) |
|
$ |
17,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Statement of Income
Three Months Ended September 30, 2005
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Subsidiary |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliates |
|
$ |
|
|
|
$ |
|
|
|
$ |
525,486 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
525,486 |
|
Unaffiliated customers |
|
|
|
|
|
|
|
|
|
|
721,160 |
|
|
|
|
|
|
|
|
|
|
|
721,160 |
|
Equity in earnings of subsidiaries |
|
|
14,690 |
|
|
|
21,117 |
|
|
|
|
|
|
|
2 |
|
|
|
(35,809 |
) |
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
4,039 |
|
|
|
|
|
|
|
|
|
|
|
4,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
14,690 |
|
|
|
21,117 |
|
|
|
1,250,685 |
|
|
|
2 |
|
|
|
(35,809 |
) |
|
|
1,250,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold and operating expenses |
|
|
|
|
|
|
|
|
|
|
1,207,770 |
|
|
|
(1 |
) |
|
|
|
|
|
|
1,207,769 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
8,785 |
|
|
|
|
|
|
|
|
|
|
|
8,785 |
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
14,005 |
|
|
|
|
|
|
|
|
|
|
|
14,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
1,230,560 |
|
|
|
(1 |
) |
|
|
|
|
|
|
1,230,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
14,690 |
|
|
|
21,117 |
|
|
|
20,125 |
|
|
|
3 |
|
|
|
(35,809 |
) |
|
|
20,126 |
|
Net interest
cost paid to / (received from) affiliates |
|
|
|
|
|
|
1,069 |
|
|
|
(994 |
) |
|
|
|
|
|
|
|
|
|
|
75 |
|
Other interest cost and debt expenses, net |
|
|
|
|
|
|
5,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,484 |
|
Capitalized interest |
|
|
|
|
|
|
(126 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
14,690 |
|
|
$ |
14,690 |
|
|
$ |
21,119 |
|
|
$ |
3 |
|
|
$ |
(35,809 |
) |
|
$ |
14,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Statement of Income
Nine Months Ended September 30, 2006
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Subsidiary |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliates |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,481,470 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,481,470 |
|
Unaffiliated customers |
|
|
|
|
|
|
|
|
|
|
2,874,639 |
|
|
|
|
|
|
|
|
|
|
|
2,874,639 |
|
Equity in earnings of subsidiaries |
|
|
62,414 |
|
|
|
81,824 |
|
|
|
|
|
|
|
8 |
|
|
|
(144,246 |
) |
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
11,544 |
|
|
|
|
|
|
|
|
|
|
|
11,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
62,414 |
|
|
|
81,824 |
|
|
|
4,367,653 |
|
|
|
8 |
|
|
|
(144,246 |
) |
|
|
4,367,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold and operating expenses |
|
|
|
|
|
|
|
|
|
|
4,216,279 |
|
|
|
|
|
|
|
|
|
|
|
4,216,279 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
27,236 |
|
|
|
|
|
|
|
|
|
|
|
27,236 |
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
41,916 |
|
|
|
|
|
|
|
|
|
|
|
41,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
4,285,431 |
|
|
|
|
|
|
|
|
|
|
|
4,285,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
62,414 |
|
|
|
81,824 |
|
|
|
82,222 |
|
|
|
8 |
|
|
|
(144,246 |
) |
|
|
82,222 |
|
Net interest
cost paid to / (received from) affiliates |
|
|
|
|
|
|
655 |
|
|
|
390 |
|
|
|
2 |
|
|
|
|
|
|
|
1,047 |
|
Other interest cost and debt expenses, net |
|
|
|
|
|
|
21,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,220 |
|
Capitalized interest |
|
|
|
|
|
|
(2,465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
62,414 |
|
|
$ |
62,414 |
|
|
$ |
81,832 |
|
|
$ |
6 |
|
|
$ |
(144,246 |
) |
|
$ |
62,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Statement of Income
Nine Months Ended September 30, 2005
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Subsidiary |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliates |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,497,419 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,497,419 |
|
Unaffiliated customers |
|
|
|
|
|
|
|
|
|
|
1,841,522 |
|
|
|
|
|
|
|
|
|
|
|
1,841,522 |
|
Equity in earnings of subsidiaries |
|
|
47,772 |
|
|
|
66,038 |
|
|
|
|
|
|
|
7 |
|
|
|
(113,817 |
) |
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
11,754 |
|
|
|
|
|
|
|
|
|
|
|
11,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
47,772 |
|
|
|
66,038 |
|
|
|
3,350,695 |
|
|
|
7 |
|
|
|
(113,817 |
) |
|
|
3,350,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold and operating expenses |
|
|
|
|
|
|
|
|
|
|
3,224,074 |
|
|
|
(6 |
) |
|
|
|
|
|
|
3,224,068 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
24,400 |
|
|
|
|
|
|
|
|
|
|
|
24,400 |
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
38,429 |
|
|
|
|
|
|
|
|
|
|
|
38,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
3,286,903 |
|
|
|
(6 |
) |
|
|
|
|
|
|
3,286,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
47,772 |
|
|
|
66,038 |
|
|
|
63,792 |
|
|
|
13 |
|
|
|
(113,817 |
) |
|
|
63,798 |
|
Net interest
cost paid to / (received from) affiliates |
|
|
|
|
|
|
2,447 |
|
|
|
(2,253 |
) |
|
|
|
|
|
|
|
|
|
|
194 |
|
Other interest cost and debt expenses, net |
|
|
|
|
|
|
15,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,945 |
|
Capitalized interest |
|
|
|
|
|
|
(126 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
47,772 |
|
|
$ |
47,772 |
|
|
$ |
66,045 |
|
|
$ |
13 |
|
|
$ |
( 113,817 |
) |
|
$ |
47,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Balance Sheet
September 30, 2006
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Subsidiary |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
18,807 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
18,807 |
|
Advances to affiliates |
|
|
(789 |
) |
|
|
48,075 |
|
|
|
(45,237 |
) |
|
|
|
|
|
|
|
|
|
|
2,049 |
|
Accounts receivable, affiliated companies |
|
|
|
|
|
|
|
|
|
|
140,535 |
|
|
|
|
|
|
|
|
|
|
|
140,535 |
|
Accounts receivable, net |
|
|
|
|
|
|
|
|
|
|
759,449 |
|
|
|
|
|
|
|
|
|
|
|
759,449 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil |
|
|
|
|
|
|
|
|
|
|
40,016 |
|
|
|
|
|
|
|
|
|
|
|
40,016 |
|
Materials, supplies and other |
|
|
|
|
|
|
|
|
|
|
733 |
|
|
|
|
|
|
|
|
|
|
|
733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
(789 |
) |
|
|
66,882 |
|
|
|
895,496 |
|
|
|
|
|
|
|
|
|
|
|
961,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties, plants and equipment, net |
|
|
|
|
|
|
|
|
|
|
981,906 |
|
|
|
|
|
|
|
|
|
|
|
981,906 |
|
Investment in affiliates |
|
|
575,239 |
|
|
|
977,902 |
|
|
|
81,597 |
|
|
|
87 |
|
|
|
(1,553,228 |
) |
|
|
81,597 |
|
Deferred charges and other assets |
|
|
|
|
|
|
3,536 |
|
|
|
30,452 |
|
|
|
|
|
|
|
|
|
|
|
33,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
574,450 |
|
|
$ |
1,048,320 |
|
|
$ |
1,989,451 |
|
|
$ |
87 |
|
|
$ |
(1,553,228 |
) |
|
$ |
2,059,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Partners Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
$ |
|
|
|
$ |
936,022 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
936,022 |
|
Accrued liabilities |
|
|
1,109 |
|
|
|
6,134 |
|
|
|
22,717 |
|
|
|
|
|
|
|
|
|
|
|
29,960 |
|
Accrued taxes other than income |
|
|
|
|
|
|
|
|
|
|
22,578 |
|
|
|
(29 |
) |
|
|
|
|
|
|
22,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
1,109 |
|
|
|
6,134 |
|
|
|
981,317 |
|
|
|
(29 |
) |
|
|
|
|
|
|
988,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
469,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
469,862 |
|
Other deferred credits and liabilities |
|
|
|
|
|
|
|
|
|
|
23,484 |
|
|
|
|
|
|
|
|
|
|
|
23,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
1,109 |
|
|
|
475,996 |
|
|
|
1,004,801 |
|
|
|
(29 |
) |
|
|
|
|
|
|
1,481,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Partners Capital |
|
|
573,341 |
|
|
|
572,324 |
|
|
|
984,650 |
|
|
|
116 |
|
|
|
(1,553,228 |
) |
|
|
577,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Partners Capital |
|
$ |
574,450 |
|
|
$ |
1,048,320 |
|
|
$ |
1,989,451 |
|
|
$ |
87 |
|
|
$ |
(1,553,228 |
) |
|
$ |
2,059,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Balance Sheet
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Subsidiary |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
21,645 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
21,645 |
|
Advances to affiliates |
|
|
|
|
|
|
|
|
|
|
5,506 |
|
|
|
|
|
|
|
(5,506 |
) |
|
|
|
|
Accounts receivable, affiliated companies |
|
|
|
|
|
|
|
|
|
|
136,536 |
|
|
|
|
|
|
|
|
|
|
|
136,536 |
|
Accounts receivable, net |
|
|
|
|
|
|
|
|
|
|
584,509 |
|
|
|
|
|
|
|
|
|
|
|
584,509 |
|
Inventories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil |
|
|
|
|
|
|
|
|
|
|
27,561 |
|
|
|
|
|
|
|
|
|
|
|
27,561 |
|
Materials, supplies and other |
|
|
|
|
|
|
|
|
|
|
700 |
|
|
|
|
|
|
|
|
|
|
|
700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
|
|
|
|
21,645 |
|
|
|
754,812 |
|
|
|
|
|
|
|
(5,506 |
) |
|
|
770,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties, plants and equipment, net |
|
|
|
|
|
|
|
|
|
|
809,342 |
|
|
|
5,494 |
|
|
|
|
|
|
|
814,836 |
|
Investment in affiliates |
|
|
464,986 |
|
|
|
778,106 |
|
|
|
69,291 |
|
|
|
(130 |
) |
|
|
(1,243,156 |
) |
|
|
69,097 |
|
Deferred charges and other assets |
|
|
|
|
|
|
2,459 |
|
|
|
23,325 |
|
|
|
17 |
|
|
|
|
|
|
|
25,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
464,986 |
|
|
$ |
802,210 |
|
|
$ |
1,656,770 |
|
|
$ |
5,381 |
|
|
$ |
(1,248,662 |
) |
|
$ |
1,680,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Partners Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
$ |
|
|
|
$ |
720,127 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
720,127 |
|
Accrued liabilities |
|
|
1,171 |
|
|
|
6,800 |
|
|
|
24,913 |
|
|
|
|
|
|
|
|
|
|
|
32,884 |
|
Accrued taxes other than income |
|
|
|
|
|
|
|
|
|
|
20,986 |
|
|
|
|
|
|
|
|
|
|
|
20,986 |
|
Advances from affiliates |
|
|
5,945 |
|
|
|
|
|
|
|
|
|
|
|
5,311 |
|
|
|
(5,506 |
) |
|
|
5,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
7,116 |
|
|
|
6,800 |
|
|
|
766,026 |
|
|
|
5,311 |
|
|
|
(5,506 |
) |
|
|
779,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
355,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
355,573 |
|
Other deferred credits and liabilities |
|
|
|
|
|
|
|
|
|
|
21,954 |
|
|
|
|
|
|
|
|
|
|
|
21,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
7,116 |
|
|
|
362,373 |
|
|
|
787,980 |
|
|
|
5,311 |
|
|
|
(5,506 |
) |
|
|
1,157,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Partners Capital |
|
|
457,870 |
|
|
|
439,837 |
|
|
|
868,790 |
|
|
|
70 |
|
|
|
(1,243,156 |
) |
|
|
523,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Partners Capital |
|
$ |
464,986 |
|
|
$ |
802,210 |
|
|
$ |
1,656,770 |
|
|
$ |
5,381 |
|
|
$ |
(1,248,662 |
) |
|
$ |
1,680,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Statement of Cash Flows
Nine Months Ended September 30, 2006
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Subsidiary |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Net Cash Flows from Operating Activities |
|
$ |
62,352 |
|
|
$ |
60,670 |
|
|
$ |
131,874 |
|
|
$ |
6 |
|
|
$ |
(144,246 |
) |
|
$ |
110,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
(85,825 |
) |
|
|
|
|
|
|
|
|
|
|
(85,825 |
) |
Acquisitions |
|
|
|
|
|
|
|
|
|
|
(121,382 |
) |
|
|
|
|
|
|
|
|
|
|
(121,382 |
) |
Intercompany |
|
|
(45,720 |
) |
|
|
(128,140 |
) |
|
|
29,620 |
|
|
|
(6 |
) |
|
|
144,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,720 |
) |
|
|
(128,140 |
) |
|
|
(177,587 |
) |
|
|
(6 |
) |
|
|
144,246 |
|
|
|
(207,207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution paid to Limited Partners and General Partner |
|
|
(71,160 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71,160 |
) |
Payments of statutory withholding on net issuance of
Limited Partner units under restricted unit incentive
plan |
|
|
|
|
|
|
|
|
|
|
(1,443 |
) |
|
|
|
|
|
|
|
|
|
|
(1,443 |
) |
Net proceeds from issuance of Limited Partner units |
|
|
110,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,338 |
|
Contributions from General Partner for Limited
Partner unit transactions |
|
|
2,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,427 |
|
Net proceeds from issuance of Senior Notes |
|
|
|
|
|
|
173,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173,307 |
|
Repayments
from (advances to) affiliates, net |
|
|
(5,157 |
) |
|
|
(48,075 |
) |
|
|
45,433 |
|
|
|
|
|
|
|
|
|
|
|
(7,799 |
) |
Borrowings under credit facility |
|
|
|
|
|
|
155,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,500 |
|
Repayments under credit facility |
|
|
|
|
|
|
(216,100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(216,100 |
) |
Contributions
from (distributions to) affiliate |
|
|
(53,080 |
) |
|
|
|
|
|
|
1,723 |
|
|
|
|
|
|
|
|
|
|
|
(51,357 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,632 |
) |
|
|
64,632 |
|
|
|
45,713 |
|
|
|
|
|
|
|
|
|
|
|
93,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
|
|
|
|
(2,838 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,838 |
) |
Cash and cash equivalents at beginning of year |
|
|
|
|
|
|
21,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
18,807 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
18,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Statement of Cash Flows
Nine Months Ended September 30, 2005
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary |
|
|
Subsidiary |
|
|
Guarantor |
|
|
Consolidating |
|
|
|
|
|
|
Parent |
|
|
Issuer |
|
|
Guarantors |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Total |
|
Net Cash Flows from Operating Activities |
|
$ |
65,986 |
|
|
$ |
43,562 |
|
|
$ |
50,227 |
|
|
$ |
13 |
|
|
$ |
(113,817 |
) |
|
$ |
45,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
|
|
|
|
(33,373 |
) |
|
|
|
|
|
|
|
|
|
|
(33,373 |
) |
Acquisitions |
|
|
|
|
|
|
|
|
|
|
(100,857 |
) |
|
|
|
|
|
|
|
|
|
|
(100,857 |
) |
Intercompany |
|
|
(92,307 |
) |
|
|
(107,450 |
) |
|
|
85,953 |
|
|
|
(13 |
) |
|
|
113,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92,307 |
) |
|
|
(107,450 |
) |
|
|
(48,277 |
) |
|
|
(13 |
) |
|
|
113,817 |
|
|
|
(134,230 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution paid to Limited Partners and General Partner |
|
|
(48,474 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,474 |
) |
Payments of statutory withholding on net issuance of
Limited Partner units under restricted unit incentive
plan |
|
|
|
|
|
|
|
|
|
|
(2,863 |
) |
|
|
|
|
|
|
|
|
|
|
(2,863 |
) |
Net proceeds from issuance of Limited Partner units |
|
|
159,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159,879 |
|
Redemption of Limited Partner units from Sunoco |
|
|
(99,203 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99,203 |
) |
Contributions from General Partner for Limited
Partner unit transactions |
|
|
1,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,429 |
|
Repayments
from affiliates, net |
|
|
12,690 |
|
|
|
|
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
12,761 |
|
Borrowings under credit facility |
|
|
|
|
|
|
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000 |
|
Repayments under credit facility |
|
|
|
|
|
|
(56,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,500 |
) |
Contributions from affiliate |
|
|
|
|
|
|
|
|
|
|
842 |
|
|
|
|
|
|
|
|
|
|
|
842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,321 |
|
|
|
18,500 |
|
|
|
(1,950 |
) |
|
|
|
|
|
|
|
|
|
|
42,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
|
|
|
|
(45,388 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,388 |
) |
Cash and cash equivalents at beginning of year |
|
|
|
|
|
|
52,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
7,272 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations Three Months Ended September 30, 2006 and 2005
Sunoco Logistics Partners L.P.
Operating Highlights
Three Months Ended September 30, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, |
|
|
2006 |
|
2005 |
Eastern Pipeline System:(1) |
|
|
|
|
|
|
|
|
Total shipments (barrel miles per day)(2) |
|
|
61,320,475 |
|
|
|
56,437,189 |
|
Revenue per barrel mile (cents) |
|
|
0.474 |
|
|
|
0.469 |
|
Terminal Facilities: |
|
|
|
|
|
|
|
|
Terminal throughput (bpd): |
|
|
|
|
|
|
|
|
Refined product terminals |
|
|
393,304 |
|
|
|
382,957 |
|
Nederland terminal |
|
|
480,609 |
|
|
|
420,467 |
|
Refinery terminals(3) |
|
|
658,957 |
|
|
|
688,923 |
|
Western Pipeline System:(1)(4) |
|
|
|
|
|
|
|
|
Crude oil pipeline throughput (bpd) |
|
|
565,639 |
|
|
|
368,985 |
|
Crude oil purchases at wellhead (bpd) |
|
|
192,175 |
|
|
|
180,216 |
|
Gross margin per barrel of pipeline throughput (cents)(5) |
|
|
12.6 |
|
|
|
27.9 |
|
|
|
|
(1) |
|
Excludes amounts attributable to equity ownership interests in the
corporate joint ventures. |
|
(2) |
|
Represents total average daily pipeline throughput multiplied by the number of
miles of pipeline through which each barrel has been shipped. |
|
(3) |
|
Consists of the Partnerships Fort Mifflin Terminal Complex, the Marcus Hook
Tank Farm and the Eagle Point Dock. |
|
(4) |
|
Includes results from the Partnerships purchases of an undivided joint
interest in the Mesa Pipe Line system, the Corsicana to Wichita Falls, Texas pipeline system,
and the Millennium and Kilgore pipeline system from the acquisition dates. |
|
(5) |
|
Represents total segment sales and other operating revenue minus cost of
products sold and operating expenses and depreciation and amortization divided by crude oil
pipeline throughput. |
Analysis of Consolidated Net Income
Net income was $17.7 million for the third quarter 2006 as compared with $14.7 million
for the third quarter 2005, an increase of $3.0 million. This increase was due mainly to an
increase in total shipments in the Eastern Pipeline System, operating results from the acquisitions
completed in 2005 and 2006 in the Western Pipeline System and increased revenues at the
Partnerships refined product terminals associated with ethanol blending. These increases were
partially offset by lower lease acquisition margins and higher interest expense related to
financing the acquisitions completed in 2006 and the Partnerships internal expansion capital
program.
Net interest expense increased $1.6 million to $7.0 million for the third quarter 2006 from
$5.4 million for the prior years quarter due to increased borrowings and higher interest rates,
partially offset by an increase of $0.6 million in capitalized interest.
Analysis of Segment Operating Income
Eastern Pipeline System
Operating income for the Eastern Pipeline System increased $3.9 million to $11.6 million
for the third quarter 2006 from $7.7 million for the third quarter 2005. This increase was
primarily the result of a $2.4 million increase in sales and other operating revenue and a $0.6
million decrease in operating expenses. Sales and other operating revenue increased from
28
$24.4
million for the prior years quarter to $26.8 million for the third quarter 2006 mainly due to an
increase in total shipments. The increase in shipments was due principally to higher throughput on
the Marysville, Michigan to Toledo, Ohio crude oil pipeline. During 2005, two third-party Canadian
synthetic crude oil plants experienced reduced production as a result of fire damage. Resumed
production at these crude oil plants, along with higher demand due to expansion of a Detroit
refinery served by the Marysville pipeline, resulted in an increase in shipments. Operating
expenses decreased to $12.0
million in the third quarter 2006 from $12.6 million in the third quarter 2005 due mainly to
product operating gains, partially offset by increased operating costs.
Terminal Facilities
The Terminal Facilities business segment had operating income of $9.7 million for the
third quarter 2006, as compared to $8.0 million for the prior years third quarter. Total revenues
increased $3.2 million from the prior years third quarter to $31.7 million for the third quarter
2006 due primarily to increased revenues associated with ethanol blending at the Partnerships
refined product terminals starting in May 2006, an increase in volumes at the Partnerships
Nederland Terminal, as well as increased volumes at the refined product terminals. Operating
expenses increased $1.1 million from the prior years third quarter to $14.3 million for the third
quarter 2006 due principally to timing of scheduled maintenance activity and higher utility costs.
Closing of the previously announced agreement to purchase a 50 percent interest in a refined
products terminal located in Syracuse, New York from an affiliate of Exxon Mobil Corporation is now
expected to occur in the fourth quarter of 2006.
Western Pipeline System
Operating income for the Western Pipeline System decreased $1.0 million to $3.4 million
for the third quarter 2006 from $4.4 million for the third quarter 2005. The decrease was
primarily the result of lower lease acquisition margins. The decrease was partially offset by
higher crude oil pipeline volumes, mainly from the Corsicana to Wichita Falls, Texas crude oil
pipeline acquired in August 2005, the 37.0 percent undivided interest in the Mesa Pipe Line System
acquired in December 2005, and the Millennium and Kilgore pipelines acquired in March 2006. The
Amdel pipeline, acquired in March 2006, is currently being filled and is expected to begin making
deliveries during the fourth quarter 2006. The decrease was further offset by an increase in other
income of $1.2 million primarily attributable to equity income related to the acquisition of a 55.3
percent interest in the Mid-Valley Pipeline Company in August 2006. Total revenues and cost of
products sold and operating expenses increased in the third quarter 2006 compared with the prior
years quarter due principally to an increase in the price of crude oil. The average price of West
Texas Intermediate crude oil at Cushing, Oklahoma, increased to $70.55 per barrel for the third
quarter 2006 from $63.17 per barrel for the third quarter 2005. Operating expenses were higher
also as a result of increased costs associated with the acquired assets and higher utility costs.
Depreciation and amortization increased by $0.7 million due principally to the 2005 and 2006
acquisitions described earlier.
29
Results of Operations Nine Months Ended September 30, 2006 and 2005
Sunoco Logistics Partners L.P.
Operating Highlights
Nine Months Ended September 30, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
September 30, |
|
|
2006 |
|
2005 |
Eastern Pipeline System:(1) |
|
|
|
|
|
|
|
|
Total shipments (barrel miles per day)(2) |
|
|
60,254,723 |
|
|
|
55,825,649 |
|
Revenue per barrel mile (cents) |
|
|
0.470 |
|
|
|
0.468 |
|
Terminal Facilities: |
|
|
|
|
|
|
|
|
Terminal throughput (bpd): |
|
|
|
|
|
|
|
|
Refined product terminals |
|
|
388,996 |
|
|
|
387,374 |
|
Nederland terminal |
|
|
473,117 |
|
|
|
454,721 |
|
Refinery terminals(3) |
|
|
688,553 |
|
|
|
695,912 |
|
Western Pipeline System:(1)(4) |
|
|
|
|
|
|
|
|
Crude oil pipeline throughput (bpd) |
|
|
523,780 |
|
|
|
335,920 |
|
Crude oil purchases at wellhead (bpd) |
|
|
191,894 |
|
|
|
188,905 |
|
Gross margin per barrel of pipeline throughput (cents)(5) |
|
|
24.3 |
|
|
|
26.5 |
|
|
|
|
(1) |
|
Excludes amounts attributable to equity ownership
interests in the corporate joint ventures. |
|
(2) |
|
Represents total average daily pipeline throughput multiplied by
the number of miles of pipeline through which each barrel has been
shipped. |
|
(3) |
|
Consists of the Partnerships Fort
Mifflin Terminal Complex, the Marcus Hook Tank Farm and the Eagle
Point Dock. |
|
(4) |
|
Includes results from the
Partnerships purchases of an undivided joint interest in the Mesa
Pipe Line system, the Corsicana to Wichita Falls, Texas pipeline
system, and the Millennium and Kilgore pipeline system from the
acquisition dates. |
|
(5) |
|
Represents total segment sales
and other operating revenue minus cost of products sold and
operating expenses and depreciation and amortization. |
Analysis of Consolidated Net Income
Net income was $62.4 million for the nine month period ended September 2006 as compared
with $47.8 million for the comparable period in 2005, an increase of $14.6 million. This increase
was due mainly to an increase in total shipments in the Eastern Pipeline System, operating results
from the acquisitions completed in 2005 and 2006 in the Western Pipeline System and higher Western
Pipeline System lease acquisition margins. These increases were partially offset by
higher interest expense related to financing of the recent acquisitions and the Partnerships
internal expansion capital program, and higher selling, general and administrative costs as a
result of $2.9 million in costs related to the Western area headquarters relocation, which was
completed in the first quarter 2006.
Net interest expense increased $3.8 million to $19.8 million for the first nine months of
2006 from $16.0 million for the first nine months of 2005 due to increased borrowings and higher
interest rates, partially offset by an increase of $2.3 million in capitalized interest.
Analysis of Segment Operating Income
Eastern Pipeline System
Operating income for the Eastern Pipeline System increased $8.3 million to $32.8 million
for the first nine months of 2006 from $24.5 million for the first nine months of 2005. Sales and
other operating revenue increased from $71.3 million
30
for the prior years period to $77.3 million
for the nine months ended September 2006 mainly due to an increase in total shipments. This
increase was principally the result of higher throughput on the Marysville to Toledo crude oil
pipeline as a result of the prior year production issues previously discussed. Other income
decreased to $8.2 million for the first nine months of 2006 from $9.5 million for the prior year
period due primarily to a decrease in joint venture equity income mainly as a result of reduced
pipeline volumes experienced by the Partnerships joint venture interests. Operating expenses
decreased from $34.3 million in the first nine months of 2005 to $32.2 million for the first nine
months of 2006 due mainly to product operating gains, partially offset by increased utility,
employee and operating costs. Selling, general and administrative expenses decreased $1.1 million
for the nine months ended September 30, 2006 when compared to the prior year period in 2005 due
primarily to increased utilization of engineering employees related to expansion capital projects.
Terminal Facilities
The Terminal Facilities business segment had operating income of $28.9 million for the
nine months ended September 2006, as compared to $26.8 million for the prior years corresponding
period. Total revenues increased $6.9 million from the prior years first nine months to $91.2
million for the first nine months of 2006 due primarily to an increase in revenues associated with
ethanol blending at the balance of the Partnerships refined product terminals starting in May 2006
and an increase in revenues at the Partnerships Nederland Terminal. Operating expenses increased
$3.6 million from
the prior years first nine months to $39.6 million for the first nine months of 2006 due to
increased employee costs, the timing of scheduled maintenance activity and higher utility costs.
Western Pipeline System
Operating income for the Western Pipeline System increased $8.0 million to $20.5 million
for the first nine months of 2006 from $12.5 million for the first nine months of 2005. The
increase was primarily the result of higher crude oil pipeline volumes, mainly from the
acquisitions previously discussed and higher lease acquisition margins. Other income increased for
the nine months ended September 2006 by $1.1 million when compared to the prior year period
primarily due to an increase in equity income associated with the acquisition of a 55.3 percent
interest in the Mid-Valley Pipeline Company in August 2006. Total revenues and cost of products
sold and operating expenses increased in the first nine months of 2006 compared with the prior year
period due principally to an increase in the price of crude oil. The average price of West Texas
Intermediate crude oil at Cushing, Oklahoma, increased to $68.29 per barrel for the nine months
ended September 2006 from $55.45 per barrel for the nine months ended September 2005. Depreciation
and amortization increased by $3.1 million due principally to the 2005 and 2006 acquisitions
discussed earlier. Selling, general and administrative expenses increased $3.5 million due
principally to $2.9 million of costs related to the Western area headquarters relocation from
Tulsa, Oklahoma to Sugar Land, Texas, as well as increased costs associated with the acquired
assets. The relocation to Sugar Land was completed in the first quarter 2006.
Liquidity and Capital Resources
Liquidity
Cash generated from operations and borrowings under the Credit Facility are the
Partnerships primary sources of liquidity. At September 30, 2006, the Partnership had a working
deficit of $26.9 million and available borrowing capacity under the Credit Facility of $254.0
million. The Partnerships working capital position also reflects crude oil inventories based on
historical costs under the LIFO method of accounting. If the inventories had been valued at their
current replacement cost, the Partnership would have had working capital of $70.5 million at
September 30, 2006.
Capital Resources
The Partnership periodically supplements its cash flows from operations with proceeds from
debt and equity financing activities.
Credit Facility
Sunoco Logistics Partners Operations L.P., a wholly-owned subsidiary of the Partnership (the
Operating Partnership), has a $300 million Credit Facility available to fund working capital
requirements, to finance future acquisitions, and for general partnership purposes. The Credit
Facility matures in November 2010. It also includes a $20.0 million distribution sublimit that is
available for distributions, and may be used to fund the quarterly distributions, provided the
total outstanding borrowings for distributions do not at any time exceed $20.0 million. The
Partnership will be required to reduce to zero all borrowings under the distribution sublimit under
the Credit Facility each year for 15 days.
31
During the third quarter 2006, $46.0 million was drawn against the Credit Facility to fund the
acquisition of a 55.3 percent interest in the Mid-Valley Pipeline Company. As of September 30,
2006, there was $254.0 million available under the Credit Facility to fund the Partnerships
internal expansion capital program, and for general Partnership purposes, including to finance
pending and future acquisitions.
Senior Notes
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 underwriters 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 Partnerships 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 September 30,
2006. 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 of
all of the $216.1 million in outstanding borrowings under the
Partnerships Credit Facility. The
balance of the proceeds from the offerings are being
used to fund the Partnerships organic growth program and for general Partnership purposes,
including to finance pending and future acquisitions.
Equity Offerings
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. 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 were used to repay a portion of the $216.1
million of the debt incurred under the revolving Credit Facility. As a result of this issuance of
2.68 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. The total sale of units resulted in total gross proceeds of
$63.4 million, and net proceeds of $60.4 million, after the underwriters commission and legal,
accounting and other transaction expenses. Net proceeds of the sale were used to repay $56.5
million of the debt incurred to finance the August 2005 purchase of the Corsicana to Wichita Falls,
Texas crude oil pipeline system and storage facilities, with the balance for general partnership
purposes. 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.
In May 2005, the Partnership sold 2.5 million common units in a public offering. In June
2005, the Partnership sold an additional 275,000 common units to cover over-allotments in
connection with the May 2005 sale. The purchase price for the over-allotment was equal to the
offering price in the May 2005 sale. The sale of units resulted in total gross proceeds of $104.1
million, and net proceeds of $99.2 million, after underwriters commissions and legal, accounting
and other transaction expenses. Net proceeds from the sale were used to redeem 2.775 million common
units owned by Sunoco at a redemption price per unit equal to the public offering price per unit
after the underwriters commissions.
Shelf Registration Statement
On April 7, 2006, the Partnership, the Operating Partnership, and the Operating
Partnerships wholly-owned subsidiaries, as co-registrants, filed a shelf registration statement
with the Securities and Exchange Commission. This shelf registration permits the periodic offering
and sale of up to $500 million of equity securities by the Partnership or debt securities of the
Operating Partnership (guaranteed by the Partnership). At September 30, 2006, $209.8 million
remains available for issuance under the shelf registration statement. The shelf registration also
covers the resale of up to five million common units by the Partnerships general partner. The
amount, type and timing of any offerings will depend upon, among other things, the funding
requirements of the Partnership, prevailing market conditions, and compliance with covenants in
applicable debt obligations of the Operating Partnership (including the Credit Facility).
Cash Flows and Capital Expenditures
Net cash provided by operating activities for the nine months ended September 30, 2006
was $110.7 million compared with $46.0 million for the first nine months of
2005. Net cash provided
by operating activities for the first nine months of
32
2006 was primarily generated by net income of
$62.4 million, depreciation and amortization of $27.2 million, and a $25.0 million decrease in
working capital. Working capital decreased primarily due to an increase in accounts payable. In
the nine months ended September 30, 2006, crude oil prices increased, which generated an increase
in cash for the Partnership. Net cash provided by operating activities for the first nine months
of 2005 was principally generated by net income of $47.8 million and depreciation and amortization
of $24.4 million, partially offset by a $24.3 million increase in working capital.
Net cash used in investing activities for the first nine months of 2006 was $207.2
million compared with $134.2 million for the first nine months of 2005. The increase between
periods is due primarily to the acquisitions of the Millennium and Kilgore crude oil pipelines and
the Amdel crude oil pipeline in March 2006, the acquisition of a 55.3 percent interest in the
Mid-Valley Pipeline Company in August 2006, and the Partnerships investment in its internal
expansion capital program, as further discussed below in the Capital Requirements section of this
document.
Net cash provided by financing activities for the first nine months of 2006 was $93.7
million compared with $42.9 million net cash used in financing activities for the first nine months
of 2005. Net cash provided by financing activities for the first nine months of 2006 was the result
of $110.3 million of net proceeds from the offering of 2.68 million limited partner common units
and $173.3 million of net proceeds received from the issuance of 6.125 percent Senior Notes in May
2006. This increase was partially offset by $71.2 million in distributions paid to limited
partners and the general partner, a net repayment of $60.6 million on outstanding borrowings under
the Partnerships Credit Facility and $51.4 million in capital
distributions to Sunoco due primarily to the acquisition of a 55.3 percent interest in the
Mid-Valley Pipeline Company discussed earlier.
Under a treasury services agreement with Sunoco, the Partnership participates in Sunocos
centralized cash management program. Advances to affiliates in the Partnerships condensed
consolidated balance sheets at September 30, 2006 represent amounts due from Sunoco under this
agreement. Advances from affiliates at December 31, 2005 represent amounts due to Sunoco under this
agreement.
Capital Requirements
The pipeline, terminalling, and crude oil transport operations are capital intensive,
requiring significant investment to maintain, upgrade or enhance existing operations and to meet
environmental and operational regulations. The capital requirements have consisted, and are
expected to continue to consist, primarily of:
|
|
|
Maintenance capital expenditures, such as those required to maintain equipment
reliability, tankage and pipeline integrity and safety, and to address environmental
regulations; and |
|
|
|
|
Expansion capital expenditures to acquire assets to grow the business and to expand
existing and construct new facilities, such as projects that increase storage or
throughput volume. |
The following table summarizes maintenance and expansion capital expenditures, including
net cash paid for acquisitions, for the periods presented (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Maintenance |
|
$ |
16,882 |
|
|
$ |
18,624 |
|
Expansion (1) |
|
|
188,113 |
|
|
|
115,606 |
|
|
|
|
|
|
|
|
|
|
$ |
204,995 |
|
|
$ |
134,230 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The acquisition of a 55.3 percent interest in the Mid-Valley Pipeline
Company was included within the expansion capital amount for the nine months ended September 30,
2006 at Sunocos historical cost of $12.5 million. Since the acquisition was from a related party,
the $52.5 million difference between the purchase price and the cost basis of the assets was
recorded by the Partnership as a capital distribution. |
Maintenance capital expenditures, including $2.8 million related to the Western area
headquarters relocation in the nine months ended September 30, 2006, decreased $1.7 million from
the nine months ended September 30, 2005. Excluding the relocation costs, maintenance capital
expenditures decreased $4.5 million in the first nine months of 2006 from the first nine months of
2005 due mainly to the differences in timing of scheduled maintenance activity between the periods.
Management anticipates maintenance capital expenditures to be approximately $25.0 million for the
year ended December 31, 2006, excluding the $2.8 million related to the Western area headquarters
relocation and amounts reimbursable under agreements with Sunoco. Maintenance capital expenditures
for both periods presented include recurring expenditures such as
33
pipeline integrity costs,
pipeline relocations, repair and upgrade of field instrumentation, including measurement devices,
repair and replacement of tank floors and roofs, upgrades of cathodic protection systems, crude
trucks and related equipment, and the upgrade of pump stations.
Expansion capital expenditures in the nine months ended September 30, 2006 include $119.2
million related to the acquisitions of the Millennium and Kilgore pipeline system and the Amdel
pipeline system in March 2006 and the 55.3 percent interest in the Mid-Valley Pipeline Company (see
Note 2 to the condensed consolidated financial statements).
Expansion capital expenditures also include the Partnerships investments in its internal
expansion capital program, including expansion of the Marysville crude oil pipeline and the Amdel
pipeline purchased in March 2006, expansion of the Montello to Pittsburgh segment of the
Philadelphia system, the construction at Nederland of six new crude oil storage tanks with a total
capacity of approximately 3.6 million shell barrels, installation of ethanol blending facilities at
the balance of the Partnerships refined product terminals, as well as capitalized interest of $2.5
million.
The Partnership expects to fund capital expenditures, including pending and future
acquisitions, from both cash provided by operations and, to the extent necessary, from the proceeds
of borrowings under the Credit Facility, other borrowings and the issuance of additional common
units.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Partnership is exposed to various market risks, including volatility in crude oil
commodity prices and interest rates. To manage such exposures, inventory levels and expectations of
future commodity prices and interest rates are monitored when making decisions with respect to risk
management. The Partnership has not entered into derivative transactions that would expose it to
price risk.
The $300 million Credit Facility generally exposes the Partnership to interest rate risk
since it bears interest at a variable rate of 5.71 percent at September 30, 2006. A one percent
change in interest rates changes annual interest expense by approximately $0.5 million based on
outstanding borrowings under the Credit Facility of $46.0 million at September 30, 2006.
Forward-Looking Statements
Some of the information included in this quarterly report on Form 10-Q contains
forward-looking statements, as such term is defined in Section 27A of the Securities Act of 1933
and Section 21E of the Exchange Act, and information relating to the Partnership that is based on
the beliefs of its management as well as assumptions made by and information currently available to
management.
Forward-looking statements discuss expected future results based on current and pending
business operations, and may be identified by words such as anticipates, believes, expects,
planned, scheduled or similar expressions. Although management of the Partnership believes
these forward-looking statements are reasonable, they are based upon a number of assumptions, any
or all of which may ultimately prove to be inaccurate. Statements made regarding future results are
subject to numerous assumptions, uncertainties and risks that may cause future results to be
materially different from the results stated or implied in this document.
The following are among the important factors that could cause actual results to differ
materially from any results projected, forecasted, estimated or budgeted:
|
|
|
Our ability to successfully consummate announced acquisitions or expansions and
integrate them into our existing business operations; |
|
|
|
|
Delays related to construction of, or work on, new or existing facilities and the
issuance of applicable permits; |
|
|
|
|
Changes in demand for, or supply of, crude oil, refined petroleum products and natural
gas liquids that impact demand for the Partnerships pipeline, terminalling and storage
services; |
|
|
|
|
Changes in the demand for crude oil we both buy and sell; |
|
|
|
|
The loss of Sunoco R&M as a customer or a significant reduction in its current level of
throughput and storage with the Partnership; |
34
|
|
|
An increase in the competition encountered by the Partnerships petroleum products
terminals, pipelines and crude oil acquisition and marketing operations; |
|
|
|
|
Changes in the financial condition or operating results of joint ventures or other
holdings in which the Partnership has an equity ownership interest; |
|
|
|
|
Changes in the general economic conditions in the United States; |
|
|
|
|
Changes in laws and regulations to which the Partnership is subject, including federal,
state, and local tax, safety, environmental and employment laws; |
|
|
|
|
Changes in regulations concerning required composition of refined petroleum products,
that result in changes in throughput volumes, pipeline tariffs and/or terminalling and
storage fees; |
|
|
|
|
Improvements in energy efficiency and technology resulting in reduced demand for petroleum products; |
|
|
|
|
The Partnerships ability to manage growth and/or control costs; |
|
|
|
|
The effect of changes in accounting principles and tax laws and interpretations of both; |
|
|
|
|
Global and domestic economic repercussions, including disruptions in the crude oil and
petroleum products markets, from terrorist activities, international hostilities and other
events, and the governments response thereto; |
|
|
|
|
Changes in the level of operating expenses and hazards related to operating facilities
(including equipment malfunction, explosions, fires, spills and the effects of severe
weather conditions); |
|
|
|
|
The occurrence of operational hazards or unforeseen interruptions for which the
Partnership may not be adequately insured; |
|
|
|
|
The age of, and changes in the reliability and efficiency of the Partnerships operating facilities; |
|
|
|
|
Changes in the expected level of capital, operating, or remediation spending related to environmental matters; |
|
|
|
|
Changes in insurance markets resulting in increased costs and reductions in the level
and types of coverage available; |
|
|
|
|
Risks related to labor relations and workplace safety; |
|
|
|
|
Non-performance by or disputes with major customers, suppliers or other business partners; |
|
|
|
|
Changes in the Partnerships tariff rates implemented by federal and/or state government regulators; |
|
|
|
|
The amount of the Partnerships indebtedness, which could make the Partnership
vulnerable to adverse general economic and industry conditions, limit the Partnerships
ability to borrow additional funds, place it at competitive disadvantages compared to
competitors that have less debt, or have other adverse consequences; |
|
|
|
|
Restrictive covenants in the Partnerships or Sunoco, Inc.s credit agreements; |
|
|
|
|
Changes in the Partnerships or Sunoco, Inc.s credit ratings, as assigned by ratings agencies; |
|
|
|
|
The condition of the debt capital markets and equity capital markets in the United
States, and the Partnerships ability to raise capital in a cost-effective way; |
|
|
|
|
Changes in interest rates on the Partnerships outstanding debt, which could increase the costs of borrowing; |
|
|
|
|
Claims of the Partnerships non-compliance with regulatory and statutory requirements; and |
|
|
|
|
The costs and effects of legal and administrative claims and proceedings against the
Partnership or any entity in which it has an ownership interest, and changes in the status
of, or the initiation of new litigation, claims or proceedings, to which the Partnership,
or any entity in which it has an ownership interest, is a party. |
These factors are not necessarily all of the important factors that could cause actual
results to differ materially from those expressed in any of the Partnerships forward-looking
statements. Other factors could also have material adverse effects
35
on future results. The
Partnership undertakes no obligation to update publicly any forward-looking statement whether as a
result of new information or future events.
Item 4. Controls and Procedures
(a) As of the end of the fiscal quarter covered by this report, the Partnership carried
out an evaluation, under the supervision and with the participation of the management of Sunoco
Partners LLC, the Partnerships general partner (including the President and Chief Executive
Officer of Sunoco Partners LLC), of the effectiveness of the design and operation of the
Partnerships disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon
that evaluation, the President and Chief Executive Officer of Sunoco Partners LLC concluded that
the Partnerships disclosure controls and procedures are effective.
(b) No change in the Partnerships internal controls over financial reporting has
occurred during the fiscal quarter covered by this report that has materially affected, or that is
reasonably likely to materially affect, the Partnerships internal control over financial
reporting.
(c) Disclosure controls and procedures are designed to ensure that information required
to be disclosed in the Partnership reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified by the rules and forms of the
Securities and Exchange Commission. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required
to be disclosed in the Partnership reports under the Exchange Act is accumulated and communicated to
management, including the President and Chief Executive Officer of Sunoco Partners LLC, as
appropriate, to allow timely decisions regarding required disclosure.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
In August 2006, Mid-Valley Pipeline Company (an entity in which Sunoco, Inc. formerly
owned a 55.3 percent interest), Sun Pipe Line Company (a subsidiary of Sunoco, Inc.) and Sunoco
Pipeline L.P. (a subsidiary of Sunoco Logistics Partners L.P.) reached a settlement with the U.S.
Environmental Protection Agency, the U.S. Department of Justice and the Kentucky Environmental and
Public Protection Cabinet relating to certain alleged violations of the federal Clean Water Act and
certain Kentucky statutes and regulations, in a total amount of
approximately $3.1 million. The Partnership expects to be fully
indemnified for costs associated with the settlement. The
Consent Decree concerning this settlement was lodged with the U.S. District Court in Kentucky on
August 15, 2006. The 30-day comment period expired on September 20, 2006 and a motion to enter the
Consent Decree was filed on October 13, 2006, and is pending. The alleged violations arise from a
release in November 2000 in Louisiana and a release in January 2005 in Kentucky. (See also the
Partnerships Quarterly Report on Form 10-Q for the quarter ended June 30, 2006)
Item 1A. Risk Factors
There have been no material changes from the risk factors described previously in Part I, Item
1A of the Partnerships Annual Report on Form 10-K for the year ended December 31, 2005, filed on
March 1, 2006.
Item 2. Unregistered Sales of Equity Securities and Uses of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
36
Item 6. Exhibits
Exhibits
|
|
|
12.1 :
|
|
Statement of Computation of Ratio of Earnings to Fixed Charges |
31.1 :
|
|
Chief Executive Officer and
Principal Financial Officer Certification of Periodic Report Pursuant to Exchange Act Rule 13a-14(a) |
32 :
|
|
Chief Executive Officer and Principal Financial Officer Certification of Periodic Report Pursuant to Exchange Act Rule
13a-14(b) and U.S.C. §1350 |
|
|
|
We are pleased to furnish this Form 10-Q to unitholders who request it by writing to: |
|
|
Sunoco Logistics Partners L.P.
Investor Relations
Mellon Bank Center
1735 Market Street
Philadelphia, PA 19103-7583
or through our website at www.sunocologistics.com.
37
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
Sunoco Logistics Partners L.P.
|
|
By: |
/s/ Deborah M. Fretz
|
|
|
Deborah M. Fretz |
|
|
President,
Chief Executive Officer and Principal Financial Officer |
|
|
Date: November 2, 2006
38
exv12w1
Exhibit 12.1
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
Sunoco Logistics Partners L.P.
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, 2006 |
|
Fixed Charges: |
|
|
|
|
Interest cost and debt expense |
|
$ |
23,027 |
|
Interest allocable to rental expense (a) |
|
|
1,400 |
|
|
|
|
|
Total |
|
$ |
24,427 |
|
|
|
|
|
|
|
|
|
|
Earnings: |
|
|
|
|
Income before income tax expense |
|
$ |
62,420 |
|
Equity in income of less than 50 percent owned affiliated companies |
|
|
(11,274 |
) |
Dividends received from less than 50 percent owned affiliated companies |
|
|
10,765 |
|
Fixed charges |
|
|
24,427 |
|
Interest capitalized |
|
|
(2,465 |
) |
Amortization of previously capitalized interest |
|
|
131 |
|
|
|
|
|
Total |
|
$ |
84,004 |
|
|
|
|
|
Ratio of Earnings to Fixed Charges |
|
|
3.44 |
|
|
|
|
|
|
|
|
(a) |
|
Represents one-third of the total operating lease rental expense which is that portion
deemed to be interest. |
39
exv31w1
Exhibit 31.1
CERTIFICATION
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Deborah M. Fretz, President, Chief Executive Officer of Sunoco Partners LLC, the
general partner of the registrant Sunoco Logistics Partners L.P., hereby certify that:
|
1. |
|
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30,
2006 of Sunoco Logistics Partners L.P.; |
|
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to
the period covered by this report; |
|
|
3. |
|
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
|
|
4. |
|
The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
entities, is made known to us by others within those entities, particularly during
the period in which this report is being prepared; |
|
|
b) |
|
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles; |
|
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and |
|
|
d) |
|
Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting. |
|
5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or persons
performing the equivalent functions): |
|
a) |
|
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record, process, summarize and report
financial information; and |
|
|
b) |
|
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting. |
Date: November 2, 2006
|
|
|
|
|
|
|
|
|
/s/ Deborah M. Fretz
|
|
|
Name: |
Deborah M. Fretz |
|
|
Title: |
President, Chief Executive Officer and Principal
Financial Officer |
|
40
exv32
Exhibit 32
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, the undersigned Deborah M. Fretz, being the President and Chief Executive Officer, of
Sunoco Partners LLC, the general partner of the registrant Sunoco Logistics Partners L.P., do each
hereby certify that the registrants Quarterly Report on Form 10-Q for the quarter ended September
30, 2006 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 and that the information contained in the periodic report fairly presents, in all
material respects, the financial condition and results of operations of Sunoco Logistics Partners
L.P.
Date: November 2, 2006
|
|
|
|
|
|
|
|
|
/s/ Deborah M. Fretz
|
|
|
Name: |
Deborah M. Fretz |
|
|
Title: |
President, Chief Executive Officer and Principal
Financial Officer |
|
|
41