Sunoco Logistics Partners LP--Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended September 30, 2009

OR

 

¨ 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)

 

 

 

Delaware   23-3096839

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

Mellon Bank Center

1735 Market Street, Suite LL, Philadelphia, PA

  19103-7583
(Address of principal executive offices)   (Zip Code)

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

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

 

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

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   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

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

At November 4, 2009, the number of the registrant’s Common Units outstanding was 30,981,265.

 

 

 


Table of Contents

SUNOCO LOGISTICS PARTNERS L.P.

INDEX

 

          Page No.

PART I. FINANCIAL INFORMATION

  

Item 1.

   Financial Statements   
   Condensed Consolidated Statements of Income for the Three Months Ended September 30, 2009 and 2008 (unaudited)    3
   Condensed Consolidated Statements of Income for the Nine Months Ended September 30, 2009 and 2008 (unaudited)    4
   Condensed Consolidated Balance Sheets at September 30, 2009 (unaudited) and December 31, 2008    5
   Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008 (unaudited)    6
   Notes to Condensed Consolidated Financial Statements (unaudited)    7

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    26

Item 3.

   Quantitative and Qualitative Disclosures about Market Risk    31

Item 4.

   Controls and Procedures    33

PART II. OTHER INFORMATION

  

Item 1.

   Legal Proceedings    34

Item 1A.

   Risk Factors    34

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds    34

Item 3.

   Defaults Upon Senior Securities    34

Item 4.

   Submission of Matters to a Vote of Security Holders    34

Item 5.

   Other Information    34

Item 6.

   Exhibits    35

SIGNATURE

   36

 

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PART I

FINANCIAL INFORMATION

 

Item 1. Financial Statements

SUNOCO LOGISTICS PARTNERS L.P.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(in thousands, except unit and per unit amounts)

 

     Three Months Ended
September 30,
 
     2009     2008  

Revenues

    

Sales and other operating revenue:

    

Affiliates

   $ 114,905      $ 760,551   

Unaffiliated customers

     1,305,159        2,068,956   

Other income

     8,759        6,245   
                

Total Revenues

     1,428,823        2,835,752   
                

Costs and Expenses

    

Cost of products sold and operating expenses

     1,342,002        2,752,609   

Depreciation and amortization

     12,240        10,010   

Selling, general and administrative expenses

     14,700        15,270   
                

Total Costs and Expenses

     1,368,942        2,777,889   
                

Operating Income

     59,881        57,863   

Net interest with affiliates

     21        (1

Other interest cost and debt expense, net

     12,571        8,507   

Capitalized interest

     (1,171     (977
                

Net Income

   $ 48,460      $ 50,334   
                

Calculation of Limited Partners’ interest in Net Income:

    

Net Income

   $ 48,460      $ 50,334   

Less: General Partner’s interest in Net Income

     (13,368     (9,724
                

Limited Partners’ interest in Net Income

   $ 35,092      $ 40,610   
                

Net Income per Limited Partner unit:

    

Basic

   $ 1.13      $ 1.42   
                

Diluted

   $ 1.13      $ 1.41   
                

Weighted average Limited Partners’ units outstanding:

    

Basic

     30,981,265        28,657,485   
                

Diluted

     31,190,187        28,845,559   
                

(See Accompanying Notes)

 

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SUNOCO LOGISTICS PARTNERS L.P.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(in thousands, except unit and per unit amounts)

 

     Nine Months Ended
September 30,
 
     2009     2008  

Revenues

    

Sales and other operating revenue:

    

Affiliates

   $ 531,309      $ 2,153,655   

Unaffiliated customers

     3,209,485        6,385,662   

Other income

     21,298        19,854   
                

Total Revenues

     3,762,092        8,559,171   
                

Costs and Expenses

    

Cost of products sold and operating expenses

     3,450,490        8,316,720   

Depreciation and amortization

     35,328        29,499   

Selling, general and administrative expenses

     47,616        44,827   

Impairment charge

     —          5,674   
                

Total Costs and Expenses

     3,533,434        8,396,720   
                

Operating Income

     228,658        162,451   

Net interest with affiliates

     80        416   

Other interest cost and debt expense, net

     36,198        25,488   

Capitalized interest

     (3,629     (2,613
                

Net Income

   $ 196,009      $ 139,160   
                

Calculation of Limited Partners’ interest in Net Income:

    

Net Income

   $ 196,009      $ 139,160   

Less: General Partner’s interest in Net Income

     (38,885     (26,185
                

Limited Partners’ interest in Net Income

   $ 157,124      $ 112,975   
                

Net Income per Limited Partner unit:

    

Basic

   $ 5.22      $ 3.94   
                

Diluted

   $ 5.19      $ 3.92   
                

Weighted average Limited Partners’ units outstanding:

    

Basic

     30,084,613        28,647,578   
                

Diluted

     30,288,345        28,830,653   
                

(See Accompanying Notes)

 

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SUNOCO LOGISTICS PARTNERS L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

     September 30,
2009
    December 31,
2008
 
     (UNAUDITED)        

Assets

    

Current Assets

    

Cash and cash equivalents

   $ 2,000      $ 2,000   

Advances to affiliates

     4,515        2,549   

Accounts receivable, affiliated companies

     26,000        77,692   

Accounts receivable, net

     1,050,840        652,840   

Inventories:

    

Crude oil

     290,126        87,645   

Refined product additives

     1,834        1,670   

Materials, supplies and other

     841        841   
                

Total Current Assets

     1,376,156        825,237   
                

Properties, plants and equipment

     2,103,508        1,945,817   

Less accumulated depreciation and amortization

     (604,622     (570,388
                

Properties, plants and equipment, net

     1,498,886        1,375,429   
                

Investment in affiliates

     90,939        82,882   

Deferred charges and other assets

     29,499        24,701   
                

Total Assets

   $ 2,995,480      $ 2,308,249   
                

Liabilities and Partners’ Capital

    

Current Liabilities

    

Accounts payable

   $ 1,129,793      $ 792,674   

Accrued liabilities

     66,016        45,648   

Accrued taxes other than income taxes

     26,627        20,738   
                

Total Current Liabilities

     1,222,436        859,060   
                

Long-term debt

     889,374        747,631   

Other deferred credits and liabilities

     30,677        31,658   

Commitments and contingent liabilities

    
                

Total Liabilities

     2,142,487        1,638,349   
                

Partners’ Capital:

    

Limited partners’ interest

     829,387        653,289   

General partner’s interest

     26,500        19,741   

Accumulated other comprehensive loss

     (2,894     (3,130
                

Total Partners’ Capital

     852,993        669,900   
                

Total Liabilities and Partners’ Capital

   $ 2,995,480      $ 2,308,249   
                

(See Accompanying Notes)

 

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SUNOCO LOGISTICS PARTNERS L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

     Nine Months Ended
September 30,
 
     2009     2008  

Cash Flows from Operating Activities:

    

Net Income

   $ 196,009      $ 139,160   

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

    

Depreciation and amortization

     35,328        29,499   

Impairment charge

     —          5,674   

Amortization of financing fees and bond discount

     1,123        457   

Restricted unit incentive plan expense

     4,904        2,566   

Changes in working capital pertaining to operating activities:

    

Accounts receivable, affiliated companies

     51,692        (183,527

Accounts receivable, net

     (398,000     14,373   

Inventories

     (202,645     (25,959

Accounts payable and accrued liabilities

     356,236        210,948   

Accrued taxes other than income

     5,889        7,938   

Other

     (12,899     (4,187
                

Net cash provided by operating activities

     37,637        196,942   
                

Cash Flows from Investing Activities:

    

Capital expenditures

     (108,803     (89,044

Acquisitions

     (50,000     —     

Mag Tex Acquisition deposit

     —          (10,465
                

Net cash used in investing activities

     (158,803     (99,509
                

Cash Flows from Financing Activities:

    

Distributions paid to Limited Partners and General Partner

     (126,536     (100,088

Net proceeds from issuance of Limited Partner units

     109,483        —     

Contributions from General Partner for Limited Partner unit transactions

     2,398        76   

Payments of statutory withholding on net issuance of Limited Partner units under restricted unit incentive plan

     (2,149     (504

Advances to/from affiliates, net

     (1,966     (8,768

Borrowings under credit facility

     472,973        121,000   

Repayments under credit facility

     (506,385     (111,000

Net proceeds from issuance of long term debt

     173,348        —     

Contributions from affiliate

     —          1,851   
                

Net cash provided by (used in) financing activities

     121,166        (97,433
                

Net change in cash and cash equivalents

     —          —     
                

Cash and cash equivalents at beginning of year

     2,000        2,000   
                

Cash and cash equivalents at end of period

   $ 2,000      $ 2,000   
                

(See Accompanying Notes)

 

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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 Delaware limited partnership formed by Sunoco, Inc. (“Sunoco”) in October 2001 to acquire, own and operate a substantial portion of Sunoco’s logistics business, 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. Sunoco, Inc. and its wholly-owned subsidiaries including Sunoco, Inc. (R&M) are collectively referred to as “Sunoco”. The consolidated financial statements reflect the results of Sunoco Logistics Partners L.P. and its wholly-owned partnerships, including Sunoco Logistics Partners Operations L.P. (the “Operating Partnership”). Equity ownership interests in corporate joint ventures, which are not consolidated, are accounted for under the equity method.

The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and accounting principles generally accepted in the United States for interim financial reporting. They do not include all disclosures normally made in financial statements contained in Form 10-K. In management’s opinion, all adjustments necessary for a fair presentation of the results of operations, financial position and cash flows for the periods shown have been made. The Partnership expects the interim increase in quantities of inventory to significantly reduce by year end and therefore, has adjusted its interim LIFO calculation to produce a reasonable matching of most recently incurred costs with current revenues. All such adjustments are of a normal recurring nature, except for the impairment charge recognized in 2008 (Note 5). Results for the nine months ended September 30, 2009 are not necessarily indicative of results for the full year 2009. Subsequent events have been evaluated through November 4, 2009, the date the condensed consolidated financial statements were issued.

For purposes of comparability, certain prior year amounts, specifically our segment reporting structure as further discussed in Note 12, have been recast to conform to the current year presentation. Such recasts have no impact on previously reported consolidated net income.

2. Acquisitions

2009 Acquisitions

In September 2009, the Partnership completed two acquisitions totaling approximately $50.0 million which include:

 

   

Excel Pipeline LLC, the owner of a 52-mile crude oil pipeline in Oklahoma, from affiliates of Gary-Williams Energy Corporation. The system originates in Duncan, OK and terminates in Wynnewood, OK and has been operated by the Partnership for Gary-Williams Energy Corporation since 2007. The pipeline has been included in our Crude Oil Pipeline System segment from the date of acquisition. The purchase price was allocated to the underlying assets acquired based upon estimates of their fair values at the date of acquisition, and;

 

   

a refined products terminal located in Romulus, Michigan from R.K.A Petroleum LLC. The terminal has storage capacity of approximately 0.4 million shell barrels and services the Detroit metropolitan area and has been integrated into our Terminal Facilities segment from the date of acquisition. The purchase price has been allocated to the underlying net assets acquired based on preliminary estimates of their fair values on the date of acquisition.

2008 Acquisitions

In November 2008, the Partnership purchased a refined products pipeline system from affiliates of Exxon Mobil Corporation for approximately $185.4 million. The system consists of approximately 280 miles of refined products pipeline originating in Beaumont and Port Arthur and terminating in Hearne, Texas; approximately 200 miles of refined products pipeline originating in Beaumont and terminating in Waskom, Texas; and refined product terminal facilities located in Hearne, Hebert, Waco, Center and Waskom, Texas and Arcadia, Louisiana with active storage capacity of 0.5 million shell barrels. The pipeline assets are included in the Refined Products Pipeline System segment and the terminal assets are included in our Terminal Facilities segment. The purchase price has been preliminarily allocated to the assets and liabilities acquired based on their relative fair values on the acquisition date.

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

3. Related Party Transactions

Advances to/from Affiliate

The Partnership has a treasury services agreement with Sunoco pursuant to which it, among other things, participates in Sunoco’s centralized cash management program. Under this program, all of the Partnership’s cash receipts and cash disbursements are processed, together with those of Sunoco and its other subsidiaries, through Sunoco’s cash accounts with a corresponding credit or charge to an intercompany account. The intercompany balances are settled periodically, but no less frequently than monthly. Amounts due from Sunoco earn interest at a rate equal to the average rate of the Operating Partnership’s third-party money market investments, while amounts due to Sunoco bear interest at a rate equal to the interest rate provided in the Partnership’s $400 million Credit Facility (see Note 7).

Administrative Services

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, 2008 was $6.0 million. The administrative services section of the Omnibus Agreement was extended through December 31, 2009 with a $6.0 million fee. This fee 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 the administrative services section of the Omnibus Agreement will be extended beyond 2009, or that, if extended, the administrative fee charged by Sunoco will be at or below the current administrative fee. In the event that the Partnership is unable to obtain such services from Sunoco or third parties at or below the current cost, the Partnership’s financial condition and results of operations may be adversely impacted.

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

Affiliated Revenues and Accounts Receivable, Affiliated Companies

Affiliated revenues in the 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. Sales of crude oil are priced using market based rates. Pipeline revenues are generally determined using posted tariffs.

In 2002, the Partnership entered into a pipelines and terminals storage and throughput agreement with Sunoco R&M, under which Sunoco R&M agreed to pay the Partnership a minimum level of revenues for transporting refined products and agreed to minimum levels of storage and throughput of crude oil and liquefied petroleum gas. In February 2007, certain obligations under the pipelines and terminals storage and throughput agreement relating to throughput of refined products through the Partnership’s terminals and to the Marcus Hook Tank Farm expired. On March 1, 2007 the Partnership entered into (i) a new five year product terminal services agreement with Sunoco R&M under which Sunoco R&M may throughput refined products through the Partnership’s terminals, and (ii) a new tank farm agreement under which Sunoco R&M may throughput refined products through the Partnership’s Marcus Hook Tank Farm. These new agreements contain no minimum throughput obligations for Sunoco R&M. In May 2009, Sunoco R&M’s crude oil storage and throughput commitments at the Fort Mifflin Terminal and the Inkster Terminal expired. The Partnership is currently operating under a month-to-month agreement to provide services at these facilities and expects to finalize a new agreement during the fourth quarter of 2009.

Sunoco also leases the Partnership’s 58 miles of interrefinery pipelines between Sunoco’s Philadelphia and Marcus Hook refineries for a term of 20 years.

Capital Contributions

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

 

   

the Interrefinery Lease Agreement, which requires Sunoco to reimburse the Partnership for any non-routine maintenance expenditures incurred through February 2022; and

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

   

an Amended and Restated Dock and Terminal Throughput Agreement for services provided to Sunoco’s Eagle Point refinery which include: receipt and delivery of all crude oil to and from the Eagle Point refinery, receipt and delivery at least 41,800 barrels per day (“bpd”) of refined and intermediate products at the Eagle Point docks and receipt and delivery of at least 32,000 bpd of refined and intermediate products at the Eagle Point Refined Products terminal. Pursuant to the amended agreement, the Partnership is obligated to make certain capital improvements to the Eagle Point docks. The rates to be paid by Sunoco for throughput at the docks and terminal are comparable to those charged in an arms’ length transaction and the dock rates have been modified to reflect the required capital improvements. The term for the parties’ obligations with respect to the refined products terminal and docks are through March 31, 2016 and December 31, 2025 respectively.

In October 2009, Sunoco announced its plan to indefinitely idle all processing units at its Eagle Point refinery and notified the Partnership that this change in operations may result in reductions in its throughput obligations for the Eagle Point dock and terminal assets. The Partnership is continuing to work with Sunoco to determine how this change will impact future revenues. An evaluation of the recoverability of the Partnership’s assets impacted by the idling of the Eagle Point refinery was performed and it was determined that there was no impairment at September 30, 2009 (See Note 5).

During the nine months ended September 30, 2008, the Partnership was reimbursed $1.9 million, associated with these agreements. The Partnership did not receive a reimbursement for the nine months ended September 30, 2009. The reimbursement received in 2008 was recorded by the Partnership as a capital contribution to Partners’ Capital within the condensed consolidated balance sheet at September 30, 2008.

In February 2009 and 2008 the Partnership issued 0.1 million common units in each period 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 the condensed consolidated balance sheets.

In April and May 2009 the Partnership completed a public offering of 2.25 million common units. Net proceeds of approximately $109.5 million were used to reduce outstanding borrowings under the Partnership’s $400 million Credit Facility and for general partnership purposes. As a result of these offerings of common units, the general partner contributed $2.3 million to the Partnership to maintain its 2.0 percent general partner interest.

4. Net Income Per Unit Data

Beginning January 1, 2009, the Partnership changed its methodology for computing earnings per unit to conform to current guidance. Under the new methodology, incentive distribution rights (“IDRs”) are considered to be participating securities for the purpose of computing earnings per unit. When earnings differ from cash distributions, undistributed or over distributed earnings are to be allocated to the IDR holders, the general partner, and limited partners based on the contractual terms of the partnership agreement. Previously, earnings per unit was calculated as if all earnings for the period had been distributed, which resulted in an additional allocation of income to the general partner (the IDR holder) in quarterly periods where earnings exceeded the actual distribution. As a result of these changes in calculating earnings per unit, the Partnership’s net income per unit on a basic and diluted basis increased $0.03 and $0.04 respectively for the three months ended, and $1.01 and $1.00 for the nine months ended September 30, 2009. Basic and diluted net income per limited partner unit is calculated by dividing net income, after deducting the amount allocated to the general partner’s interest and incentive distribution rights, by the weighted-average number of limited partner common units outstanding during the period. For comparative purposes, prior year net income per unit data has been adjusted accordingly.

The general partner’s interest in net income consists of its 2.0 percent general partner interest and “incentive distributions”, which are increasing percentages, up to 50 percent of quarterly distributions in excess of $0.50 per limited partner unit (see Note 11). The general partner was allocated net income of $13.4 million (representing 27.6 percent of total net income for the period) and $9.7 million (representing 19.3 percent of total net income for the period) for the three months ended September 30, 2009 and 2008, respectively, and $38.9 million (representing 19.8 percent of total net income for the period) and $26.2 million (representing 18.8 percent of total net income for the period) for the nine months ended September 30, 2009 and 2008, 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.

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

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, 2009 and 2008:

 

     Three Months Ended
September30,
   Nine Months Ended
September 30,
     2009    2008    2009    2008

Weighted average number of limited partner units outstanding – basic

   30,981,265    28,657,485    30,084,613    28,647,578

Add effect of dilutive unit incentive awards

   208,922    188,074    203,732    183,075
                   

Weighted average number of limited partner units – diluted

   31,190,187    28,845,559    30,288,345    28,830,653
                   

5. Impairment Charge

Long-lived assets other than those held for sale are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In the first quarter of 2008, the Partnership recognized an impairment of $5.7 million related to management’s decision to discontinue efforts to expand liquefied petroleum gas storage capacity at its Inkster, Michigan facility. The impairment charge reflects the entire cost associated with the project.

In October 2009, Sunoco announced its plan to indefinitely idle all processing units at its Eagle Point Refinery location. The Partnership’s terminal and dock assets which support the Eagle Point Refinery have a net book value of approximately $40.0 million as of September 30, 2009. An evaluation of the recoverability of the assets determined that no impairment was required as of the third quarter 2009.

6. Investment in Affiliates

The Partnership’s ownership percentages in corporate joint ventures as of September 30, 2009 and December 31, 2008 were as follows:

 

     Partnership
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)

The Partnership’s interest in the Mid-Valley Pipeline Company includes 50 percent voting rights.

The following table provides summarized combined statement of income data on a 100 percent basis for the Partnership’s corporate joint venture interests for the three and nine months ended September 30, 2009 and 2008 (in thousands of dollars):

 

     Three Months Ended
September 30,
   Nine Months Ended
September 30,
     2009    2008    2009    2008

Income Statement Data:

           

Total revenues

   $ 125,248    $ 122,360    $ 350,513    $ 354,533

Net income

   $ 39,717    $ 26,659    $ 98,023    $ 82,811

The following table provides summarized combined balance sheet data on a 100 percent basis for the Partnership’s corporate joint venture interests as of September 30, 2009 and December 31, 2008 (in thousands of dollars):

 

     September 30,
2009
   December 31,
2008

Balance Sheet Data:

     

Current assets

   $ 165,630    $ 115,097

Non-current assets

   $ 677,532    $ 682,453

Current liabilities

   $ 124,201    $ 123,423

Non-current liabilities

   $ 575,659    $ 591,101

Net equity

   $ 143,302    $ 83,026

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

The Partnership’s investments in Wolverine, West Shore, Yellowstone, and West Texas Gulf at September 30, 2009 include an excess investment amount of approximately $53.2 million, net of accumulated amortization of $4.4 million. The excess investment is the difference between the investment balance and the Partnership’s proportionate share of the net assets of the entities. The excess investment was allocated to the underlying tangible and intangible assets. Other than land and indefinite-lived intangible assets, all amounts allocated, principally to pipeline and related assets, are amortized using the straight-line method over their estimated useful life of 40 years and included within depreciation and amortization in the condensed consolidated statements of income.

7. Long-Term Debt

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

 

     September 30,
2009
    December 31,
2008
 

$400 million Credit Facility – due November 2012

   $ 258,723      $ 323,385   

$62.5 million Credit Facility – due September 2011

     31,250        —     

Senior Notes – 7.25%, due February 15, 2012

     250,000        250,000   

Senior Notes – 6.125%, due May 15, 2016

     175,000        175,000   

Senior Notes – 8.75%, due February 15, 2014

     175,000        —     

Less unamortized bond discount

     (599     (754
                
   $ 889,374      $ 747,631   
                

8.75% Senior Notes

In February 2009, the Operating Partnership issued $175 million of 8.75 percent Senior Notes, due February 15, 2014 (“2014 Senior Notes”). The 2014 Senior Notes are redeemable, at a make-whole premium, and are not subject to sinking fund provisions. The 2014 Senior Notes contain various covenants limiting the Operating Partnership’s ability to incur certain liens, engage in sale/leaseback transactions, or merge, consolidate or sell substantially all of its assets. The net proceeds of $173.3 million from the 2014 Senior Notes, were used to repay outstanding borrowings under the Operating Partnership’s $400 million Credit Facility.

$400 Million Credit Facility

The Operating Partnership has a five-year $400 million revolving credit facility (“$400 million Credit Facility”) with a syndicate of 10 participating financial institutions. The $400 million Credit Facility is available to fund the Operating Partnership’s working capital requirements, to finance future acquisitions, to finance future capital projects and for general partnership purposes. The $400 million Credit Facility matures in November 2012 and may be prepaid at any time. It bears interest at the Operating Partnership’s option, at either (i) LIBOR plus an applicable margin, (ii) the higher of the federal funds rate plus 0.50 percent or the Citibank prime rate (each plus the applicable margin) or (iii) the federal funds rate plus an applicable margin. The $400 million Credit Facility contains various covenants limiting the Operating Partnership’s ability to incur indebtedness; grant certain liens; make certain loans, acquisitions and investments; make any material change to the nature of its business; acquire another company; or enter into a merger or sale of assets, including the sale or transfer of interests in the Operating Partnership’s subsidiaries. The $400 million Credit Facility also limits the Operating Partnership, on a rolling four-quarter basis, to 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. The Operating Partnership is in compliance with this requirement as of September 30, 2009. As of September 30, 2009 there were $258.7 million of outstanding borrowings under the $400 million Credit Facility.

$62.5 Million Credit Facility

On March 13, 2009, the Operating Partnership entered into a $62.5 million revolving credit facility (“$62.5 million Credit Facility”) with a syndicate of 2 participating financial institutions. The $62.5 million Credit Facility is available to fund the Operating Partnership’s working capital requirements, to finance future acquisitions and for general partnership purposes. The $62.5 million Credit Facility matures in September 2011 and may be prepaid at any time. It bears interest at the Operating Partnership’s option, at either (i) LIBOR plus an applicable margin or (ii) the higher of (a) the federal funds rate plus 0.50 percent plus an applicable margin, (b) Toronto Dominion’s prime rate plus an applicable margin or (c) LIBOR plus 1.0 percent plus an applicable margin. The $62.5 million Credit Facility contains various covenants similar to the $400 million credit facility and limits the Operating Partnership, on a rolling four-quarter basis, to a maximum debt to EBITDA ratio of 4.0 to 1, which can generally be increased to 4.5 to 1 during an acquisition period. The Operating Partnership is in compliance with this requirement as of September 30, 2009. As of September 30, 2009 there were $31.3 million of outstanding borrowings under the $62.5 million Credit Facility.

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

Interest Rate Swap

The Partnership uses interest rate swaps, a type of derivative financial instrument, to manage interest costs and minimize the effects of interest rate fluctuations on cash flows associated with its $400 million credit facility. The Partnership does not use derivatives for trading or speculative purposes. While interest rate swaps are subject to fluctuations in value, these fluctuations are generally offset by the value of the underlying exposures being hedged. The Partnership minimizes the risk of credit loss by entering into these agreements with major financial institutions that have high credit ratings. The Partnership records its interest rate swaps on the balance sheet at fair value. The interest rate swap has been designated as cash flow hedges, accordingly, changes in the fair value, to the extent the hedge is effective, are recorded, net of tax, in other comprehensive income (loss), a component of Partners’ capital, until earnings are affected by the variability of the hedged cash flows. Cash flow hedge ineffectiveness, defined as the extent that the changes in the fair value of the derivative exceed the variability of cash flows of the forecasted transaction, is recorded currently in earnings.

In January 2008, the Partnership entered into a $50.0 million floating to fixed interest rate swap agreement (the “Swap”), maturing January 2010. Under the Swap, the Partnership receives interest equivalent to the three-month LIBOR and pays a fixed rate of interest of 3.489 percent with settlements occurring quarterly. The objective of the hedge is to eliminate the variability of cash flows in interest payments for $50.0 million of floating rate debt. To maintain hedge accounting for the Swap, the Partnership is committed to maintaining at least $50.0 million in borrowings at an interest rate based on the three-month LIBOR, plus an applicable margin, through January 2010. The Swap’s fair value is recorded as an accrued liability of $0.8 million as of September 30, 2009 and the corresponding change in fair value is included in accumulated other comprehensive loss, a component of Partners’ equity.

8. Commitments and Contingent Liabilities

The Partnership is subject to numerous federal, state and local laws which regulate the discharge of materials into the environment or that otherwise relate to the protection of the environment. These laws and regulations result in liabilities and loss contingencies for remediation at the Partnership’s facilities and at third-party or formerly owned sites. At September 30, 2009 and December 31, 2008, there were accrued liabilities for environmental remediation in the condensed consolidated balance sheets of $3.0 million and $3.6 million, respectively. The accrued liabilities for environmental remediation do not include any amounts attributable to unasserted claims, nor have any recoveries from insurance been assumed. Charges against income for environmental remediation totaled $1.6 million and $0.5 million for the three month periods ended September 30, 2009 and 2008, respectively, and $3.7 million and $1.0 million for the nine month periods ended September 30, 2009 and 2008, respectively.

Total future costs for environmental remediation activities will depend upon, among other things, the identification of any additional sites, the determination of the extent of the contamination at each site, the timing and nature of required remedial actions, the technology available and needed to meet the various existing legal requirements, the nature and extent of future environmental laws, inflation rates and the determination of the Partnership’s liability at multi-party sites, if any, in light of uncertainties with respect to joint and several liability, and the number, participation levels and financial viability of other parties. As discussed below, the Partnership’s current and future costs have been and will be impacted by an indemnification from Sunoco.

The Partnership is a party to certain pending and threatened claims. Although the ultimate outcome of these claims cannot be ascertained at this time, it is reasonably possible that some portion of them could be resolved unfavorably to the Partnership and its predecessor. Management does not believe that any liabilities which may arise from such claims and the environmental matters discussed above would be material in relation to the financial position of the Partnership at September 30, 2009. Furthermore, management does not believe that the overall costs for such matters will have a material impact, over an extended period of time, on the Partnership’s operations, cash flows or liquidity.

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

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

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

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 financial position of the Partnership at September 30, 2009. There are certain other pending legal proceedings related to matters arising after the February 2002 IPO that 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 financial position of the Partnership at September 30, 2009.

9. Fair Value Measurements

The Partnership determines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As required, the Partnership utilizes valuation techniques that maximize the use of observable inputs (levels 1 and 2) and minimize the use of unobservable inputs (level 3) within the fair value hierarchy. The Partnership generally applies the “market approach” to determine fair value. This method uses pricing and other information generated by market transactions for identical or comparable assets and liabilities. Assets and liabilities are classified within the fair value hierarchy based on the lowest level (least observable) input that is significant to the measurement in its entirety.

The Partnership’s current assets (other than inventories) and current liabilities are financial instruments. The estimated fair value of these financial instruments approximates their carrying amounts due to their short-term nature. The estimated fair value of the $290.0 million and $323.4 million of borrowings under the Partnership’s Credit Facilities at September 30, 2009 and December 31, 2008 approximate their carrying amounts as these borrowings bear interest based upon short-term market interest rates. The estimated fair value of the 2012, 2014 and 2016 Senior Notes at September 30, 2009 and December 31, 2008 was $665.6 million and $416.2 million, respectively, compared to the carrying amount of $600.0 million and $425.0 million at September 30, 2009 and December 31, 2008. The 2012, 2014 and 2016 Senior Notes, which are publicly traded, were valued based upon quoted market prices.

10. Management Incentive Plan

Sunoco Partners LLC, the general partner of the Partnership, participates in the Sunoco Partners LLC Long-Term Incentive Plan (“LTIP”) for employees and directors of the general partner who perform services for the Partnership. The LTIP is administered by the independent directors of the Compensation Committee of the general partner’s board of directors with respect to employee awards, and by the non-independent members of the general partners’ board of directors with respect to awards granted to the independent members. 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 may also include tandem distribution equivalent rights (“DERs”) at the discretion of the Compensation Committee.

The Partnership awarded 91,390 and 71,205 units under the LTIP, net of estimated forfeitures, and recognized share-based compensation expense of $4.9 million and $3.9 million for the nine month periods ended September 30, 2009 and 2008, respectively. Each of the restricted unit grants also have tandem DERs which are recognized as a reduction of Partners’ Capital when earned.

11. Cash Distributions

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

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 $0.70 per unit. These distributions are referred to as “incentive distributions.”

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

Distributions paid by the Partnership for the period from January 1, 2008 through September 30, 2009 were as follows:

 

Date Cash Distribution Paid

   Cash
Distribution
per Limited
Partner Unit
   Total Cash
Distribution to
Limited Partners
   Total Cash
Distribution to
the General
Partner
        ($ in millions)    ($ in millions)

February 14, 2008

   $ 0.8700    $ 24.9    $ 6.7

May 15, 2008

   $ 0.8950    $ 25.6    $ 7.5

August 14, 2008

   $ 0.9350    $ 26.8    $ 8.6

November 14, 2008

   $ 0.9650    $ 27.6    $ 9.5

February 13, 2009

   $ 0.9900    $ 28.4    $ 10.2

May 15, 2009

   $ 1.0150    $ 31.4    $ 11.8

August 14, 2009

   $ 1.0400    $ 32.2    $ 12.6

On October 26, 2009, Sunoco Partners LLC, the general partner of Sunoco Logistics Partners L.P., declared a cash distribution of $1.065 per common partnership unit ($4.26 annualized), representing the distribution for the third quarter 2009. The $46.3 million distribution, including $13.3 million to the general partner, will be paid on November 13, 2009 to unit holders of record at the close of business on November 6, 2009.

12. Business Segment Information

On January 1, 2009 the Partnership re-aligned its reporting segments. Prior to this date, the reporting segments were designated by geographic region. The Partnership has determined it more meaningful to functionally align its reporting segments. As such, the updated reporting segments as of January 1, 2009 are Refined Products Pipeline System, Terminal Facilities, and Crude Oil Pipeline System. The primary difference in the new reporting is the consolidation of an eastern area crude oil pipeline with the western area crude oil pipelines. For comparative purposes all prior year amounts have been recast to reflect the new segment reporting and do not impact consolidated net income.

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

The following table sets forth condensed statement of income information concerning the Partnership’s business segments and reconciles total segment operating income to net income for the three months ended September 30, 2009 and 2008, respectively (in thousands of dollars).

 

     Three Months Ended
September 30,
     2009    2008

Segment Operating Income

     

Refined Products Pipeline System:

     

Sales and other operating revenue:

     

Affiliates

   $ 19,863    $ 20,050

Unaffiliated customers

     12,169      5,635

Other income

     3,844      2,271
             

Total Revenues

     35,876      27,956
             

Operating expenses

     14,425      11,102

Depreciation and amortization

     3,201      2,215

Selling, general and administrative expenses

     4,970      5,156
             

Total Costs and Expenses

     22,596      18,473
             

Operating Income

   $ 13,280    $ 9,483
             

Terminal Facilities:

     

Sales and other operating revenue:

     

Affiliates

   $ 24,142    $ 25,359

Unaffiliated customers

     22,056      15,275

Other income

     12      —  
             

Total Revenues

     46,210      40,634
             

Cost of products sold and operating expenses

     15,714      17,938

Depreciation and amortization

     5,151      4,198

Selling, general and administrative expenses

     4,635      4,760
             

Total Costs and Expenses

     25,500      26,896
             

Operating Income

   $ 20,710    $ 13,738
             

Crude Oil Pipeline System:

     

Sales and other operating revenue:

     

Affiliates

   $ 70,900    $ 715,142

Unaffiliated customers

     1,270,934      2,048,046

Other income

     4,903      3,974
             

Total Revenues

     1,346,737      2,767,162
             

Cost of products sold and operating expenses

     1,311,863      2,723,569

Depreciation and amortization

     3,888      3,597

Selling, general and administrative expenses

     5,095      5,354
             

Total Costs and Expenses

     1,320,846      2,732,520
             

Operating Income

   $ 25,891    $ 34,642
             

Reconciliation of Segment Operating Income to Net Income:

     

Operating Income:

     

Refined Products Pipeline System

   $ 13,280    $ 9,483

Terminal Facilities

     20,710      13,738

Crude Oil Pipeline System

     25,891      34,642
             

Total segment operating income

     59,881      57,863

Net interest expense

     11,421      7,529
             

Net Income

   $ 48,460    $ 50,334
             

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

The following table sets forth condensed statement of income information concerning the Partnership’s business segments and reconciles total segment operating income to net income for the nine months ended September 30, 2009 and 2008, respectively (in thousands of dollars). During the nine month period ending September 30, 2009, the Partnership recognized $6.8 million of crude pipeline fees relating to the resolution of certain tariff adjustments from prior years. The amount is not considered material to the current or any prior year results.

 

     Nine Months Ended
September 30,
     2009    2008

Segment Operating Income

     

Refined Products Pipeline System:

     

Sales and other operating revenue:

     

Affiliates

   $ 57,089    $ 55,819

Unaffiliated customers

     37,559      17,759

Other income

     9,191      6,521
             

Total Revenues

     103,839      80,099
             

Operating expenses

     43,747      33,608

Depreciation and amortization

     9,593      6,649

Selling, general and administrative expenses

     16,057      15,092
             

Total Costs and Expenses

     69,397      55,349
             

Operating Income

   $ 34,442    $ 24,750
             

Terminal Facilities:

     

Sales and other operating revenue:

     

Affiliates

   $ 71,336    $ 75,035

Unaffiliated customers

     68,053      44,255

Other income

     1,404      825
             

Total Revenues

     140,793      120,115
             

Cost of products sold and operating expenses

     48,438      45,539

Depreciation and amortization

     14,489      12,191

Selling, general and administrative expenses

     14,721      13,853

Impairment charge

     —        5,674
             

Total Costs and Expenses

     77,648      77,257
             

Operating Income

   $ 63,145    $ 42,858
             

Crude Oil Pipeline System:

     

Sales and other operating revenue:

     

Affiliates

   $ 402,884    $ 2,022,801

Unaffiliated customers

     3,103,873      6,323,648

Other income

     10,703      12,508
             

Total Revenues

     3,517,460      8,358,957
             

Cost of products sold and operating expenses

     3,358,305      8,237,573

Depreciation and amortization

     11,246      10,659

Selling, general and administrative expenses

     16,838      15,882
             

Total Costs and Expenses

     3,386,389      8,264,114
             

Operating Income

   $ 131,071    $ 94,843
             

Reconciliation of Segment Operating Income to Net Income:

     

Operating Income:

     

Refined Products Pipeline System

   $ 34,442    $ 24,750

Terminal Facilities

     63,145      42,858

Crude Oil Pipeline System

     131,071      94,843
             

Total segment operating income

     228,658      162,451

Net interest expense

     32,649      23,291
             

Net Income

   $ 196,009    $ 139,160
             

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

The following table provides the identifiable assets for each segment as of September 30, 2009 and December 31, 2008 (in thousands):

 

     September 30,
2009
   December 31,
2008

Refined Products Pipeline System

   $ 502,403    $ 498,098

Terminal Facilities

     564,338      484,349

Crude Oil Pipeline System

     1,897,437      1,301,948

Corporate and other

     31,302      23,854
             

Total identifiable assets

   $ 2,995,480    $ 2,308,249
             

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 guarantees the debt obligations of the Operating Partnership and serves as guarantor of the 2012, 2014 and 2016 Senior Notes and of any obligations under the credit facilities. These guarantees are full and unconditional. For purposes of the following note, 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, Sunoco Pipeline Acquisition LLC, Sunoco Logistics Partners GP LLC, Sunoco Logistics Partners Operations GP LLC and Sunoco Partners Lease Acquisition & Marketing LLC, are collectively referred to as “Non-Guarantor Subsidiaries.”

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

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

Condensed Consolidating Statement of Income

Three Months Ended September 30, 2009

(unaudited)

 

     Parent    Subsidiary
Issuer
    Non-
Guarantor
Subsidiaries
   Consolidating
Adjustments
    Total  

Revenues

            

Sales and other operating revenue:

            

Affiliates

   $ —      $ —        $ 139,541    $ (24,636   $ 114,905   

Unaffiliated customers

     —        —          1,305,159      —          1,305,159   

Equity in earnings of subsidiaries

     73,088      83,684        8      (156,780     —     

Other income

     —        —          8,759      —          8,759   
                                      

Total Revenues

     73,088      83,684        1,453,467      (181,416     1,428,823   
                                      

Costs and Expenses

            

Cost of products sold and operating expenses

     —        —          1,342,002      —          1,342,002   

Depreciation and amortization

     —        —          12,240      —          12,240   

Selling, general and administrative expenses

     —        —          14,700      —          14,700   

Impairment Charge

     —        —          —        —          —     
                                      

Total Costs and Expenses

     —        —          1,368,942      —          1,368,942   
                                      

Operating Income

     73,088      83,684        84,525      (181,416     59,881   

Net interest with affiliates

     —        (804     825      —          21   

Other interest cost and debt expenses, net

     —        12,571        —        —          12,571   

Capitalized interest

     —        (1,171     —        —          (1,171
                                      

Net Income

   $ 73,088    $ 73,088      $ 83,700    $ (181,416   $ 48,460   
                                      

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

Condensed Consolidating Statement of Income

Three Months Ended September 30, 2008

(unaudited)

 

     Parent    Subsidiary
Issuer
    Non-
Guarantor
Subsidiaries
   Consolidating
Adjustments
    Total  

Revenues

            

Sales and other operating revenue:

            

Affiliates

   $ —      $ —        $ 760,551    $ —        $ 760,551   

Unaffiliated customers

     —        —          2,068,956      —          2,068,956   

Equity in earnings of subsidiaries

     50,333      57,037        6      (107,376     —     

Other income

     —        —          6,245      —          6,245   
                                      

Total Revenues

     50,333      57,037        2,835,758      (107,376     2,835,752   
                                      

Costs and Expenses

            

Cost of products sold and operating expenses

     —        —          2,752,609      —          2,752,609   

Depreciation and amortization

     —        —          10,010      —          10,010   

Selling, general and administrative expenses

     —        —          15,270      —          15,270   
                                      

Total Costs and Expenses

     —        —          2,777,889      —          2,777,889   
                                      

Operating Income

     50,333      57,037        57,869      (107,376     57,863   

Net interest with affiliates

     —        (826     825      —          1   

Other interest cost and debt expenses, net

     —        8,507        —        —          8,507   

Capitalized interest

     —        (977     —        —          (977
                                      

Net Income

   $ 50,333    $ 50,333      $ 57,044    $ (107,376   $ 50,334   
                                      

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

Condensed Consolidating Statement of Income

Nine Months Ended September 30, 2009

(unaudited)

 

     Parent    Subsidiary
Issuer
    Non-
Guarantor
Subsidiaries
   Consolidating
Adjustments
    Total  

Revenues

            

Sales and other operating revenue:

            

Affiliates

   $ —      $ —        $ 614,984    $ (83,675   $ 531,309   

Unaffiliated customers

     —        —          3,209,485      —          3,209,485   

Equity in earnings of subsidiaries

     279,658      309,832        31      (589,521     —     

Other income

     —        —          21,298      —          21,298   
                                      

Total Revenues

     279,658      309,832        3,845,798      (673,196     3,762,092   
                                      

Costs and Expenses

            

Cost of products sold and operating expenses

     —        —          3,450,490      —          3,450,490   

Depreciation and amortization

     —        —          35,328      —          35,328   

Selling, general and administrative expenses

     —        —          47,616      —          47,616   

Impairment Charge

     —        —          —        —          —     
                                      

Total Costs and Expenses

     —        —          3,533,434      —          3,533,434   
                                      

Operating Income

     279,658      309,832        312,364      (673,196     228,658   

Net interest with affiliates

     —        (2,395     2,475      —          80   

Other interest cost and debt expenses, net

     —        36,198        —        —          36,198   

Capitalized interest

     —        (3,629     —        —          (3,629
                                      

Net Income

   $ 279,658    $ 279,658      $ 309,889    $ (673,196   $ 196,009   
                                      

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

Condensed Consolidating Statement of Income

Nine Months Ended September 30, 2008

(unaudited)

 

     Parent    Subsidiary
Issuer
    Non-
Guarantor
Subsidiaries
   Consolidating
Adjustments
    Total  

Revenues

            

Sales and other operating revenue:

            

Affiliates

   $ —      $ —        $ 2,153,655    $ —        $ 2,153,655   

Unaffiliated customers

     —        —          6,385,662      —          6,385,662   

Equity in earnings of subsidiaries

     139,158      159,974        16      (299,148     —     

Other income

     —        —          19,854      —          19,854   
                                      

Total Revenues

     139,158      159,974        8,559,187      (299,148     8,559,171   
                                      

Costs and Expenses

            

Cost of products sold and operating expenses

     —        —          8,316,720      —          8,316,720   

Depreciation and amortization

     —        —          29,499      —          29,499   

Selling, general and administrative expenses

     —        —          44,827      —          44,827   

Impairment Charge

     —        —          5,674      —          5,674   
                                      

Total Costs and Expenses

     —        —          8,396,720      —          8,396,720   
                                      

Operating Income

     139,158      159,974        162,467      (299,148     162,451   

Net interest with affiliates

     —        (2,059     2,475      —          416   

Other interest cost and debt expenses, net

     —        25,488        —        —          25,488   

Capitalized interest

     —        (2,613     —        —          (2,613
                                      

Net Income

   $ 139,158    $ 139,158      $ 159,992    $ (299,148   $ 139,160   
                                      

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

Condensed Consolidating Balance Sheet

September 30, 2009

(unaudited)

 

     Parent    Subsidiary
Issuer
    Non-
Guarantor
Subsidiaries
    Consolidating
Adjustments
    Total

Assets

           

Current Assets

           

Cash and cash equivalents

   $ —      $ 2,000      $ —        $ —        $ 2,000

Advances to Affiliates

     1,721      48,000        (45,206     —          4,515

Accounts receivable, affiliated companies

     —        —          26,000        —          26,000

Accounts receivable, net

     —        —          1,050,840        —          1,050,840

Inventories

           

Crude oil

     —        —          290,126        —          290,126

Refined product

     —        —          1,834        —          1,834

Materials, supplies and other

     —        —          841        —          841
                                     

Total Current Assets

     1,721      50,000        1,324,435        —          1,376,156
                                     

Properties, plants and equipment, net

     —        —          1,498,886        —          1,498,886

Investment in affiliates

     656,678      1,508,950        91,098        (2,165,788     90,939

Deferred charges and other assets

     —        4,383        25,117        —          29,499
                                     

Total Assets

   $ 658,399    $ 1,563,333      $ 2,939,536      $ (2,165,788   $ 2,995,480
                                     

Liabilities and Partners’ Capital

           

Current Liabilities

           

Accounts payable

   $ —      $ —        $ 1,129,793      $ —        $ 1,129,793

Accrued liabilities

     980      (1,087     66,124        —          66,016

Accrued taxes

     —        —          26,627        —          26,627
                                     

Total Current Liabilities

     980      (1,087     1,222,544        —          1,222,436
                                     

Long-term debt

     —        889,374        —          —          889,374

Other deferred credits and liabilities

     —        —          30,677        —          30,677
                                     

Total Liabilities

     980      888,287        1,253,221        —          2,142,487
                                     

Total Partners’ Capital

     657,419      675,046        1,686,315        (2,165,788     852,993
                                     

Total Liabilities and Partners’ Capital

   $ 658,399    $ 1,563,333      $ 2,939,536      $ (2,165,788   $ 2,995,480
                                     

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

Condensed Consolidating Balance Sheet

December 31, 2008

 

     Parent     Subsidiary
Issuer
   Non-
Guarantor
Subsidiaries
    Consolidating
Adjustments
    Total

Assets

           

Current Assets

           

Cash and cash equivalents

   $ —        $ 2,000    $ —        $ —        $ 2,000

Advances to affiliates

     (161     48,000      (45,290     —          2,549

Accounts receivable, affiliated companies

     —          —        77,692        —          77,692

Accounts receivable, net

     —          —        652,840        —          652,840

Inventories

           

Crude oil

     —          —        87,645        —          87,645

Refined product

     —          —        1,670        —          1,670

Materials, supplies and other

     —          —        841        —          841
                                     

Total Current Assets

     (161     50,000      775,398        —          825,237
                                     

Properties, plants and equipment, net

     —          —        1,375,429        —          1,375,429

Investment in affiliates

     670,672        1,415,691      83,012        (2,086,493     82,882

Deferred charges and other assets

     —          2,566      22,135        —          24,701
                                     

Total Assets

   $ 670,511      $ 1,468,257    $ 2,255,974      $ (2,086,493   $ 2,308,249
                                     

Liabilities and Partners’ Capital

           

Current Liabilities

           

Accounts payable

   $ —        $ —      $ 792,674      $ —        $ 792,674

Accrued liabilities

     980        2,034      42,634        —          45,648

Accrued taxes

     —          —        20,738        —          20,738
                                     

Total Current Liabilities

     980        2,034      856,046        —          859,060
                                     

Long-term debt

     —          747,631      —          —          747,631

Other deferred credits and liabilities

     —          —        31,658        —          31,658
                                     

Total Liabilities

     980        749,665      887,704        —          1,638,349
                                     

Total Partners’ Capital

     669,531        718,592      1,368,270        (2,086,493     669,900
                                     

Total Liabilities and Partners’ Capital

   $ 670,511      $ 1,468,257    $ 2,255,974      $ (2,086,493   $ 2,308,249
                                     

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2009

(unaudited)

 

     Parent     Subsidiary
Issuer
    Non-
Guarantor
Subsidiaries
    Consolidating
Adjustments
    Total  

Net Cash Flows from Operating Activities

   $ 279,658      $ 274,720      $ 156,455      $ (673,196   $ 37,637   
                                        

Cash Flows from Investing Activities:

          

Capital expenditures

     —          —          (108,803     —          (108,803

Acquisitions

     —          —          (50,000     —          (50,000

Intercompany

     (263,121     (414,656     4,581        673,196        —     
                                        
     (263,121     (414,656     (154,222     673,196        (158,803
                                        

Cash Flows from Financing Activities:

          

Distribution paid to Limited Partners and General Partner

     (126,536     —          —          —          (126,536

Net proceeds from issuance of Limited Partner units

     109,483              109,483   

Contribution from General Partner for Limited Partner unit transactions

     2,398        —          —          —          2,398   

Payments of statutory withholding on net issuance of Limited Partner units under restricted unit incentive plan

     —          —          (2,149     —          (2,149

Advances to affiliates, net

     (1,882     —          (84     —          (1,966

Borrowings under credit facility

     —          472,973        —          —          472,973   

Repayments under credit facility

     —          (506,385     —          —          (506,385

Net proceeds from issuance of senior notes

     —          173,348        —          —          173,348   
                                        
     (16,537     139,936        (2,233     —          121,166   
                                        

Net change in cash and cash equivalents

     —          —          —          —          —     

Cash and cash equivalents at beginning of period

     —          2,000        —          —          2,000   
                                        

Cash and cash equivalents at end of period

   $ —        $ 2,000      $ —        $ —        $ 2,000   
                                        

 

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Table of Contents

SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(UNAUDITED)

 

Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2008

(unaudited)

 

     Parent     Subsidiary
Issuer
    Non-
Guarantor
Subsidiaries
    Consolidating
Adjustments
    Total  

Net Cash Flows from Operating Activities

   $ 139,158      $ 135,687      $ 221,245      $ (299,148   $ 196,942   
                                        

Cash Flows from Investing Activities:

          

Capital expenditures

     —          —          (89,044     —          (89,044

MagTex Acquisition

     —          —          (10,465     —          (10,465

Intercompany

     (30,729     (143,687     (124,732     299,148        —     
                                        
     (30,729     (143,687     (224,241     299,148        (99,509
                                        

Cash Flows from Financing Activities:

          

Distribution paid to Limited Partners and General Partner

     (100,088     —          —          —          (100,088

Payments of statutory withholding on net issuance of Limited Partner units under restricted unit incentive plan

     —          —          (504     —          (504

Contribution from General Partner for Limited Partner unit transactions

     76        —          —          —          76   

Advances to affiliates, net

     (8,417     (2,000     1,649        —          (8,768

Borrowings under credit facility

     —          121,000        —          —          121,000   

Repayments under credit facility

     —          (111,000     —          —          (111,000

Contributions from affiliate

     —          —          1,851        —          1,851   
                                        
     (108,429     8,000        2,996        —          (97,433
                                        

Net change in cash and cash equivalents

     —          —          —          —          —     

Cash and cash equivalents at beginning of period

     —          2,000        —          —          2,000   
                                        

Cash and cash equivalents at end of period

   $ —        $ 2,000      $ —        $ —        $ 2,000   
                                        

 

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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations – Three Months Ended September 30, 2009 and 2008

Sunoco Logistics Partners L.P.

Operating Highlights

Three Months Ended September 30, 2009 and 2008

 

     Three Months Ended
September 30,
     2009    2008

Refined Products Pipeline System:(1)(2)(3)

     

Total shipments (barrel miles per day)(4)

   56,848,807    43,769,684

Revenue per barrel mile (cents)

   0.612    0.638

Terminal Facilities:

     

Terminal throughput (bpd):

     

Refined product terminals(3)(5)

   465,206    437,018

Nederland terminal

   559,874    545,105

Refinery terminals(6)

   609,020    646,478

Crude Oil Pipeline System:(1)(2)(7)

     

Crude oil pipeline throughput (bpd)

   610,856    649,274

Crude oil purchases at wellhead (bpd)

   176,643    176,739

Gross margin per barrel of pipeline throughput (cents) (8)

   46.4    57.2

 

(1)

Excludes amounts attributable to equity ownership interests in corporate joint ventures.

(2)

Effective January 1, 2009 the Partnership realigned its operating segments. Prior period amounts have been recast to reflect the current operating segments.

(3)

Includes results of the Partnership’s purchase of the MagTex refined products pipeline and terminals system from the acquisition date.

(4)

Represents total average daily pipeline throughput multiplied by the number of miles of pipeline through which each barrel has been shipped.

(5)

Includes results of the Partnership’s purchase of the Romulus, MI refined products terminal from the acquisition date.

(6)

Consists of the Partnership’s Fort Mifflin Terminal Complex, the Marcus Hook Tank Farm and the Eagle Point Dock.

(7)

Includes results of the Partnership’s purchase of the Excel pipeline from the acquisition date.

(8)

Represents total segment sales 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 $48.5 million for the third quarter 2009 as compared with $50.3 million for the third quarter 2008, a decrease of $1.9 million. Operating income for the third quarter 2009 increased $2.0 million from the prior year’s third quarter due to the increased terminal storage fees and throughput and the results of the MagTex refined products pipeline and terminal acquisition, partially offset by lower lease acquisition results.

Net interest expense increased $3.9 million to $11.4 million for the third quarter 2009 due primarily to higher borrowings associated with the $185.4 million MagTex acquisition, organic growth initiatives, and increased contango inventory positions.

Analysis of Segment Operating Income

On January 1, 2009 the Partnership realigned its reporting segments. Prior to this date, the reporting segments were designated by geographic region. The Partnership has determined it more meaningful to functionally align its reporting segments. As such, the updated reporting segments as of January 1, 2009 are Refined Products Pipeline System, Terminal Facilities, and Crude Oil Pipeline System. The primary difference in the new reporting is the consolidation of an eastern area crude oil pipeline with the western area crude oil pipelines. For comparative purposes all prior year amounts have been recast to reflect the new segment reporting and these changes do not impact consolidated net income.

 

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Table of Contents

Refined Products Pipeline System

Operating income for the Refined Products Pipeline System increased $3.8 million to $13.3 million for the third quarter ended September 30, 2009 compared to the prior year’s third quarter. Sales and other operating revenue increased by $6.3 million to $32.0 million due primarily to results from the Partnership’s acquisition of the MagTex refined products pipeline and terminals system and increased pipeline fees. Other income increased $1.6 million due primarily to increased income associated with the Partnership’s joint venture interests. Operating expenses increased $3.3 million to $14.4 million for the third quarter 2009 due primarily to the MagTex acquisition and a reduction in refined product operating gains. Depreciation and amortization expense increased for the three months ended September 30, 2009 primarily due to the MagTex acquisition.

Terminal Facilities

Operating income for the Terminal Facilities segment increased by $7.0 million to $20.7 million for the third quarter ended September 30, 2009 compared to the prior year’s third quarter. Sales and other operating revenue increased by $5.6 million to $46.2 million due primarily to increased throughput, higher fees and additional tankage at the Nederland terminal facility. Results from the MagTex refined products terminals further contributed to the increase in revenues. Cost of goods sold and operating expenses decreased by $2.2 million to $15.7 million for the third quarter of 2009 due to absence of charges associated with hurricane damages recognized in 2008, which was partially offset by costs associated with the MagTex acquisition. Depreciation and amortization expense increased to $5.2 million for the third quarter of 2009 due to increased tankage at the Nederland facility and the MagTex acquisition.

Crude Oil Pipeline System

Operating income for the Crude Oil Pipeline system decreased $8.8 million to $26.0 million for the third quarter of 2009 compared to the prior year’s third quarter due to lower lease acquisition results and reduced operating gains. Lower lease acquisition income resulted from minimal income during the quarter from the contango market structure due to timing of inventory accounting. However, contango inventory positions put in place during the quarter will result in $10.0 million of additional income which is expected to be recognized over the next two quarters. Other income increased $0.9 million compared to the prior year’s quarter due primarily to increased equity income associated with the Partnership’s joint venture interests.

Lower crude oil prices were a key driver of the overall decrease in total revenue, cost of products sold and operating expenses from the prior year’s quarter. The average price of West Texas Intermediate crude oil at Cushing, Oklahoma decreased to $68.29 per barrel for the third quarter of 2009 from $118.13 per barrel for the third quarter of 2008.

Results of Operations – Nine Months Ended September 30, 2009 and 2008

Sunoco Logistics Partners L.P.

Operating Highlights

Nine Months Ended September 30, 2009 and 2008

 

     Nine Months Ended
September 30,
     2009    2008

Refined Products Pipeline System:(1)(2)(3)

     

Total shipments (barrel miles per day)(4)

   58,145,900    44,128,921

Revenue per barrel mile (cents)

   0.596    0.609

Terminal Facilities:

     

Terminal throughput (bpd):

     

Refined product terminals(3)(5)

   462,969    428,146

Nederland terminal

   619,297    541,517

Refinery terminals(5)

   597,191    647,891

Crude Oil Pipeline System:(1)(2)(7)

     

Crude oil pipeline throughput (bpd)

   648,183    672,877

Crude oil purchases at wellhead (bpd)

   183,047    175,209

Gross margin per barrel of pipeline throughput (cents) (8)

   77.5    52.2

 

(1)

Excludes amounts attributable to equity ownership interests in corporate joint ventures.

(2)

Effective January 1, 2009 the Partnership realigned its operating segments. Prior period amounts have been recast to reflect the current operating segments.

 

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Table of Contents
(3)

Includes results of the Partnership’s purchase of the MagTex refined products pipeline and terminals system from the acquisition date.

(4)

Represents total average daily pipeline throughput multiplied by the number of miles of pipeline through which each barrel has been shipped.

(5)

Includes results of the Partnership’s purchase of the Romulus, MI refined products terminal from the acquisition date.

(6)

Consists of the Partnership’s Fort Mifflin Terminal Complex, the Marcus Hook Tank Farm and the Eagle Point Dock.

(7)

Includes results of the Partnership’s purchase of the Excel pipeline from the acquisition date.

(8)

Represents total segment sales 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 $196.0 million for the nine month period ended September 30, 2009 as compared with $139.2 million for the comparable period in 2008. The increase was the result of a $66.2 million increase in operating income driven by significantly higher lease acquisition results, contribution from the MagTex acquisition and increased crude oil pipeline and storage revenues.

Net interest expense increased $9.4 million to $32.6 million for the first nine months of 2009 due primarily to higher borrowings associated with the $185.4 million MagTex acquisition, organic growth initiatives, and increased contango inventory positions.

Analysis of Segment Operating Income

On January 1, 2009 the Partnership realigned its reporting segments. Prior to this date, the reporting segments were designated by geographic region. The Partnership has determined it more meaningful to functionally align its reporting segments. As such, the updated reporting segments as of January 1, 2009 are Refined Products Pipeline System, Terminal Facilities, and Crude Oil Pipeline System. The primary difference in the new reporting is the consolidation of an eastern area crude oil pipeline with the western area crude oil pipelines. For comparative purposes all prior year amounts have been recast to reflect the new segment reporting and these changes do not impact consolidated net income.

Refined Products Pipeline System

Operating income for the Refined Products Pipeline System increased $9.7 million to $34.4 million for the nine months ended September 30, 2009 compared to the prior year period. Sales and other operating revenue increased by $21.1 million to $94.6 million due primarily to results from the MagTex acquisition described above, along with increased pipeline fees. Other income increased $2.7 million compared to the prior year period as a result of an increase in equity income associated with the Partnership’s joint venture interests. Operating expenses increased by $10.1 million to $43.7 million due primarily to the MagTex acquisition, a reduction in refined products operating gains and increased environmental remediation expenses. Depreciation and amortization expense increased $2.9 million during the first nine months of 2009 due primarily to the MagTex acquisition.

Terminal Facilities

Operating income for the Terminal Facilities segment increased by $20.3 million to $63.1 million for the nine months ended September 30, 2009 compared to the prior year period. Sales and other operating revenue increased by $20.1 million to $139.4 million due primarily to increased terminal fees, additional tankage at the Nederland terminal facility, along with the MagTex acquisition. Other income increased $0.6 million from the first nine months of 2009 as a result of an insurance recovery associated with the Partnership’s refinery terminals. Cost of goods sold and operating expenses increased by $2.9 million to $48.4 million for the period ended September 30, 2009 due primarily to the MagTex acquisition partially offset by reduced expenses associated with hurricane damages noted above. Depreciation and amortization expense increased to $14.5 million for the first nine months of 2009 due to the MagTex acquisition and increased tankage at the Nederland facility. During 2008, a $5.7 million non-cash impairment charge was recognized related to the Partnership’s decision to discontinue efforts to expand LPG storage capacity at its Inkster, Michigan facility.

Crude Oil Pipeline System

Operating income for the Crude Oil Pipeline system increased $36.2 million to $131.1 million for the first nine months of 2009 compared to the prior year period due primarily to significantly higher lease acquisition earnings primarily as a result of the contango market structure and increased pipeline fees, which were partially offset by a reduction in pipeline operating gains. Other income decreased $1.8 million compared to the prior year’s quarter due primarily to decreased equity income associated with the Partnership’s joint venture interests and an insurance gain recognized in 2008.

 

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Lower crude oil prices were a key driver of the overall decrease in total revenue, cost of products sold and operating expenses from the prior year period. The average price of West Texas Intermediate crude oil at Cushing, Oklahoma decreased to $57.13 per barrel for the first nine months of 2009 from $113.38 per barrel for the first nine months of 2008.

Liquidity and Capital Resources

Liquidity

Cash generated from operations and borrowings under the $400 million Credit Facility and the $62.5 million Credit Facility are the Partnership’s primary sources of liquidity. At September 30, 2009, the Partnership had available borrowing capacity under the credit facilities of $167.5 million. The Partnership’s working capital position 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 $290.7 million at September 30, 2009. The Partnership periodically supplements its cash flows from operations with proceeds from debt and equity financing activities.

In February 2009, Sunoco Logistics Partners Operations L.P. (the “Operating Partnership”) issued $175 million of 8.75 percent Senior Notes, due February 15, 2014 (“2014 Senior Notes”). The 2014 Senior Notes are redeemable, at a make-whole premium, and are not subject to sinking fund provisions. The 2014 Senior Notes contain various covenants limiting the Operating Partnership’s ability to incur certain liens, engage in sale/leaseback transactions, or merge, consolidate or sell substantially all of its assets. The net proceeds from the 2014 Senior Notes were used to repay outstanding borrowings under the $400 million Credit Facility, which were associated with the MagTex acquisition.

In April and May 2009, the Partnership completed a public offering of 2.25 million common units. Net proceeds of $109.5 million were used to reduce outstanding borrowings under the Partnership’s $400 million revolving credit facility and for general partnership purposes. In connection with these offerings, the general partner contributed $2.3 million to the Partnership to maintain its 2.0 percent general partner interest.

Capital Resources

$400 Million Credit Facility

The Operating Partnership has a five-year $400 million Credit Facility, which is available to fund the Operating Partnership’s working capital requirements, to finance future acquisitions, to finance future capital projects and for general partnership purposes. The Credit Facility matures in November 2012. At December 31, 2008, there was $323.4 million outstanding under the credit facility. During the first nine months of 2009, the Partnership had a net repayment of $64.7 million resulting in an outstanding balance of $258.7 million at September 30, 2009.

The $400 million Credit Facility bears interest at the Operating Partnership’s option, at either (i) LIBOR plus an applicable margin, (ii) the higher of the federal funds rate plus 0.50 percent or the Citibank prime rate (each plus the applicable margin) or (iii) the federal funds rate plus an applicable margin.

The $400 million Credit Facility contains various covenants limiting the Operating Partnership’s ability to a) incur indebtedness, b) grant certain liens, c) make certain loans, acquisitions and investments, d) make any material change to the nature of its business, e) acquire another company, f) or enter into a merger or sale of assets, including the sale or transfer of interests in the Operating Partnership’s subsidiaries. The $400 million Credit Facility also limits the Operating Partnership, on a rolling four-quarter basis, to 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. The Operating Partnership is in compliance with this requirement as of September 30, 2009. The Partnership’s ratio of total debt to EBITDA was 2.4 to 1 at September 30, 2009.

 

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$62.5 Million Credit Facility

On March 13, 2009, the Operating Partnership entered into a $62.5 million revolving credit facility (“$62.5 million Credit Facility”) with a syndicate of 2 participating financial institutions. The $62.5 million Credit Facility is available to fund the Operating Partnership’s working capital requirements, to finance future acquisitions and for general partnership purposes. The $62.5 million Credit Facility matures in September 2011 and may be repaid at any time. It bears interest at the Operating Partnership’s option, at either (i) LIBOR plus an applicable margin or (ii) the higher of (a) the federal funds rate plus 0.50 percent plus an applicable margin, (b) Toronto Dominion’s prime rate plus an applicable margin or (c) LIBOR plus 1.0 percent plus an applicable margin. The $62.5 million Credit Facility contains various covenants similar to the $400 million credit facility and also requires the Operating Partnership to maintain, on a rolling four-quarter basis, a maximum total debt to EBITDA ratio of 4.0 to 1, which can generally be increased to 4.5 to 1 during an acquisition period. The Operating Partnership is in compliance with this requirement as of September 30, 2009. As of September 30, 2009, the Partnership had outstanding borrowings of $31.3 million under the $62.5 million credit facility. As noted above, the Partnership’s ratio of total debt to EBITDA was 2.4 to 1 at September 30, 2009.

Cash Flows and Capital Expenditures

Net cash provided by operating activities for the nine months ended September 30, 2009 was $37.6 million compared with $196.9 million of net cash provided by operating activities for the first nine months of 2008. The net cash provided by operating activities in 2009 related to net income of $196.0 million and non-cash charges of depreciation and amortization of $35.3 million offset by a $186.8 million increase in working capital. The increase in working capital was the result of increases in accounts receivable and contango inventory positions partially offset by an increase in accounts payable. Net cash provided by operating activities for the first nine months of 2008 was primarily the result of net income of $139.2 million, depreciation and amortization of $29.5 million, the $5.7 million impairment charge, and a $23.8 million decrease in working capital. The decrease in working capital was the result of an increase in both accounts payable and accounts receivable activity driven primarily by commodity prices.

Net cash used in investing activities for the nine months of 2009 was $158.8 million compared with $99.5 million for the first nine months of 2008. Net cash provided by financing activities for the first nine months of 2009 was $121.2 million compared with $97.4 million net cash used in financing activities for the first nine months of 2008. Net cash provided by financing activities for the first nine months of 2009 resulted from $173.3 million issuance of senior notes and $109.5 million public offering completed in April and May of 2009. The net proceeds from these sources were partially offset by $126.5 million in distributions paid to limited partners and the general partner and $33.4 million net repayment of the Partnership’s credit facilities. Net cash provided by financing activities was utilized to finance operating and investing activities, including contango inventory positions. Net cash used in financing activities for the first nine months of 2008 resulted from $100.1 million in distributions paid to limited partners and the general partner and an increase in advances to affiliates of $8.8 million offset by $10.0 million of net borrowings from the Partnership’s credit facilities.

Under a treasury services agreement with Sunoco, the Partnership participates in Sunoco’s centralized cash management program. Advances to affiliates in the Partnership’s condensed consolidated balance sheets at September 30, 2009 and December 31, 2008 represent amounts due from 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,
     2009    2008

Maintenance

   $ 15,326    $ 15,655

Expansion

     143,477      73,389
             
   $ 158,803    $ 89,044
             

 

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Management continues to expect maintenance capital expenditures to be approximately $32.0 million for the year ended December 31, 2009, excluding reimbursements from Sunoco in accordance with the terms of certain agreements. Maintenance capital expenditures for both periods presented include recurring expenditures such as 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 for the nine months ended September 30, 2009 were $143.5 million compared to $73.4 million for the first nine months of 2008. Expansion capital expenditures for 2009 include the acquisitions of a refined products terminal in Romulus, MI and Excel Pipeline LLC, the owner of a crude oil pipeline which services Gary Williams’ Wynnewood, OK refinery. Expansion capital for 2009 also includes construction in progress, pursuant to the Partnership’s agreement with Motiva Enterprises LLC to construct three crude oil storage tanks at its Nederland Terminal with a combined capacity of 1.8 million shell barrels and a crude oil pipeline from Nederland to Motiva’s Port Arthur, Texas refinery. Expansion capital also includes refined products terminal optimization and construction of two additional crude oil storage tanks at Nederland. These two crude oil storage tanks will have a total capacity of approximately 1.2 million shell barrels. Management expects to invest approximately $175.0 million to $200.0 million in expansion capital projects in 2009.

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 its credit facilities, other borrowings and the issuance of additional common units.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to various market risks, including volatility in crude oil commodity prices and interest rates. To manage such exposure, inventory levels and expectations of future commodity prices and interest rates are monitored when making decisions with respect to risk management. We have not entered into derivative transactions that would expose us to price risk.

Interest Rate Risk

We have interest-rate risk exposure for changes in interest rates relating to our outstanding borrowings. We manage our exposure to changing interest rates through the use of a combination of fixed- and variable-rate debt.

At September 30, 2009, we had $290.0 million of variable-rate borrowings under our revolving credit facilities. On January 8, 2008, we entered into an interest rate swap agreement (the “Swap”) with a notional amount of $50.0 million maturing January 2010. Under the Swap, we receive interest equivalent to the three-month LIBOR and pay a fixed rate of interest of 3.489 percent with settlements occurring quarterly. To maintain hedge accounting for the Swap, we are committed to maintaining at least $50.0 million in borrowings on the $400 million Credit Facility at an interest rate based on the three-month LIBOR, plus an applicable margin, through January 2010. The remaining $240.0 million bears interest cost of LIBOR plus an applicable margin. An increase in short-term interest rates will have a favorable impact on the $50 million in borrowings related to the Swap and a negative impact on funds borrowed in excess of the $50 million. Our weighted average variable interest rate on our variable-rate borrowings, not related to the swap, was 0.8 percent at September 30, 2009. A one percent change in the weighted average rate would have impacted annual interest expense by approximately $2.4 million.

At September 30, 2009, we had $600.0 million of fixed-rate borrowings, which is comprised of $250.0 million of 2012 Senior Notes, $175.0 million of 2014 Senior Notes, and $175.0 million of 2016 Senior Notes. A hypothetical one-percent decrease in interest rates would increase the fair value of our fixed-rate borrowings at September 30, 2009 by approximately $24.4 million.

Commodity Market Risk

We are exposed to volatility in oil commodity prices. To manage such exposures, inventory levels and expectations of future commodity prices are monitored when making decisions with respect to risk management and inventory carried. Our policy is to purchase only commodity products for which we have a market and to structure our sales contracts so that price fluctuations for those products do not materially affect the margin we receive. We also seek to maintain a position that is substantially balanced within our various commodity purchase and sales activities. In the ordinary course of doing business, we enter into crude purchase contracts with third parties generally for a term of one year or less, with a majority of the transactions on a 30-day renewable basis. Simultaneously, we enter into contracts for the future physical sale and delivery on a specified date of the related crude purchased. Contracts that qualify as derivatives have been designated as normal purchases and sales and are accounted for using traditional accrual accounting.

We do not acquire and hold futures contracts or other derivative products for the purpose of speculating on price changes, as these activities could expose us to significant losses. We may experience net unbalanced positions for short periods of time as a result of production, transportation and delivery variances as well as logistical issues associated with inclement weather conditions.

 

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Forward-Looking Statements

Some of the information included in this quarterly report on Form 10-Q contains “forward-looking” statements and information relating to Sunoco Logistics Partners L.P. 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 Partnership’s pipeline, terminalling and storage services;

 

   

Changes in the demand for crude oil we both buy and sell;

 

   

Unanticipated changes in crude oil market structure and volatility (or lack thereof);

 

   

The loss of Sunoco R&M as a customer or a significant reduction in its current level of throughput and storage with the Partnership;

 

   

An increase in the competition encountered by the Partnership’s 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 Partnership’s 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 government’s 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 Partnership’s 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 Partnership’s tariff rates implemented by federal and/or state government regulators;

 

   

The amount of the Partnership’s indebtedness, which could make the Partnership vulnerable to adverse general economic and industry conditions, limit the Partnership’s ability to borrow additional funds, place it at competitive disadvantages compared to competitors that have less debt, or have other adverse consequences;

 

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Restrictive covenants in the Partnership’s or Sunoco, Inc.’s credit agreements;

 

   

Changes in the Partnership’s 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 Partnership’s ability to raise capital in a cost-effective way;

 

   

Performance of financial institutions impacting the Partnership’s liquidity, including those supporting the Partnership’s credit facilities;

 

   

Changes in interest rates on the Partnership’s outstanding debt, which could increase the costs of borrowing;

 

   

Claims of the Partnership’s 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 Partnership’s forward-looking statements. Other factors could also have material adverse effects 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) 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 (the Partnership’s general partner) and the Vice President and Chief Financial Officer of the general partner, as appropriate, to allow timely decisions regarding required disclosure.

(b) As of September 30, 2009, the Partnership carried out an evaluation, under the supervision and with the participation of the management of the general partner (including the President and Chief Executive Officer and the Vice President and Chief Financial Officer), of the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the general partner’s President and Chief Executive Officer, and its Vice President and Chief Financial Officer, concluded that the Partnership’s disclosure controls and procedures are effective.

(c) No change in the Partnership’s internal control over financial reporting has occurred during the fiscal quarter ended September 30, 2009 that has materially affected, or that is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

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PART II

OTHER INFORMATION

 

Item 1. Legal Proceedings

There are certain legal and administrative proceedings arising prior to the February 2002 IPO pending against the Partnership’s Sunoco-affiliated predecessors and the Partnership (as successor to certain liabilities of those predecessors). Although the ultimate outcome of these proceedings cannot be ascertained at this time, it is reasonably possible that some of them may be resolved unfavorably. Sunoco has agreed to indemnify the Partnership for 100 percent of all losses from environmental liabilities related to the transferred assets arising prior to, and asserted within 21 years of February 8, 2002. There is no monetary cap on this indemnification from Sunoco. Sunoco’s share of liability for claims asserted thereafter will decrease by 10 percent each year through the thirtieth year following the February 8, 2002 date. Any remediation liabilities not covered by this indemnity will be the Partnership’s responsibility. In addition, Sunoco is obligated to indemnify the Partnership under certain other agreements executed after the February 2002 IPO.

In August 2009, the Pipeline Hazardous Materials Safety Administration (PHMSA) proposed penalties totaling approximately $0.2 million based on alleged violations of various pipeline safety regulations relating to the November 2008 product release by Sunoco Pipeline, L.P. in Murrysville, Pennsylvania. The Partnership has appealed the finding of violation and the proposed penalty. The timing or outcome of this appeal cannot reasonably be determined at this time.

In September 2009, PHMSA issued a final order for $0.2 million relating to a tank overfill incident that occurred at the Darby Creek Tank Farm in November 2005. In October 2009, PHMSA denied the Partnership’s request for reconsideration of this final decision. The Partnership is currently evaluating further options, including a further appeal of the order or payment of the fine.

There are certain other pending legal proceedings related to matters arising after the February 2002 IPO that are not indemnified by Sunoco. Management believes that any liabilities that may arise from these legal proceedings will not be material to the Partnership’s financial position at September 30, 2009.

 

Item 1A. Risk Factors

There have been no material changes from the risk factors described previously in Part I, Item IA of the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2008, filed on February 24, 2009.

 

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.

 

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Item 6. Exhibits

Exhibits

 

12.1:    Statement of Computation of Ratio of Earnings to Fixed Charges
31.1:    Chief Executive Officer Certification of Periodic Report Pursuant to Exchange Act Rule 13a-14(a)
31.2:    Chief Financial Officer Certification of Periodic Report Pursuant to Exchange Act Rule 13a-14(a)
32.1:    Chief Executive Officer Certification of Periodic Report Pursuant to Exchange Act Rule 13a-14(b) and U.S.C. §1350
32.2:    Chief 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 unit holders 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.

 

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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/    NEAL E. MURPHY        

  Neal E. Murphy
  Vice President and Chief Financial Officer

Date: November 4, 2009

 

36

Statement of Computation of Ratio of Earnings to Fixed Charges

STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(UNAUDITED)

Sunoco Logistics Partners L.P.

 

     Nine Months Ended
September 30, 2009
 

Fixed Charges:

  

Interest cost and debt expense

   $ 37,757   

Interest allocable to rental expense (a)

     1,537   
        

Total

   $ 39,294   
        

Earnings:

  

Income before income tax expense

   $ 196,009   

Equity in income of less than 50 percent owned affiliated companies

     (19,872

Dividends received from less than 50 percent owned affiliated companies

     10,884   

Fixed charges

     39,294   

Interest capitalized

     (3,629

Amortization of previously capitalized interest

     244   
        

Total

   $ 222,931   
        

Ratio of Earnings to Fixed Charges

     5.67   
        

 

(a) Represents one-third of the total operating lease rental expense which is that portion deemed to be interest.
Section 302 CEO Certification

CERTIFICATION

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Deborah M. Fretz, President and Chief Executive Officer of Sunoco Partners LLC, the general partner of the registrant Sunoco Logistics Partners L.P., certify that:

 

  1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

  5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

Date: November 4, 2009

 

/s/ DEBORAH M. FRETZ

Name:   Deborah M. Fretz
Title:   President and Chief Executive Officer
Date: November 4, 2009
Section 302 CFO Certification

CERTIFICATION

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Neal E. Murphy, Vice President and Chief Financial Officer of Sunoco Partners LLC, the general partner of the registrant Sunoco Logistics Partners L.P., certify that:

 

  1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

  5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.

Date: November 4, 2009

 

/s/ NEAL E. MURPHY

Name:   Neal E. Murphy
Title:   Vice President and Chief Financial Officer
Date: November 4, 2009
Section 906 CEO Certification

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, the undersigned Deborah M. Fretz, President and Chief Executive Officer, of Sunoco Partners LLC, the general partner of the registrant Sunoco Logistics Partners L.P., certify that the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 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 4, 2009

 

/s/ DEBORAH M. FRETZ

Name:   Deborah M. Fretz
Title:   President and Chief Executive Officer
Date: November 4, 2009
Section 906 CFO Certification

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, the undersigned Neal E. Murphy, Vice President and Chief Financial Officer, of Sunoco Partners LLC, the general partner of the registrant Sunoco Logistics Partners L.P., certify that the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 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 4, 2009

 

/s/ NEAL E. MURPHY

Name:   Neal E. Murphy
Title:   Vice President and Chief Financial Officer
Date: November 4, 2009