e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005 |
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO _____________ |
Commission
file number 1-31219
SUNOCO LOGISTICS PARTNERS L.P.
(Exact name of registrant as specified in its charter)
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|
Delaware
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23-3096839 |
(State or other jurisdiction of
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(IRS Employer Identification No.) |
incorporation or organization) |
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Mellon Bank Center |
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1735 Market Street |
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Philadelphia, PA
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19103-7583 |
(Address of principal executive
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(Zip-Code) |
offices) |
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(215) 977-3000
(Registrants telephone number, including area code)
Ten Penn Center, 1801 Market Street, Philadelphia, PA 19103-1699
(Former name, address, fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Yes þ No o
At July 31, 2005, the number of the registrants Common Units outstanding were 15,606,314, and its
Subordinated Units outstanding were 8,537,729.
SUNOCO LOGISTICS PARTNERS L.P.
INDEX
1
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except unit and per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Revenues |
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
Affiliates (Note 3) |
|
$ |
495,010 |
|
|
$ |
415,328 |
|
Unaffiliated customers |
|
|
585,435 |
|
|
|
401,652 |
|
Other income |
|
|
4,089 |
|
|
|
3,708 |
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
1,084,534 |
|
|
|
820,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
Cost of products sold and operating expenses |
|
|
1,041,388 |
|
|
|
778,155 |
|
Depreciation and amortization |
|
|
7,493 |
|
|
|
7,769 |
|
Selling, general and administrative expenses |
|
|
12,507 |
|
|
|
12,637 |
|
|
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
1,061,388 |
|
|
|
798,561 |
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
23,146 |
|
|
|
22,127 |
|
Net interest cost paid to affiliates (Note 3) |
|
|
87 |
|
|
|
135 |
|
Other interest cost and debt expense, net |
|
|
5,265 |
|
|
|
5,018 |
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
17,794 |
|
|
$ |
16,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Limited Partners interest in Net
Income (Note 4): |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
17,794 |
|
|
$ |
16,974 |
|
Less: General Partners interest in Net Income |
|
|
(1,156 |
) |
|
|
(762 |
) |
|
|
|
|
|
|
|
|
|
Limited Partners interest in Net Income |
|
$ |
16,638 |
|
|
$ |
16,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per Limited Partner unit: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.69 |
|
|
$ |
0.68 |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.68 |
|
|
$ |
0.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Limited Partners units outstanding
(Note 4): |
|
|
|
|
|
|
|
|
Basic |
|
|
24,144,043 |
|
|
|
23,908,496 |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
24,303,921 |
|
|
|
24,139,933 |
|
|
|
|
|
|
|
|
|
|
(See Accompanying Notes)
2
SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except unit and per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Revenues |
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
Affiliates (Note 3) |
|
$ |
971,933 |
|
|
$ |
780,441 |
|
Unaffiliated customers |
|
|
1,120,361 |
|
|
|
781,446 |
|
Other income |
|
|
7,716 |
|
|
|
6,877 |
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
2,100,010 |
|
|
|
1,568,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
Cost of products sold and operating expenses |
|
|
2,016,299 |
|
|
|
1,488,847 |
|
Depreciation and amortization |
|
|
15,615 |
|
|
|
15,308 |
|
Selling, general and administrative expenses |
|
|
24,424 |
|
|
|
24,696 |
|
|
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
2,056,338 |
|
|
|
1,528,851 |
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
43,672 |
|
|
|
39,913 |
|
Net interest cost paid to affiliates (Note 3) |
|
|
152 |
|
|
|
239 |
|
Other interest cost and debt expense, net |
|
|
10,428 |
|
|
|
9,689 |
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
33,092 |
|
|
$ |
29,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of Limited Partners interest in Net
Income (Note 4): |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
33,092 |
|
|
$ |
29,985 |
|
Less: General Partners interest in Net Income |
|
|
(2,078 |
) |
|
|
(1,257 |
) |
|
|
|
|
|
|
|
|
|
Limited Partners interest in Net Income |
|
$ |
31,014 |
|
|
$ |
28,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per Limited Partner unit: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.29 |
|
|
$ |
1.23 |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
1.28 |
|
|
$ |
1.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Limited Partners units outstanding
(Note 4): |
|
|
|
|
|
|
|
|
Basic |
|
|
24,116,585 |
|
|
|
23,340,145 |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
24,295,440 |
|
|
|
23,557,625 |
|
|
|
|
|
|
|
|
|
|
(See Accompanying Notes)
3
SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2005 |
|
2004 |
|
|
(UNAUDITED) |
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
45,212 |
|
|
$ |
52,660 |
|
Advances to affiliates (Note 3) |
|
|
|
|
|
|
12,349 |
|
Accounts receivable, affiliated companies (Note 3) |
|
|
137,816 |
|
|
|
140,328 |
|
Accounts receivable, net |
|
|
563,684 |
|
|
|
396,479 |
|
Inventories: |
|
|
|
|
|
|
|
|
Crude oil |
|
|
24,081 |
|
|
|
26,428 |
|
Materials, supplies and other |
|
|
701 |
|
|
|
700 |
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
771,494 |
|
|
|
628,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties, plants and equipment |
|
|
1,108,852 |
|
|
|
1,095,928 |
|
Less accumulated depreciation and amortization |
|
|
(459,301 |
) |
|
|
(448,728 |
) |
|
|
|
|
|
|
|
|
|
Properties, plants and equipment, net |
|
|
649,551 |
|
|
|
647,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in affiliates (Note 5) |
|
|
69,578 |
|
|
|
69,745 |
|
Deferred charges and other assets |
|
|
25,748 |
|
|
|
22,897 |
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
1,516,371 |
|
|
$ |
1,368,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Partners Capital |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
695,249 |
|
|
$ |
553,629 |
|
Accrued liabilities |
|
|
27,037 |
|
|
|
25,284 |
|
Accrued taxes other than income |
|
|
16,196 |
|
|
|
15,162 |
|
Advances from affiliates (Note 3) |
|
|
2,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
740,582 |
|
|
|
594,075 |
|
Long-term debt (Note 6) |
|
|
313,389 |
|
|
|
313,305 |
|
Other deferred credits and liabilities |
|
|
916 |
|
|
|
812 |
|
Commitments and contingent liabilities (Note 7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
1,054,887 |
|
|
|
908,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners Capital: |
|
|
|
|
|
|
|
|
Limited partners interest |
|
|
453,443 |
|
|
|
452,856 |
|
General partners interest |
|
|
8,041 |
|
|
|
7,738 |
|
|
|
|
|
|
|
|
|
|
Total Partners Capital |
|
|
461,484 |
|
|
|
460,594 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Partners Capital |
|
$ |
1,516,371 |
|
|
$ |
1,368,786 |
|
|
|
|
|
|
|
|
|
|
(See Accompanying Notes)
4
SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
33,092 |
|
|
$ |
29,985 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
15,615 |
|
|
|
15,308 |
|
Changes in working capital pertaining to
operating activities: |
|
|
|
|
|
|
|
|
Accounts receivable, affiliated companies |
|
|
2,512 |
|
|
|
2,708 |
|
Accounts receivable, net |
|
|
(167,205 |
) |
|
|
(78,775 |
) |
Inventories |
|
|
2,347 |
|
|
|
4,556 |
|
Accounts payable and accrued liabilities |
|
|
143,373 |
|
|
|
77,646 |
|
Accrued taxes other than income |
|
|
1,034 |
|
|
|
(437 |
) |
Other |
|
|
(891 |
) |
|
|
(269 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
29,877 |
|
|
|
50,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(17,930 |
) |
|
|
(11,828 |
) |
Acquisitions |
|
|
|
|
|
|
(41,078 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(17,930 |
) |
|
|
(52,906 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Distributions paid to Limited Partners and General
Partner |
|
|
(32,013 |
) |
|
|
(27,172 |
) |
Net proceeds from issuance of Limited Partner units |
|
|
99,203 |
|
|
|
128,849 |
|
Redemption of Limited Partner units from Sunoco |
|
|
(99,203 |
) |
|
|
(83,087 |
) |
Contribution from General Partner for Limited
Partner unit transaction |
|
|
137 |
|
|
|
987 |
|
Payments of statutory withholding on net issuance
of Limited Partner units under restricted unit
incentive plan |
|
|
(2,863 |
) |
|
|
|
|
Advances to affiliates, net |
|
|
14,449 |
|
|
|
(18,260 |
) |
Contributions from affiliate |
|
|
895 |
|
|
|
1,190 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) financing activities |
|
|
(19,395 |
) |
|
|
2,507 |
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(7,448 |
) |
|
|
323 |
|
Cash and cash equivalents at beginning of year |
|
|
52,660 |
|
|
|
50,081 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
45,212 |
|
|
$ |
50,404 |
|
|
|
|
|
|
|
|
|
|
(See Accompanying Notes)
5
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
Sunocos 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. On February 8, 2002, Sunoco contributed these
assets to the Partnership in connection with the Partnerships initial public offering (IPO).
The consolidated financial statements reflect the results of Sunoco Logistics Partners L.P.
and its wholly-owned partnerships, including Sunoco Logistics Partners Operations L.P. (the
Operating Partnership). Equity ownership interests in corporate joint ventures, which are not
consolidated, are accounted for under the equity method.
The accompanying condensed consolidated financial statements are presented in accordance with
the requirements of Form 10-Q and accounting principles generally accepted in the United States for
interim financial reporting. They do not include all disclosures normally made in financial
statements contained in Form 10-K. In managements opinion, all adjustments necessary for a fair
presentation of the results of operations, financial position and cash flows for the periods shown
have been made. All such adjustments are of a normal recurring nature. Results for the three and
six months ended June 30, 2005 are not necessarily indicative of results for the full year 2005.
2. Equity Offerings
In May 2005, the Partnership sold 2.5 million common units in a public offering. In June
2005, the Partnership sold an additional 275,000 common units to cover over-allotments in
connection with the May 2005 sale. The purchase price for the over-allotment was equal to the
offering price in the May 2005 sale. The units were issued under the Partnerships previously filed
Form S-3 shelf registration statement. The total sale of 2.775 million common units resulted in
net proceeds of approximately $99.2 million, after underwriters commissions and legal, accounting,
and other transaction expenses. Net proceeds from the sale were used to redeem 2.775 million
common units from Sunoco. At June 30, 2005, Sunocos ownership interest in the Partnership was
51.0 percent, including its 2.0 percent general partner interest.
On April 7, 2004, the Partnership sold 3.4 million common units in a public offering for total
gross proceeds of $135.1 million. The units were issued under the Partnerships previously filed
Form S-3 shelf registration statement. The sale of the units resulted in net proceeds of $128.7
million, after underwriters commissions and legal, accounting, and other transaction expenses.
Net proceeds from the sale were used to (a) redeem approximately 2.2 million common units from
Sunoco for $82.7 million, (b) replenish cash utilized to acquire the Eagle Point logistics assets
for $20.0 million, (c) finance the acquisition of the two refined product terminals for $12.0
million, (d) finance the acquisition of an additional 33.3 percent undivided
6
interest in the Harbor pipeline for $7.3 million, and (e) for general partnership purposes,
including to replenish cash used for past acquisitions and capital improvements, and for other
expansions, capital improvements or acquisition projects. As a result of this net issuance of 1.2
million common units, the Partnership also received $1.0 million from its general partner as a
capital contribution to maintain its 2.0 percent general partner interest.
3. Related Party Transactions
Advances To and From Affiliates
The Partnership has a treasury services agreement with Sunoco pursuant to which it, among
other things, participates in Sunocos centralized cash management program. Under this program, all
of the Partnerships cash receipts and cash disbursements are processed, together with those of
Sunoco and its other subsidiaries, through Sunocos cash accounts with a corresponding credit or
charge to an intercompany account. The intercompany balances are settled periodically, but no less
frequently than monthly. Amounts due from Sunoco earn interest at a rate equal to the average rate
of the Partnerships third-party money market investments, while amounts due to Sunoco bear
interest at a rate equal to the interest rate provided in the Partnerships revolving credit
facility (see Note 6).
Selling, general and administrative expenses in the condensed consolidated statements of
income include costs incurred by Sunoco for the provision of certain centralized corporate
functions such as legal, accounting, treasury, engineering, information technology, insurance and
other corporate services. These services were provided to the Partnership under an omnibus
agreement (Omnibus Agreement) with Sunoco through December 31, 2004 for an annual administrative
fee. This 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, including
senior executives, or the cost of their employee benefits. The Partnership is reimbursing Sunoco
for these costs and other direct expenses incurred on its behalf. The fee for the annual period
ended December 31, 2004 was $8.4 million. In January 2005, the parties extended the term of
Section 4.1 of the Omnibus Agreement (which concerns the Partnerships obligation to pay the annual
fee for provision of certain general and administrative services) by one year. The annual
administrative fee applicable to this one-year extension is $8.4 million. There can be no
assurance that Section 4.1 of the Omnibus Agreement will be extended beyond 2005, or that, if
extended, the administrative fee charged by Sunoco will be at or below the current administrative
fee. In the event that the Partnership is unable to obtain such services from Sunoco or third
parties at or below the current cost, the Partnerships financial condition and results of
operations may be adversely impacted. These costs may also increase if the Partnership consummates
an acquisition or constructs additional assets that require an increase in the level of general and
administrative services received by the Partnership from the general partner or Sunoco.
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. 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.
These employees, including senior executives, are employees of the Partnerships general partner or
its
7
affiliates, which are wholly-owned subsidiaries of Sunoco. The Partnership has no employees.
Accounts Receivable, Affiliated Companies
Affiliated revenues in the condensed consolidated statements of income consist of sales of
crude oil as well as the provision of crude oil and refined product pipeline transportation,
terminalling and storage services to Sunoco, Inc. (R&M)(Sunoco R&M). Sales of crude oil are
computed using the formula-based pricing mechanism of a supply agreement with Sunoco R&M.
Management of the Partnership believes these terms in the aggregate to be comparable to those that
could be negotiated with an unrelated third party. Pipeline revenues are generally determined using
posted tariffs. The Partnership has throughput agreements with Sunoco R&M under which the
Partnership is charging Sunoco R&M fees for services provided under these agreements comparable to
those charged in arms-length, third-party transactions. Under these agreements, Sunoco R&M has
agreed to pay the Partnership a minimum level of revenues for transporting and terminalling refined
products and crude oil for the period specified in the agreements.
Under other agreements between the parties, Sunoco R&M is, among other things, purchasing from
the Partnership, at market-based rates, particular grades of crude oil that the Partnerships crude
oil acquisition and marketing business purchases for delivery to certain pipelines. These
agreements automatically renew on a monthly basis unless terminated by either party on 30 days
written notice. Sunoco R&M also leases the Partnerships 58 miles of interrefinery pipelines
between Sunoco R&Ms Philadelphia and Marcus Hook refineries for a term of 20 years, ending in
2022.
Capital Contributions
The Partnership has agreements with Sunoco R&M which requires Sunoco R&M to, among other
things, reimburse the Partnership for certain expenditures. These agreements include:
|
|
the Omnibus Agreement, which requires Sunoco R&M to, among other things, reimburse the
Partnership for up to $10.0 million of expenditures required at the Marcus Hook Tank Farm and
the Darby Creek Tank Farm to maintain compliance with existing industry standards and
regulatory requirements; |
|
|
|
the Interrefinery Lease Agreement, which requires Sunoco R&M to reimburse the Partnership
for any non-routine maintenance expenditures incurred, as defined, during the term of the
agreement; and |
|
|
|
the Eagle Point purchase agreement, which requires Sunoco R&M to reimburse the Partnership
for certain maintenance capital and expense expenditures incurred regarding the assets
acquired, as defined, up to $5.0 million through March 2014. |
8
These expenditures, which were recorded as maintenance capital and operating expenses, were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Maintenance capital |
|
$ |
534 |
|
|
$ |
929 |
|
|
$ |
895 |
|
|
$ |
929 |
|
Operating expenses |
|
|
|
|
|
|
261 |
|
|
|
|
|
|
|
261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
534 |
|
|
$ |
1,190 |
|
|
$ |
895 |
|
|
$ |
1,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reimbursement of these amounts were recorded by the Partnership as capital contributions
to Partners Capital within the condensed consolidated balance sheet at June 30, 2005.
In February 2005, the Partnership issued 0.2 million common units to participants in the
Sunoco Partners LLC Long-Term Incentive Plan (LTIP) upon completion of award vesting
requirements. As a result of this net issuance of common units, the general partner contributed
$0.1 million to the Partnership to maintain its 2.0 percent ownership interest. The Partnership
recorded this amount as a capital contribution to Partners Capital within its condensed
consolidated balance sheet.
Asset Acquisition
On March 30, 2004, the Partnership acquired the Eagle Point refinery logistics assets from
Sunoco R&M for $20 million (see Note 8). In connection with the acquisition, the Partnership
entered into a throughput agreement with Sunoco R&M under which the Partnership is charging Sunoco
R&M fees for services provided under this agreement comparable to those charged in arms length,
third-party transactions. The throughput agreement also requires Sunoco R&M to maintain minimum
volumes on the truck rack acquired in this transaction.
Redemption of Common Units
In May and June 2005, the Partnership sold a total of 2.775 million common units in a public
offering (see Note 2). The net proceeds from this offering after underwriters commissions and
transaction costs of approximately $99.2 million were used to redeem 2.775 million common units
from Sunoco at the net price per unit received. In connection with the equity offering, the
Partnership and Sunoco entered into an agreement whereby Sunoco has agreed to reimburse the
Partnership for transaction costs incurred by the Partnership. Reimbursement will occur during the
third quarter of 2005 when the transaction costs are expected to be finalized.
In April 2004, the Partnership sold 3.4 million common units in a public offering (see Note
2). The proceeds of this offering were partially utilized to redeem approximately 2.2 million
common units from Sunoco for $82.7 million. The redemption price per unit was equal to the public
offering price per unit after the underwriters commissions. As a result of this net issuance of
1.2 million common units, the general partner contributed $1.0 million to the Partnership to
maintain its 2.0 percent ownership interest. The Partnership recorded this amount as a capital
contribution to Partners Capital within its condensed consolidated balance sheet. In connection
with the equity offering, the Partnership and Sunoco entered into an agreement whereby Sunoco
agreed to reimburse the Partnership for transaction costs incurred by the Partnership based upon
the percentage that Sunocos net redemption proceeds received represented of the total gross
proceeds of the Partnerships offering (approximately 64.2 percent).
9
Reimbursement of these costs of $0.4 million occurred during the fourth quarter of 2004 when the
transaction costs were finalized and was accounted for as an increase to Partners Capital within
the Partnerships condensed consolidated balance sheet.
Conversion of Subordinated Units
In February 2005, 2,845,910 subordinated limited partner units, equal to one-quarter of the
originally issued subordinated units held by the general partner, were converted to common units as
the Partnership met the requirements set forth in the partnership agreement (see Note 9).
4. Net Income Per Unit Data
The computation of basic net income per limited partner unit is calculated by dividing net
income, after the deduction of the general partners interest in net income, by the
weighted-average number of common and subordinated units outstanding during the period. The
general partners interest in net income is calculated on a quarterly basis based upon its
percentage interest in quarterly cash distributions declared. The general partners interest in
quarterly cash distributions consists of its 2.0 percent general interest and incentive
distributions, which are increasing percentages, up to 50 percent of quarterly distributions in
excess of $0.70 per limited partner unit (see Note 9). The general partner was allocated net
income of $1.2 million (representing 6.5 percent of the total net income for the period) and $0.8
million (representing 4.5 percent of total net income for the period) for the three months ended
June 30, 2005 and 2004, respectively, and $2.1 million (representing 6.3 percent of the total net
income for the period) and $1.3 million (representing 4.2 percent of total net income for the
period) for the six months ended June 30, 2005 and 2004, respectively. Diluted net income per
limited partner unit is calculated by dividing net income applicable to limited partners by the
sum of the weighted-average number of common and subordinated units outstanding and the dilutive
effect of incentive unit awards, as calculated by the treasury stock method.
The following table sets forth the reconciliation of the weighted average number of limited
partner units used to compute basic net income per limited partner unit to those used to compute
diluted net income per limited partner unit for the three and six months ended June 30, 2005 and
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Weighted average
number of limited
partner units
outstanding basic |
|
|
24,144,043 |
|
|
|
23,908,496 |
|
|
|
24,116,585 |
|
|
|
23,340,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add effect of
dilutive unit
incentive awards |
|
|
159,878 |
|
|
|
231,437 |
|
|
|
178,855 |
|
|
|
217,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of limited
partner units -
diluted |
|
|
24,303,921 |
|
|
|
24,139,933 |
|
|
|
24,295,440 |
|
|
|
23,557,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
5. Investment in Affiliates
The Partnerships ownership percentages in corporate joint ventures as of June 30, 2005 and
December 31, 2004 are as follows:
|
|
|
|
|
|
|
Equity |
|
|
Ownership |
|
|
Percentage |
Explorer Pipeline Company |
|
|
9.4 |
% |
Wolverine Pipe Line Company |
|
|
31.5 |
% |
West Shore Pipe Line Company |
|
|
12.3 |
% |
Yellowstone Pipe Line Company |
|
|
14.0 |
% |
West Texas Gulf Pipe Line Company |
|
|
43.8 |
% |
The following table provides summarized combined statement of income data on a 100 percent
basis for the Partnerships corporate joint venture interests for the three and six months ended
June 30, 2005 and 2004 (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
99,219 |
|
|
$ |
99,577 |
|
|
$ |
186,240 |
|
|
$ |
182,001 |
|
Net income |
|
$ |
28,797 |
|
|
$ |
29,391 |
|
|
$ |
53,234 |
|
|
$ |
52,790 |
|
The following table provides summarized combined balance sheet data on a 100 percent basis for
the Partnerships corporate joint venture interests as of June 30, 2005 and December 31, 2004 (in
thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2005 |
|
2004 |
Balance Sheet Data: |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
89,579 |
|
|
$ |
100,971 |
|
Non-current assets |
|
|
470,509 |
|
|
|
473,183 |
|
Current liabilities |
|
|
54,155 |
|
|
|
69,836 |
|
Non-current liabilities |
|
|
445,542 |
|
|
|
446,482 |
|
Net equity |
|
|
60,391 |
|
|
|
57,836 |
|
The Partnerships investments in Wolverine, West Shore, Yellowstone, and West Texas Gulf at
June 30, 2005 include an excess investment amount of approximately $55.9 million, net of
accumulated amortization of $1.6 million. The excess investment is the difference between the
investment balance and the Partnerships proportionate share of the net assets of the entities.
The excess investment was allocated to the underlying tangible and intangible assets. Other than
land and indefinite-lived intangible assets, all amounts allocated, principally to pipeline and
related assets, are amortized using the straight-line method over their estimated useful life of
40 years and included within depreciation and amortization in the condensed consolidated
statements of income.
11
6. Long-Term Debt
The components of long-term debt are as follows (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2005 |
|
2004 |
Credit Facility |
|
$ |
64,500 |
|
|
$ |
64,500 |
|
Senior Notes |
|
|
250,000 |
|
|
|
250,000 |
|
Less unamortized bond discount |
|
|
(1,111 |
) |
|
|
(1,195 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
313,389 |
|
|
$ |
313,305 |
|
|
|
|
|
|
|
|
|
|
On November 22, 2004, the Operating Partnership entered into a new, five-year $250 million
Credit Facility. This Credit Facility replaced the Operating Partnerships previous credit
agreement, which was scheduled to mature on January 31, 2005. The Credit Facility is available to
fund the Operating Partnerships working capital requirements, to finance future acquisitions and
for general partnership purposes. It may also be used to fund the quarterly distribution to a
maximum of $20.0 million. Borrowing under this distribution sublimit must be reduced to zero each
year for a 15-day period. The Credit Facility bears interest, at the Operating Partnerships
option, at either (i) LIBOR plus an applicable margin or (ii) the higher of the federal funds rate
plus 0.50 percent or the Citibank prime rate (each plus the applicable margin). The interest rate
on the outstanding borrowings at June 30, 2005 was 3.8 percent. The Credit Facility may be prepaid
at any time. The Credit Facility contains various covenants limiting the Operating Partnerships
ability to incur indebtedness; grant certain liens; make certain loans, acquisitions and
investments; make any material change to the nature of its business; acquire another company; or
enter into a merger or sale of assets, including the sale or transfer of interests in the Operating
Partnerships subsidiaries. The Credit Facility also contains covenants requiring the Operating
Partnership to maintain, on a rolling four-quarter basis, a maximum total debt to EBITDA ratio
(each as defined in the credit agreement) of 4.5 to 1, which can be increased to 5.0 to 1 during an
acquisition period (as defined in the credit agreement); and an interest coverage ratio (as defined
in the credit agreement) of at least 3.0 to 1. The Operating Partnership is in compliance with
these covenants as of June 30, 2005. The Partnerships ratio of total debt to EBITDA was 2.7 to 1
and the interest coverage ratio was 5.3 to 1 at June 30, 2005.
The Senior Notes are at 7.25 percent, due February 15, 2012, and were issued by the Operating
Partnership at a discount of 99.325 percent of the principal amount. The discount is amortized on
a straight-line basis over the term of the Senior Notes and is included within interest expense in
the condensed consolidated statements of income. The Senior Notes are redeemable, at a make-whole
premium, and are not subject to sinking fund provisions. The Senior Notes contain various covenants
limiting the Operating Partnerships ability to incur certain liens, engage in sale/leaseback
transactions, or merge, consolidate or sell substantially all of its assets. The Operating
Partnership is in compliance with these covenants as of June 30, 2005. In addition, the Senior
Notes are also subject to repurchase by the Operating Partnership, at the option of the holders of
the Senior Notes, at a price equal to 100 percent of their principal amount, plus accrued and
unpaid interest upon a change of control to a non-investment grade entity.
The Partnership and the operating partnerships of the Operating Partnership serve as joint and
several guarantors of the Senior Notes and of any obligations under the Credit Facility. The
guarantees are full and unconditional.
12
The Partnership has no operations and its only assets are investments in its wholly-owned
partnerships and limited liability companies. The Operating Partnership also has no operations and
its assets are limited primarily to investments in its wholly-owned operating partnerships,
deferred charges, and cash and cash equivalents of $45.2 million. Except for amounts associated
with the Senior Notes, the Credit Facility, cash and cash equivalents and advances to affiliates,
the assets and liabilities in the condensed consolidated balance sheets and the revenues and costs
and expenses in the condensed consolidated statements of income are primarily attributable to the
operating partnerships.
7. Commitments and Contingent Liabilities
The Partnership is subject to numerous federal, state and local laws which regulate the
discharge of materials into the environment or that otherwise relate to the protection of the
environment. These laws and regulations result in liabilities and loss contingencies for
remediation at the Partnerships facilities and at third-party or formerly owned sites. The
accrued liability for environmental remediation in the condensed consolidated balance sheets at
June 30, 2005 and December 31, 2004 was $0.9 million. There are no liabilities attributable to
unasserted claims, nor have any recoveries from insurance been assumed.
Total future costs for environmental remediation activities will depend upon, among other
things, the identification of any additional sites, the determination of the extent of any
contamination at each site, the timing and nature of required remedial actions, the technology
available and needed to meet the various existing legal requirements, the nature and extent of
future environmental laws, inflation rates and the determination of the Partnerships liability at
multi-party sites, if any, in light of uncertainties with respect to joint and several liability,
and the number, participation levels and financial viability of other parties. As discussed below,
the Partnerships future costs will also be impacted by an indemnification from Sunoco.
Sunoco has indemnified the Partnership for 30 years from environmental and toxic tort
liabilities related to the assets contributed to the Partnership that arise from the operation of
such assets prior to the closing of the Partnerships 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. Sunocos share of liability for claims asserted thereafter will decrease by 10
percent a year. For example, for a claim asserted during the twenty-third year after closing of the
February 2002 IPO, Sunoco would be required to indemnify the Partnership for 80 percent of its
loss. There is no monetary cap on the amount of indemnity coverage provided by Sunoco. The
Partnership has agreed to indemnify Sunoco and its affiliates for events and conditions associated
with the operation of the Partnerships assets that occur on or after the closing of the February
2002 IPO and for environmental and toxic tort liabilities to the extent Sunoco is not required to
indemnify the Partnership.
Sunoco has also indemnified the Partnership for liabilities, other than environmental and
toxic tort liabilities related to the assets contributed to the Partnership, that arise out of
Sunocos ownership and operation of the assets prior to the closing of the February 2002 IPO and
that are asserted within 10 years after closing of the February 2002 IPO. In addition, Sunoco has
indemnified the Partnership from liabilities relating to certain defects in title to the assets
contributed to the Partnership and associated with failure to obtain certain consents and permits
necessary to conduct its
13
business that arise within 10 years after closing of the February 2002 IPO as well as from
liabilities relating to legal actions pending against Sunoco or its affiliates as of February 2,
2002, or events and conditions associated with any assets retained by Sunoco or its affiliates.
Management of the Partnership does not believe that any liabilities which may arise from
claims indemnified by Sunoco would be material in relation to the consolidated financial position
of the Partnership at June 30, 2005.
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 consolidated
financial position of the Partnership at June 30, 2005.
8. Acquisitions
On November 30, 2004, the Partnership acquired a refined products terminal located in
Columbus, Ohio for approximately $8.0 million. The terminal is connected to a third-party, refined
product, common carrier pipeline and includes six refined product tanks with approximately 160,000
barrels of working storage capacity. The purchase price was funded through cash on hand, and was
allocated to property, plant and equipment within the Terminal Facilities business segment. The
results of the acquisition are included in the financial statements from the date of acquisition.
On June 28, 2004, the Partnership purchased an additional 33.3 percent undivided interest in
the Harbor pipeline for $7.3 million. The Harbor pipeline is an 80-mile, 180,000 bpd refined
product, common carrier pipeline originating near Woodbury, New Jersey and terminating in Linden,
New Jersey. As a result of this transaction, the Partnership increased its ownership to 66.7
percent and will continue to be the operator of the pipeline. The purchase price was funded
through the proceeds of the April 7, 2004 sale of common units (see Note 2). The purchase price
was allocated to property, plant and equipment within the Eastern Pipeline System business segment.
The results of the acquisition are included in the financial statements from the date of
acquisition.
On April 28, 2004, the Partnership purchased two refined product terminals located in
Baltimore, Maryland and Manassas, Virginia for $12.0 million. The Baltimore terminal is connected
to a third-party, refined product, common carrier pipeline and includes 13 refined product tanks
with approximately 646,000 barrels of working storage capacity. The Manassas terminal is connected
to a third-party, refined product, common carrier pipeline and includes seven refined product tanks
with approximately 277,000 barrels of working storage capacity. The purchase price was funded
through the proceeds of the April 7, 2004 sale of common units (see Note 2). The purchase price
was allocated to property, plant and equipment within the Terminal Facilities business segment.
The results of the acquisition are included in the financial statements from the date of
acquisition.
On March 30, 2004, the Partnership acquired the Eagle Point refinery logistics assets from
Sunoco R&M for $20.0 million. The Eagle Point logistics assets consist of crude and refined
product ship and barge docks, a refined product truck rack, and a 4.5 mile, refined product
pipeline from the Eagle Point refinery to the origin of the Harbor pipeline. In connection with
the acquisition, the Partnership entered into a throughput agreement with Sunoco R&M whereby they
have agreed to maintain minimum volumes on the
14
truck rack upon completion of certain capital improvements which were completed during the fourth
quarter of 2004. The purchase price was funded initially through cash on hand. A portion of the
proceeds of the April 7, 2004 sale of common units was subsequently utilized to replenish cash used
to fund this acquisition (see Note 2). The purchase price was allocated to property, plant and
equipment. The ship and barge docks and the truck rack have been included within the Terminal
Facilities business segment, while the pipeline has been included within the Eastern Pipeline
System. The results of the acquisition are included in the financial statements from the date of
acquisition.
9. Cash Distributions
The Partnership distributes all cash on hand within 45 days after the end of each
quarter, less reserves established by the general partner in its discretion. This is defined as
available cash in the partnership agreement. The general partner has broad discretion to
establish cash reserves that it determines are necessary or appropriate to properly conduct the
Partnerships business. The Partnership will make quarterly distributions to the extent there is
sufficient cash from operations after establishment of cash reserves and payment of fees and
expenses, including payments to the general partner.
The Partnership has 8,537,729 subordinated units issued at June 30, 2005, all of which are
held by the general partner and for which there is no established public trading market. During
the subordination period the Partnership will, in general, pay cash distributions each quarter in
the following manner:
|
|
|
First, 98 percent to the holders of common units and 2 percent to the general
partner, until each common unit has received a minimum quarterly distribution of
$0.45, plus any arrearages from prior quarters; |
|
|
|
|
Second, 98 percent to the holders of subordinated units and 2 percent to the
general partner, until each subordinated unit has received a minimum quarterly
distribution of $0.45; and |
|
|
|
|
Thereafter, in the manner described in the table below. |
The subordination period is generally defined as the period that ends on the first day of
any quarter beginning after December 31, 2006 if (1) the Partnership has distributed at least the
minimum quarterly distribution on all outstanding units with respect to each of the immediately
preceding three consecutive, non-overlapping four quarter periods; and (2) the adjusted operating
surplus, as defined in the partnership agreement, during such periods equals or exceeds the amount
that would have been sufficient to enable the Partnership to distribute the minimum quarterly
distribution on all outstanding units on a fully diluted basis and the related distribution on the
2 percent general partner interest during those periods. If the subordination period ends, the
rights of the holders of subordinated units will no longer be subordinated to the rights of the
holders of common units, and the subordinated units may be converted into common units.
The Partnership met the minimum quarterly distribution requirements on all outstanding units
for each quarter since its February 2002 IPO. In February 2005, 2,845,910 subordinated limited
partner units, equal to one-quarter of the originally issued subordinated units held by the general
partner, were converted to common units as the Partnership met the tests set forth in the
partnership agreement. In addition, one-quarter of the
15
originally issued subordinated units may convert to common units on a one-for-one basis after
December 31, 2005, if the Partnership meets the tests set forth in the partnership agreement.
After the subordination period, the Partnership will, in general, pay cash distributions each
quarter in the following manner:
|
|
|
First, 98 percent to all unitholders, pro rata, and 2 percent to the general
partner, until the Partnership distributes for each outstanding unit an amount equal
to the minimum quarterly distribution for that quarter; and |
|
|
|
|
Thereafter, as described in the paragraph and table below. |
As presented in the table below, if cash distributions exceed $0.50 per unit in a quarter, the
general partner will receive increasing percentages, up to 50 percent, of the cash distributed in
excess of that amount. These distributions are referred to as incentive distributions. The
amounts shown in the table below are the percentage interests of the general partner and the
unitholders in any available cash from operating surplus that is distributed up to and including
the corresponding amount in the column Quarterly Cash Distribution Amount per Unit, until the
available cash that is distributed reaches the next target distribution level, if any. The
percentage interests shown for the unitholders and the general partner for the minimum quarterly
distribution are also applicable to quarterly distribution amounts that are less than the minimum
quarterly distribution.
|
|
|
|
|
|
|
|
|
|
|
Percentage of Distributions |
|
|
|
|
|
|
General |
Quarterly Cash Distribution Amount per Unit |
|
Unitholders |
|
Partner |
Up to minimum quarterly distribution
($0.45 per Unit) |
|
|
98 |
% |
|
|
2 |
% |
Above $0.45 per Unit up to $0.50 per Unit |
|
|
98 |
% |
|
|
2 |
% |
Above $0.50 per Unit up to $0.575 per Unit |
|
|
85 |
% |
|
|
15 |
% |
Above $0.575 per Unit up to $0.70 per Unit |
|
|
75 |
% |
|
|
25 |
% |
Above $0.70 per Unit |
|
|
50 |
% |
|
|
50 |
% |
There is no guarantee that the Partnership will pay the minimum quarterly distribution on the
common units in any quarter, and the Partnership will be prohibited from making any distributions
to unitholders if it would cause an event of default, or if an event of default is existing, under
the Credit Facility or the Senior Notes (see Note 6).
Distributions paid by the Partnership for the period from January 1, 2004 through
June 30, 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
Total Cash |
|
|
Distribution |
|
Total Cash |
|
Distribution to |
Date Cash |
|
per Limited |
|
Distribution to |
|
the General |
Distribution Paid |
|
Partner Unit |
|
Limited Partners |
|
Partner |
|
|
|
|
|
|
($ in millions) |
|
($ in millions) |
February 13, 2004 |
|
$ |
0.55 |
|
|
$ |
12.5 |
|
|
$ |
0.4 |
|
May 14, 2004 |
|
$ |
0.57 |
|
|
$ |
13.7 |
|
|
$ |
0.5 |
|
August 13, 2004 |
|
$ |
0.5875 |
|
|
$ |
14.1 |
|
|
$ |
0.7 |
|
November 12, 2004 |
|
$ |
0.6125 |
|
|
$ |
14.7 |
|
|
$ |
0.9 |
|
February 14, 2005 |
|
$ |
0.625 |
|
|
$ |
15.0 |
|
|
$ |
1.0 |
|
May 13, 2005 |
|
$ |
0.625 |
|
|
$ |
15.1 |
|
|
$ |
1.0 |
|
16
On July 27, 2005 the Partnership declared a cash distribution of $0.6375 per unit on its
outstanding common and subordinated units representing the distribution for the quarter ended June
30, 2005. The $16.5 million distribution, including $1.1 million to the general partner, will be
paid on August 12, 2005 to unitholders of record at the close of business on August 8, 2005.
As a result of the closing of the August 1, 2005 acquisition of the $100 million crude oil
pipeline system (see Note 11), the Board of Directors of the
Partnerships general partner decided to advance the date for action on the
quarterly distribution for the third quarter ending
September 30, 2005, and declared a distribution of
$0.65 per unit on its outstanding common and subordinated units, payable on November 14, 2005, to
unitholders of record on November 7, 2005.
10. Business Segment Information
The following table sets forth condensed statement of income information concerning the
Partnerships business segments and reconciles total segment operating income to net income for the
three and six months ended June 30, 2005 and 2004, respectively (in thousands of dollars):
17
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Segment Operating Income |
|
|
|
|
|
|
|
|
Eastern Pipeline System: |
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
Affiliates |
|
$ |
18,305 |
|
|
$ |
18,107 |
|
Unaffiliated customers |
|
|
5,136 |
|
|
|
6,185 |
|
Other income |
|
|
3,179 |
|
|
|
3,556 |
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
26,620 |
|
|
|
27,848 |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
11,119 |
|
|
|
11,424 |
|
Depreciation and amortization |
|
|
2,607 |
|
|
|
2,698 |
|
Selling, general and administrative expenses |
|
|
4,740 |
|
|
|
4,820 |
|
|
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
18,466 |
|
|
|
18,942 |
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
$ |
8,154 |
|
|
$ |
8,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminal Facilities: |
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
Affiliates |
|
$ |
19,142 |
|
|
$ |
18,051 |
|
Unaffiliated customers |
|
|
8,744 |
|
|
|
8,693 |
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
27,886 |
|
|
|
26,744 |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
11,751 |
|
|
|
10,488 |
|
Depreciation and amortization |
|
|
3,431 |
|
|
|
3,686 |
|
Selling, general and administrative expenses |
|
|
3,454 |
|
|
|
3,472 |
|
|
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
18,636 |
|
|
|
17,646 |
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
$ |
9,250 |
|
|
$ |
9,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Pipeline System: |
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
Affiliates |
|
$ |
457,563 |
|
|
$ |
379,170 |
|
Unaffiliated customers |
|
|
571,555 |
|
|
|
386,774 |
|
Other income |
|
|
910 |
|
|
|
152 |
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
1,030,028 |
|
|
|
766,096 |
|
|
|
|
|
|
|
|
|
|
Cost of products sold and operating expenses |
|
|
1,018,518 |
|
|
|
756,243 |
|
Depreciation and amortization |
|
|
1,455 |
|
|
|
1,385 |
|
Selling, general and administrative expenses |
|
|
4,313 |
|
|
|
4,345 |
|
|
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
1,024,286 |
|
|
|
761,973 |
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
$ |
5,742 |
|
|
$ |
4,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Segment Operating Income to Net
Income: |
|
|
|
|
|
|
|
|
Operating Income: |
|
|
|
|
|
|
|
|
Eastern Pipeline System |
|
$ |
8,154 |
|
|
$ |
8,906 |
|
Terminal Facilities |
|
|
9,250 |
|
|
|
9,098 |
|
Western Pipeline System |
|
|
5,742 |
|
|
|
4,123 |
|
|
|
|
|
|
|
|
|
|
Total segment operating income |
|
|
23,146 |
|
|
|
22,127 |
|
Net interest expense |
|
|
5,352 |
|
|
|
5,153 |
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
17,794 |
|
|
$ |
16,974 |
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Segment Operating Income |
|
|
|
|
|
|
|
|
Eastern Pipeline System: |
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
Affiliates |
|
$ |
36,366 |
|
|
$ |
34,932 |
|
Unaffiliated customers |
|
|
10,579 |
|
|
|
12,084 |
|
Other income |
|
|
6,250 |
|
|
|
6,036 |
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
53,195 |
|
|
|
53,052 |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
21,736 |
|
|
|
21,388 |
|
Depreciation and amortization |
|
|
5,206 |
|
|
|
5,398 |
|
Selling, general and administrative expenses |
|
|
9,399 |
|
|
|
9,389 |
|
|
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
36,341 |
|
|
|
36,175 |
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
$ |
16,854 |
|
|
$ |
16,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminal Facilities: |
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
Affiliates |
|
$ |
38,455 |
|
|
$ |
33,943 |
|
Unaffiliated customers |
|
|
17,359 |
|
|
|
16,171 |
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
55,814 |
|
|
|
50,114 |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
22,790 |
|
|
|
20,094 |
|
Depreciation and amortization |
|
|
7,515 |
|
|
|
7,139 |
|
Selling, general and administrative expenses |
|
|
6,722 |
|
|
|
6,601 |
|
|
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
37,027 |
|
|
|
33,834 |
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
$ |
18,787 |
|
|
$ |
16,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Pipeline System: |
|
|
|
|
|
|
|
|
Sales and other operating revenue: |
|
|
|
|
|
|
|
|
Affiliates |
|
$ |
897,112 |
|
|
$ |
711,566 |
|
Unaffiliated customers |
|
|
1,092,424 |
|
|
|
753,191 |
|
Other income |
|
|
1,465 |
|
|
|
841 |
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
1,991,001 |
|
|
|
1,465,598 |
|
|
|
|
|
|
|
|
|
|
Cost of products sold and operating expenses |
|
|
1,971,773 |
|
|
|
1,447,365 |
|
Depreciation and amortization |
|
|
2,894 |
|
|
|
2,771 |
|
Selling, general and administrative expenses |
|
|
8,303 |
|
|
|
8,706 |
|
|
|
|
|
|
|
|
|
|
Total Costs and Expenses |
|
|
1,982,970 |
|
|
|
1,458,842 |
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
$ |
8,031 |
|
|
$ |
6,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Segment Operating Income to Net
Income: |
|
|
|
|
|
|
|
|
Operating Income: |
|
|
|
|
|
|
|
|
Eastern Pipeline System |
|
$ |
16,854 |
|
|
$ |
16,877 |
|
Terminal Facilities |
|
|
18,787 |
|
|
|
16,280 |
|
Western Pipeline System |
|
|
8,031 |
|
|
|
6,756 |
|
|
|
|
|
|
|
|
|
|
Total segment operating income |
|
|
43,672 |
|
|
|
39,913 |
|
Net interest expense |
|
|
10,580 |
|
|
|
9,928 |
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
33,092 |
|
|
$ |
29,985 |
|
|
|
|
|
|
|
|
|
|
19
The following table provides the identifiable assets for each segment as of June 30, 2005 and
December 31, 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2005 |
|
2004 |
Eastern Pipeline System |
|
$ |
330,874 |
|
|
$ |
333,186 |
|
Terminal Facilities |
|
|
274,052 |
|
|
|
270,824 |
|
Western Pipeline System |
|
|
861,838 |
|
|
|
694,076 |
|
Corporate and other |
|
|
49,607 |
|
|
|
70,700 |
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets |
|
$ |
1,516,371 |
|
|
$ |
1,368,786 |
|
|
|
|
|
|
|
|
|
|
Corporate and other assets consist primarily of cash and cash equivalents, advances to
affiliates and deferred charges.
11. Subsequent Event
On
August 1, 2005, the Partnership purchased, from an affiliate of Exxon Mobil
Corporation, a crude oil pipeline system and storage
facilities located in Texas for $100.0 million. The system consists primarily of a 187-mile, 16-inch
pipeline with an operating capacity of 125,000 barrels per day and originates at a crude oil
terminal in Corsicana, Texas and terminates at Wichita Falls, Texas. The Corsicana terminal has 2.9 million
barrels of shell capacity for crude oil. The Ringgold, Texas terminal
consists of 0.5 million barrels of shell capacity for crude oil. The Partnership has also agreed to assume certain
environmental liabilities associated with these assets. The transaction was funded with $25.0 cash
on hand and $75.0 million drawn under the Credit Facility. The results of the acquisition will be
included in the financial statements from its date of acquisition. The Partnership expects to
issue additional equity in the future to repay a substantial portion of the additional
indebtedness incurred under the Partnerships credit facility, consistent with its conservative capital structure.
20
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations Three Months Ended June 30, 2005 and 2004
Sunoco
Logistics Partners L.P.
Operating Highlights
Three Months Ended June 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Eastern Pipeline System:(1) |
|
|
|
|
|
|
|
|
Total shipments (barrel miles per day)(2) |
|
|
55,429,896 |
|
|
|
59,047,378 |
|
Revenue per barrel mile (cents) |
|
|
0.465 |
|
|
|
0.452 |
|
|
|
|
|
|
|
|
|
|
Terminal Facilities: |
|
|
|
|
|
|
|
|
Terminal throughput (bpd): |
|
|
|
|
|
|
|
|
Refined product terminals |
|
|
383,286 |
|
|
|
335,571 |
|
Nederland terminal |
|
|
452,571 |
|
|
|
490,637 |
|
Refinery terminals(3) |
|
|
709,023 |
|
|
|
693,978 |
|
|
|
|
|
|
|
|
|
|
Western Pipeline System:(1) |
|
|
|
|
|
|
|
|
Crude oil pipeline throughput (bpd) |
|
|
320,243 |
|
|
|
301,399 |
|
Crude oil purchases at wellhead (bpd) |
|
|
191,820 |
|
|
|
187,445 |
|
Gross margin per barrel of pipeline
throughput (cents)(4) |
|
|
31.4 |
|
|
|
30.3 |
|
|
|
|
(1) |
|
Excludes amounts attributable to equity ownership interests in the
corporate joint ventures. |
|
(2) |
|
Represents total average daily pipeline throughput multiplied by the
number of miles of pipeline through which each barrel has been shipped. |
|
(3) |
|
Consists of the Partnerships Fort Mifflin Terminal Complex, the Marcus
Hook Tank Farm and the Eagle Point Dock, which was acquired on March 30,
2004. |
|
(4) |
|
Represents total segment sales and other operating revenue minus cost of
products sold and operating expenses and depreciation and
amortization divided by crude oil pipeline throughput. |
Analysis of Statements of Income
Net income was $17.8 million for the second quarter 2005 as compared with $17.0 million for
the second quarter 2004, an increase of $0.8 million. The increase was primarily the result of a
$1.0 million increase in operating income to $23.1 million for the second quarter 2005 from $22.1
million for the prior year quarter due principally to higher pipeline volumes and lower operating
costs in the Western pipeline system and higher Terminal Facilities results, partially offset by
lower Eastern Pipeline System results and Western Pipeline System lease acquisition results.
Sales and other operating revenue totaled $1,080.4 million for the second quarter 2005 as
compared with $817.0 million for the second quarter 2004, an increase of $263.5 million. This
increase was largely attributable to an increase in crude oil prices. The average price of West
Texas Intermediate crude oil at Cushing, Oklahoma, the benchmark crude oil in the United States,
increased to an average price of $53.13 per barrel for the second quarter 2005 from $38.34 per
barrel for the second quarter 2004. Other income increased $0.4 million from the second quarter
2004 to $4.1
21
million for the second quarter 2005 due principally to an increase in joint venture equity income.
Total cost of products sold and operating expenses increased $263.2 million to $1,041.4
million for the second quarter 2005 from $778.2 million for the second quarter 2004 due primarily
to the increase in crude oil prices. Depreciation and amortization decreased $0.3 million to $7.5
million for the second quarter 2005 from $7.8 million for the prior years quarter due mainly to
the absence in the current quarter of an acceleration of depreciation of the Partnerships refined
product terminal system assets related to an equipment upgrade program which commenced in early
2004, partially offset by an increase in the current quarter from increased depreciation related to
the assets acquired in 2004. Net interest expense of $5.4 million for the second quarter 2005
increased $0.2 million over the prior years quarter due primarily to higher interest rates on the
Credit Facility.
Analysis of Segment Operating Income
Eastern Pipeline System
Operating income for the Eastern Pipeline System was $8.2 million for the second quarter 2005
compared with $8.9 million for the prior year quarter. The $0.8 million decrease was the result of
a $0.9 million decrease in sales and other operating revenue and a $0.4 million decrease in other
income, partially offset by a $0.5 million decrease in total costs and expenses. Sales and other
operating revenue decreased to $23.4 million for the second quarter 2005 compared with $24.3
million for the second quarter 2004 due to a decrease in total shipments partially offset by higher
revenue per barrel mile. The decrease in shipments was principally due to lower throughput on the
Marysville to Toledo crude oil pipeline due mainly to production issues at two third-party Canadian
synthetic crude oil plants as a result of fire damage, partially offset by higher volumes on the
Harbor pipeline, resulting from the acquisition of an additional one-third interest in late June
2004. Management expects lower crude oil throughput on the Marysville to Toledo crude oil pipeline
through the third quarter of 2005 due to the continued reduced production at one of the third-party
facilities. Total costs and expenses decreased from $18.9 million for the prior years second
quarter to $18.5 million for the second quarter 2005 due principally to the timing of scheduled
maintenance activity.
Terminal Facilities
The Terminal Facilities business segment had operating income of $9.3 million for the second
quarter 2005 compared with $9.1 million for the prior year quarter. This $0.2 million increase was
due to a $1.1 million increase in total revenues, partially offset by a $1.0 million increase in
total costs and expenses. The increase in total revenues to $27.9 million for the second quarter
2005 from $26.7 million for the second quarter 2004 was largely due to the operating results from
the purchase of two refined product terminals located in Baltimore, Maryland and Manassas, Virginia
in April 2004 and the purchase of a refined product terminal located in Columbus, Ohio in November
2004. The increase in total costs and expenses to $18.6 million for the second quarter 2005 from
$17.6 million for the prior year quarter was primarily due to a $1.3 million increase in operating
expenses, due to the acquired assets mentioned previously.
22
Western Pipeline System
Operating income for the Western Pipeline System was $5.7 million for the second quarter 2005,
an increase of $1.6 million from the prior year quarter. This increase was primarily the result of
a $0.8 million increase in gross margin, and a $0.8 million increase in other income. Sales and
other operating revenue and cost of products sold and operating expenses increased in the second
quarter 2005 compared with the prior year quarter due mainly to the increase in crude oil prices.
The increase in gross margin was primarily attributable to higher crude oil pipeline volumes and
lower pipeline operating expenses, partially offset by lower lease acquisition margins. The
increase in pipeline volumes was due
mainly to higher throughput on the Nederland to Longview,
Texas pipeline. The increase in other income to $0.9 million for the second quarter 2005 compared
with the prior year quarter of $0.2 million was due to higher equity income from the investment in
West Texas Gulf Pipe Line Company.
23
Results of Operations Six Months Ended June 30, 2005 and 2004
Sunoco
Logistics Partners L.P.
Operating Highlights
Six Months Ended June 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Eastern Pipeline System:(1) |
|
|
|
|
|
|
|
|
Total shipments (barrel miles per day)(2) |
|
|
55,514,812 |
|
|
|
56,977,850 |
|
Revenue per barrel mile (cents) |
|
|
0.467 |
|
|
|
0.453 |
|
|
|
|
|
|
|
|
|
|
Terminal Facilities: |
|
|
|
|
|
|
|
|
Terminal throughput (bpd): |
|
|
|
|
|
|
|
|
Refined product terminals |
|
|
389,619 |
|
|
|
308,181 |
|
Nederland terminal |
|
|
472,133 |
|
|
|
490,473 |
|
Refinery terminals(3) |
|
|
699,459 |
|
|
|
692,889 |
|
|
|
|
|
|
|
|
|
|
Western Pipeline System:(1) |
|
|
|
|
|
|
|
|
Crude oil pipeline throughput (bpd) |
|
|
319,113 |
|
|
|
299,958 |
|
Crude oil purchases at wellhead (bpd) |
|
|
193,325 |
|
|
|
188,065 |
|
Gross margin per barrel of pipeline
throughput (cents)(4) |
|
|
25.7 |
|
|
|
26.8 |
|
|
|
|
(1) |
|
Excludes amounts attributable to equity ownership interests in the
corporate joint ventures. |
|
(2) |
|
Represents total average daily pipeline throughput multiplied by the
number of miles of pipeline through which each barrel has been shipped. |
|
(3) |
|
Consists of the Partnerships Fort Mifflin Terminal Complex, the Marcus
Hook Tank Farm and the Eagle Point Dock, which was acquired on March 30,
2004. |
|
(4) |
|
Represents total segment sales and other operating revenue minus cost of
products sold and operating expenses and depreciation and amortization
divided by crude oil pipeline throughput. |
Analysis of Statements of Income
Net income was $33.1 million for the six months ended June 30, 2005 as compared with $30.0
million for the first half of 2004, an increase of $3.1 million. The increase was primarily the
result of a $3.8 million increase in operating income to $43.7 million for the first half of 2005
from $39.9 million for the comparable prior year period due principally to the operating results of
the 2004 acquisitions and higher Terminal Facilities results and higher pipeline volumes and lower
operating expenses in the Western pipeline system, partially offset by lower Western Pipeline
System lease acquisition margins.
Sales and other operating revenue totaled $2,092.3 million for the first half of 2005 as
compared with $1,561.9 million for the first half of 2004, an increase of $530.4 million. This
increase was largely attributable to an increase in crude oil prices. The average price of West
Texas Intermediate crude oil at Cushing, Oklahoma, the benchmark crude oil in the United States,
increased to an average price of $51.53 per barrel for the first half of 2005 from $36.75 per
barrel for the first half of 2004. Other income increased $0.8 million from the first half of 2004
to $7.7 million for the first half of 2005 due principally to an increase in joint venture equity
income.
24
Total cost of products sold and operating expenses increased $527.5 million to $2,016.3
million for the first half of 2005 from $1,488.8 million for the first half of 2004 due primarily
to the increase in crude oil prices. Net interest expense of $10.6 million for the first half of
2005 was $0.7 million higher compared with the prior year first half, due primarily to higher
interest rates on the Credit Facility.
Analysis of Segment Operating Income
Eastern Pipeline System
Operating income for the Eastern Pipeline System was $16.9 million for the six months ended
June 30, 2005 compared with $16.9 million for the comparable prior year period. While sales and
other operating revenue remained relatively unchanged over this period, the $0.2 million increase
in other income to $6.3 million, caused by higher equity income, was offset by total costs and
expenses increasing $0.2 million. Sales and other operating revenue remained relatively unchanged
for the first half of 2005 compared with the first half of 2004 due to a decrease in total
shipments offset by higher revenue per barrel mile. The decrease in shipments was principally due
to lower throughput on the Marysville to Toledo crude oil pipeline caused by production issues at
two third-party Canadian synthetic crude oil plants discussed previously, partially offset by
higher volumes on the Harbor pipeline. Management expects lower crude oil throughput on the
Marysville to Toledo crude oil pipeline through the third quarter of 2005 due to the continued
reduced production at one of the third-party facilities. Total costs and expenses increased from
$36.2 million for the prior years first half to $36.3 million for the first half of 2005 due
principally to the timing of scheduled maintenance activity.
Terminal Facilities
The Terminal Facilities business segment had operating income of $18.8 million for the six
months ended June 30, 2005 compared with $16.3 million for the comparable prior year period. This
$2.5 million increase was due to a $5.7 million increase in total revenues, partially offset by a
$3.2 million increase in total costs and expenses. The increase in total revenues to $55.8 million
for the first half of 2005 from $50.1 million for the first half of 2004 was largely due to the
operating results from the acquisitions mentioned previously and the acquisition of the Eagle Point
logistics assets in March 2004.
The increase in total costs and expenses to $37.0 million for the first half of 2005 from
$33.8 million for the comparable prior year period was primarily due to a $2.7 million increase in
operating expenses and a $0.4 million increase in depreciation and amortization. Both increases
were principally due to the acquired assets mentioned previously.
Western Pipeline System
Operating income for the Western Pipeline System was $8.0 million for the six months ended
June 30, 2005, an increase of $1.3 million from the comparable prior year period. This increase
was principally the result of a $0.6 million increase in other income and a $0.2 million increase
in gross margin. Sales and other operating revenue and cost of products sold and operating
expenses increased for the first half of 2005 compared with the prior year first half due mainly to
the increase in crude oil prices. The increase in gross margin was primarily attributable to
higher crude oil pipeline volumes and lower pipeline operating expenses partially offset by lower
lease acquisition margins. The increase in pipeline volumes was due
25
mainly to higher throughput on the Nederland to Longview, Texas pipeline. The increase in other
income to $1.5 million for the first half of 2005 compared with the prior year first half was due
to higher equity income from the investment in West Texas Gulf Pipe Line Company.
Liquidity and Capital Resources
General
Cash generated from operations and borrowings under the Credit Facility are the Partnerships
primary sources of liquidity. At June 30, 2005, the Partnership had working capital of $30.9
million and available borrowing capacity under the Credit Facility of $185.5 million. The
Partnerships working capital position also reflects crude oil inventories based on historical
costs under the LIFO method of accounting. If the inventories had been valued at their current
replacement cost, the Partnership would have had working capital of $114.0 million at June 30,
2005.
In May 2005, the Partnership sold 2.5 million common units in a public offering. In June
2005, the Partnership sold an additional 275,000 common units to cover over-allotments in
connection with the May 2005 sale. The purchase price for the over-allotment was equal to the
offering price in the May 2005 sale. The units were issued under the Partnerships previously filed
Form S-3 shelf registration statement. The total sale of 2.775 million common units resulted in
net proceeds of approximately $99.2 million, after underwriters commissions and legal, accounting,
and other transaction expenses. Net proceeds from the sale were used to redeem 2.775 million
common units from Sunoco. At June 30, 2005, Sunocos ownership interest in the Partnership was
51.0 percent, including its 2.0 percent general partner interest. The units were issued under the
Partnerships previously filed $500 million universal shelf registration statement, of which
approximately $260.8 million remains available.
In April 2004, the Partnership sold 3.4 million common units in a public offering for total
gross proceeds of $135.1 million. The sale of the units resulted in net proceeds of $128.7
million, after underwriters commissions and legal, accounting, and other transaction expenses.
Net proceeds from the sale were used to (a) redeem approximately 2.2 million common units from
Sunoco for $82.7 million, (b) replenish cash utilized to acquire the Eagle Point logistics assets
for $20.0 million, (c) finance the acquisition of two refined product terminals for $12.0 million,
(d) finance the acquisition of an additional 33.3 percent undivided interest in the Harbor pipeline
for $7.3 million, and (e) for general partnership purposes, including to replenish cash used for
past acquisitions and capital improvements, and for other expansion, capital improvements or
acquisition projects. As a result of this net issuance of 1.2 million common units, the
Partnership also received $1.0 million from its general partner as a capital contribution to
maintain its 2.0 percent general partner interest.
On November 22, 2004, the Operating
Partnership entered into, and the Partnership guaranteed, a new five-year, $250 million Revolving
Credit Facility. This Credit Facility replaced the previous credit agreement, which was scheduled
to mature on January 31, 2005. At June 30, 2005, there was $64.5 million drawn under the Credit
Facility.
Management believes that the Partnership has sufficient liquid assets and cash from operations
to meet its financial commitments, debt service obligations, unitholder distributions,
contingencies and anticipated capital expenditures and acquisitions. However, the Partnership is
subject to business and operational risks that could adversely effect its cashflow. The
Partnership may supplement its cash generation with proceeds from financing
26
activities, including borrowings under the Credit Facility and other borrowings and the
issuance of additional common units.
Cash Flows and Capital Expenditures
Net cash provided by operating activities for the six months ended June 30, 2005 was $29.9
million compared with $50.7 million for the first half of 2004. Net cash provided by operating
activities for the first half of 2005 was primarily generated by net income of $33.1 million and
depreciation and amortization of $15.6 million, partially offset by an increase in working capital
of $17.9 million. Net cash provided by operating activities for the first half of 2004 was
principally generated by net income of $30.0 million, depreciation and amortization of $15.3
million, partially offset by an increase in working capital of $5.7 million. Working capital
increased primarily due to the sale of crude oil barrels in June 2005, for which the proceeds were
not received until July 2005.
Net cash used in investing activities for the first half of 2005 was $17.9 million compared
with $52.9 million for the first half of 2004. The decrease between periods is due primarily to
the acquisition of the Eagle Point logistics assets in March 2004, the purchase of two refined
product terminals in April 2004, and the acquisition of an additional ownership interest in the
Harbor pipeline in June 2004, partially offset by a $2.0 million increase in maintenance capital
expenditures. See further discussion of capital expenditures under Capital Requirements.
Net cash used in financing activities for the first half of 2005 was $19.4 million compared
with $2.5 million provided by financing activities for the first half of 2004. Net cash used in
financing activities for the first half of 2005 was principally the result of $32.0 million of cash
distributions paid to the limited partners and the general partner and $2.9 million of payments for
statutory withholding on net issuances of limited partner units under the restricted unit incentive
plan, partially offset by net collections of $14.4 million of advances to affiliates. In addition,
the $99.2 million of net proceeds from the sale of 2.775 million common units in May and June 2005
were used to redeem 2.775 million common units owned by Sunoco, Inc. Net cash provided by financing
activities for the first half of 2004 was mainly the result of $128.8 million of net proceeds from
the sale of 3.4 million common units in April 2004, a $1.2 million capital contribution from an
affiliate, and a $1.0 million net contribution from the general partner to maintain its 2.0 percent
ownership interest after the sale of common units, partially offset by $27.2 million of cash
distributions paid to the limited partners and the general partner and net payments of $18.3
million of advances to affiliates.
Under a treasury services agreement with Sunoco, the Partnership participates in Sunocos
centralized cash management program. Advances to affiliates in the Partnerships condensed
consolidated balance sheets at December 31, 2004 represent amounts due from Sunoco under this
agreement. Advances from affiliates, at June 30, 2005 represent amounts due to Sunoco under this
agreement.
Capital Requirements
The pipeline, terminalling, and crude oil transport operations are capital intensive,
requiring significant investment to 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:
27
|
|
|
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 complementary 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):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Maintenance |
|
$ |
10,904 |
|
|
$ |
8,868 |
|
Expansion |
|
|
7,026 |
|
|
|
44,038 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,930 |
|
|
$ |
52,906 |
|
|
|
|
|
|
|
|
|
|
Maintenance capital expenditures for the six months ended June 30, 2005 were $10.9 million, an
increase of $2.0 million from the comparable prior year period. The increase between periods is
principally related to timing differences in scheduled maintenance activity. 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. Included in these recurring
projects, maintenance capital includes $0.9 million of expenditures for each of the respective six
month periods ended June 30, 2005 and 2004, for which the Partnership received reimbursement from
Sunoco R&M under the terms of certain agreements between the parties. Management anticipates
maintenance capital expenditures to be approximately $27.5 million for the year ended December 31,
2005, excluding amounts management expects to receive as reimbursement from Sunoco R&M in
accordance with the terms of the agreements. An approximate $4.0 million decrease in these 2005
expenditures, caused by a reallocation of the Partnerships maintenance capital expenditure program
from non pipeline integrity, to reimbursable pipeline integrity management expenditures, will be
offset by an increase of approximately $4.0 million of capital expenditures associated with the
Partnerships Western Pipeline System headquarters move, from Tulsa to Houston, expected in early
2006. See Subsequent Events.
Expansion capital expenditures decreased by $37.0 million to $7.0 million for the first six
months of 2005 compared with the comparable prior year period. The decrease between periods was
primarily related to the 2004 acquisitions of the Eagle Point logistics assets for $20.0 million in
March 2004, two refined product terminals in Baltimore, Maryland and Manassas, Virginia for $12.0
million in April 2004, and an additional 33.3 percent undivided interest in the Harbor pipeline for
$7.3 million in June 2004.
The Partnership expects to fund capital expenditures, including any acquisitions, from cash
provided by operations and, to the extent necessary, from the proceeds of borrowings under the
Credit Facility and other borrowings and the issuance of additional common units.
28
Subsequent Events
On
August 1, 2005, the Partnership purchased, from an affiliate of
Exxon Mobil Corporation, a crude oil pipeline system and storage
facilities located in Texas for $100.0 million. The system consists primarily of a 187-mile, 16-inch
pipeline with an operating capacity of 125,000 barrels per day and originates at a crude oil
terminal in Corsicana, Texas and terminates at Wichita Falls, Texas. The Corsicana terminal has 2.9 million
barrels of shell capacity for crude oil. The Ringgold, Texas terminal
consists of 0.5 million barrels of shell capacity for crude oil.
The pipeline system and storage facilities will become an integral part of the
Partnerships Texas crude oil pipeline and its Nederland, Texas
terminal investment platform. The Partnership has also agreed to assume certain
environmental liabilities associated with these assets. The transaction was funded through $25.0
million cash on hand and $75.0 million drawn under the Credit Facility. The results of the
acquisition will be included in the financial statements from its date of acquisition. The
Partnership expects to issue additional equity in the future to repay a substantial portion of the
additional indebtedness incurred under the Partnerships credit
facility consistent with its conservative capital structure.
As a result of the closing of the August 1, 2005 acquisition of the $100 million crude oil
pipeline system, the Board of Directors of the Partnerships
general partner decided to advance the date for action on the
quarterly distribution
for the third quarter ending September 30, 2005, and declared a
distribution of $0.65 per unit on its
outstanding common and subordinated units, payable on November 14, 2005, to unitholders of record
on November 7, 2005.
On June 10, 2005, the Partnership announced its intention to relocate its Western Pipeline
System headquarters operations from Tulsa, OK to the Houston, TX area. On July 8, 2005, the
Partnership executed a letter of intent for an office lease in the Houston, TX area. The
Partnerships general partner has offered to relocate all affected employees. The Partnership
expects to complete the Western Pipeline System headquarters office transition by the end of the
first quarter 2006. The Partnership estimates that the total non-recurring charges to be incurred
in connection with the relocation plan will be approximately $5 million. These costs consist
primarily of employee relocation costs and new hire requirements. The Partnership expects to
record and disburse approximately one-third of these charges during the third and fourth quarters
of 2005, with the remaining amount being recorded and disbursed in the first quarter of 2006. In
addition, the Partnership also expects to incur approximately $5 million in capital expenditures
associated with the move, for leasehold improvements, including furniture and equipment,
communication infrastructure and a pipeline control center. The Partnership expects to incur
approximately $4 million of these capital expenditures in the third and fourth quarter of 2005,
with the balance being incurred in the first quarter 2006.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Partnership is exposed to various market risks, including volatility in crude oil
commodity prices and interest rates. To manage such exposures, inventory levels and expectations of
future commodity prices and interest rates are monitored when making decisions with respect to risk
management. The Partnership has not entered into derivative transactions that would expose it to
price risk.
The $250 million Credit Facility exposes the Partnership to interest rate risk since it bears
interest at a variable rate (3.8 percent at June 30, 2005). A one percent change in interest rates
changes annual interest expense by approximately $645,000 based upon outstanding borrowings under
the Credit Facility of $64.5 million at June 30, 2005.
29
Forward-Looking Statements
Some of the information included in this quarterly report on Form 10-Q contains
forward-looking statements, as such term is defined in Section 27A of the Securities Act of 1933
and Section 21E of the Exchange Act, and information relating to the Partnership that is based on
the beliefs of its management as well as assumptions made by and information currently available to
management.
Forward-looking statements discuss expected future results based on current and pending
business operations, and may be identified by words such as anticipates, believes, expects,
planned, scheduled or similar expressions. Although management of the Partnership believes
these forward-looking statements are reasonable, they are based upon a number of assumptions, any
or all of which may ultimately prove to be inaccurate. Statements made regarding future results are
subject to numerous assumptions, uncertainties and risks that may cause future results to be
materially different from the results stated or implied in this document.
The following are among the important factors that could cause actual results to differ
materially from any results projected, forecasted, estimated or budgeted:
|
|
Changes in the demand both for crude oil we buy and sell, as well as for crude oil and refined petroleum
products that we store and distribute; |
|
|
|
Changes in demand for storage in the Partnerships petroleum product terminals; |
|
|
|
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 Partnerships petroleum products terminals, pipelines and
crude oil acquisition and marketing operations; |
|
|
|
Changes in the throughput on petroleum pipelines owned and operated by third parties and connected to the
Partnerships petroleum product pipelines and terminals; |
|
|
|
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;
|
|
|
|
Phase-outs or restrictions on the use of MTBE; |
|
|
|
Improvements in energy efficiency and technology resulting in reduced demand; |
|
|
|
The Partnerships ability to manage rapid growth; |
|
|
|
The Partnerships ability to control costs; |
30
|
|
The effect of changes in accounting principles and tax laws and interpretations of both; |
|
|
|
Global and domestic economic repercussions from terrorist activities and international hostilities and the
governments response thereto; |
|
|
|
Changes in the level of operating expenses and hazards related to operating facilities (including equipment
malfunction, explosions, fires, spills and the effects of severe weather conditions); |
|
|
|
The occurrence of operational hazards or unforeseen interruptions for which the Partnership may not be
adequately insured; |
|
|
|
The age of, and changes in the reliability and efficiency of the Partnerships operating facilities or those
of Sunoco R&M or third parties; |
|
|
|
Changes in the expected level of capital, operating, or remediation spending related to environmental matters; |
|
|
|
Delays related to construction of, or work on, new or existing facilities and issuance of applicable permits; |
|
|
|
Changes in insurance markets resulting in increased costs and reductions in the level and types of coverage
available; |
|
|
|
The Partnerships ability to identify acquisitions under favorable terms, successfully consummate announced
acquisitions or expansions and integrate them into existing business operations; |
|
|
|
Risks related to labor relations and workplace safety; |
|
|
|
Non-performance by major customers, suppliers or other business partners; |
|
|
|
Price trends and overall demand for refined petroleum products, crude oil and natural gas liquids in the
United States, economic activity, weather, alternative energy sources, conservation and technological advances
which may affect price trends and demand for the Partnerships business activities; |
|
|
|
Changes in the Partnerships tariff rates, implemented by federal and/or state government regulators; |
|
|
|
The amount of the Partnerships indebtedness, which could make the Partnership vulnerable to general adverse
economic and industry conditions, limit the Partnerships ability to borrow additional funds, place it at
competitive disadvantages compared to competitors that have less debt, or have other adverse consequences; |
|
|
|
Restrictive covenants in the Partnerships or Sunoco, Inc.s credit agreements; |
|
|
|
Changes in the Partnerships or Sunoco, Inc.s credit ratings, as assigned by ratings agencies; |
|
|
|
The condition of the debt capital markets and equity capital markets in the United States, and the
Partnerships ability to raise capital in a cost-effective way; |
31
|
|
Changes in interest rates on the Partnerships outstanding debt, which could increase the costs of borrowing; |
|
|
|
Military conflicts between, or internal instability in, one or more oil-producing countries, and governmental
actions or other disruptions in the ability to obtain crude oil; |
|
|
|
Changes in applicable statutes and governmental regulations (or the interpretations thereof), including those
relating to the environment and global warming; |
|
|
|
Claims of the Partnerships non-compliance with regulatory and statutory requirements; and |
|
|
|
The costs and effects of legal and administrative claims and proceedings against the Partnership or any entity
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 which it has an ownership interest, is a party. |
These factors are not necessarily all of the important factors that could cause actual results
to differ materially from those expressed in any of the Partnerships forward-looking statements.
Other factors could also have material adverse effects on future results. The Partnership
undertakes no obligation to update publicly any forward-looking statement whether as a result of
new information or future events.
Item 4. Controls and Procedures
(a) As of the end of the fiscal quarter covered by this report, the
Partnership carried out an evaluation, under the supervision and with the participation of the
management of Sunoco Partners LLC, the Partnerships general partner (including the President and
Chief Executive Officer of Sunoco Partners LLC and the Vice President and Chief Financial Officer
of Sunoco Partners LLC), of the effectiveness of the design and operation of the Partnerships
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that
evaluation, the President and Chief Executive Officer of Sunoco Partners LLC and the Vice President
and Chief Financial Officer of Sunoco Partners LLC concluded that the Partnerships disclosure
controls and procedures are effective.
(b) No change in the Partnerships internal controls over financial reporting has occurred
during the fiscal quarter covered by this report that has materially affected, or that is
reasonably likely to materially affect, the Partnerships internal control over financial
reporting.
(c) Disclosure controls and procedures are designed to ensure that information required to be
disclosed in the Partnership reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified by the rules and forms of the
Securities and Exchange Commission. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed in
the Partnership reports under the Exchange Act is accumulated and communicated to management,
including the President and Chief Executive Officer of Sunoco Partners LLC and the Vice President
and Chief Financial Officer of Sunoco Partners LLC, as appropriate, to allow timely decisions
regarding required disclosure.
32
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Partnerships Sunoco Pipeline L.P. subsidiary operates the Mid-Valley Pipeline on behalf
of Mid-Valley Pipeline Company (an affiliate of Sunoco, Inc.) and its third-party shareholders
pursuant to an Operating Agency Agreement. In June 2005, Sunoco Pipeline L.P. and Mid-Valley
Pipeline Company received a letter from the U.S. Department of Justice, indicating its intent to
initiate a civil action on behalf of the U.S. Environmental Protection Agency against Sunoco Pipeline L.P. and Mid-Valley Pipeline Company, for alleged
violations of the Clean Water Act arising from a January 2005 crude oil
release by Mid-Valley Pipeline into the Kentucky River near
Worthville, Kentucky. According to the letter, the government could
seek civil penalties of up to the statutory maximum under the Clean
Water Act, which are substantially in excess of $100,000. However,
the Partnership does not expect any penalties or fines that may be
paid to have a material adverse effect on the Partnership. Also, the Operating
Agency Agreement obligates Mid-Valley Pipeline Company and its
shareholders to indemnify and hold the operator harmless from and against any claims arising out of its actions or
omissions (including negligence), taken in good faith performance of the
agreement. As a result, the Partnership expects to be fully
indemnified for costs associated with the January 2005 release.
Item 2. Unregistered Sales of Equity Securities and Uses of Proceeds
On May 23, 2005, the Partnership sold 2.5 million common units in an underwritten public
offering for total gross proceeds of approximately $93.8 million. In connection with this
offering, the Partnership granted the underwriters a 30-day option to purchase up to 375,000
additional common units for sale to the public. On June 17, 2005, the underwriters partially
exercised this over-allotment option, as a result of which, the Partnership issued an additional
275,000 common units to the public, for additional gross proceeds of approximately $10.3 million.
The total sale of units from the May 23 and June 17, 2005 offerings resulted in net proceeds of
approximately $99.2 million, after underwriters commissions and legal, accounting, and other
transaction expenses. The net proceeds from these sales were used to redeem an aggregate of 2.775
million common units from Sunoco for a total of approximately $99.2 million. The Partnership first
publicly announced its intention to redeem the Common Units on May 16, 2005. The units were issued
under the Partnerships previously filed $500 million universal shelf registration statement, of
which approximately $260.8 million remains available. After the redemption of its units, Sunocos
ownership interest in the Partnership decreased from 62.6 percent to 51.0 percent, including its
2.0 percent general partner interest. The Partnership has no on-going or continuing program for the
re-purchase or redemption of additional Common Units.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
33
Item 5. Other Information
None
Item 6. Exhibits
Exhibits
|
|
|
2.1:
|
|
Purchase and Sale Agreement by and between Mobil Pipeline
Company and Sunoco Pipeline L.P., executed May 6, 2005
(incorporated by reference to Exhibit 2.1 of Form 10-Q,
File No. 1-31219, filed May 9, 2005). |
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2.1.1 :
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List of Schedules and Exhibits to Purchase and Sale Agreement
omitted from this filing. Registrant hereby undertakes, pursuant to Regulation
S-K Item 601(2) to furnish any such schedules and exhibits to the SEC
supplementally, upon request (incorporated by reference to Exhibit
2.1.1 of Form 10-Q, File No. 1-31219, filed May 9, 2005). |
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10.1 :
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Sunoco Partners LLC Long-Term Incentive Plan (amended and
restated as of April 21, 2005) (incorporated by reference to
Exhibit 10.1 of Form 10-Q, file No. 1-31219, filed May 9, 2005) |
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10.1.1:
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Form of Restricted Unit Agreement under the Sunoco Partners LLC Long-Term
Incentive Plan (incorporated by reference to
Exhibit 10.1.1 of Form 10-Q, file No. 1-31219, filed May 9, 2005) |
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10.1.2:
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Form of Restricted Unit Agreement under the Sunoco Partners LLC Long-Term
Incentive Plan (incorporated by reference to
Exhibit 10.1.2 of Form 10-Q, file No. 1-31219, filed May 9, 2005) |
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10.2 :
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Sunoco Partners LLC Annual Incentive Plan (amended and restated as
of April 21, 2005) (incorporated by reference to
Exhibit 10.2 of Form 10-Q, file No. 1-31219, filed May 9, 2005) |
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10.3 :
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Sunoco Partners LLC Special
Executive Severance Plan (incorporated by reference to
Exhibit 10.3 of Form 10-Q, file No. 1-31219, filed May 9, 2005) |
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10.4* :
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Throughput and Deficiency
Agreement, executed May 6, 2005. (incorporated by reference to
Exhibit 10.4 of Form 10-Q, file No. 1-31219, filed May 9, 2005) |
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12.1 :
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Statement of Computation of Ratio of Earnings to Fixed
Charges |
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31.1 :
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Chief Executive Officer Certification of Periodic Report
Pursuant to Exchange Act Rule 13a-14(a) |
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31.2 :
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Chief Financial Officer Certification of Periodic Report
Pursuant to Exchange act Rule 13a-14(a) |
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32 :
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Chief Executive Officer and Chief Financial Officer
Certification of Periodic Report Pursuant to Exchange Act
Rule 13a-14(b) and U.S.C. §1350 |
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* |
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Confidential status has been requested for certain portions thereof pursuant to a
Confidential Treatment Request filed May 9, 2005. Such provisions have been separately filed
with the Commission. |
34
We are
pleased to furnish this Form 10-Q to unitholders who request it by writing to:
Sunoco Logistics Partners L.P.
Investor Relations
Mellon Bank Center
1735 Market Street
Philadelphia, PA 19103-7583
or through
our website at www.sunocologistics.com.
35
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.
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Sunoco Logistics Partners L.P. |
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By:
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/s/ Colin A. Oerton |
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Colin A. Oerton |
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Vice President & |
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Chief Financial Officer |
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Date: August 2, 2005
36
Exhibit 12.1
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
Sunoco Logistics Partners L.P.
Six Months
Ended June
30, 2005
-----------
Fixed Charges:
Interest cost and debt expense $ 10,791
Interest allocable to rental expense (a) 741
-----------
Total $ 11,532
===========
Earnings:
Income before income tax expense $ 33,092
Equity in income of less than 50
percent owner affiliated companies (7,101)
Dividends received from less than 50
percent owned affiliated companies 6,943
Fixed charges 11,532
Interest capitalized --
Amortization of previously capitalized
interest 71
-----------
Total $ 44,537
===========
Ratio of Earnings to Fixed Charges 3.86
===========
(a) Represents one-third of the total operating lease rental expense which is
that portion deemed to be interest.
Exhibit 31.1
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., hereby certify that:
1. I have reviewed this Quarterly Report on Form 10-Q (for the quarter
ended June 30, 2005) 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: August 2, 2005
/s/ DEBORAH M. FRETZ
--------------------------------------------
Name: Deborah M. Fretz
Title: President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Colin A. Oerton, Vice President and Chief Financial Officer of
Sunoco Partners LLC, the general partner of the registrant Sunoco Logistics
Partners L.P., hereby certify that:
1. I have reviewed this Quarterly Report on Form 10-Q (for the quarter
ended June 30, 2005) 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 period 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: August 2, 2005
/s/ COLIN A. OERTON
-------------------------------------------------
Name: Colin A. Oerton
Title: Vice President and Chief Financial Officer
Exhibit 32
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
We, the undersigned Deborah M. Fretz and Colin A. Oerton, being,
respectively, the President and Chief Executive Officer and the Vice President
and Chief Financial Officer, of Sunoco Partners LLC, the general partner of the
registrant Sunoco Logistics Partners L.P., do each hereby certify that the
registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005
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: August 2, 2005
/s/ DEBORAH M. FRETZ
--------------------------------------------
Name: Deborah M. Fretz
Title: President and Chief Executive Officer
/s/ COLIN A. OERTON
-------------------------------------------------
Name: Colin A. Oerton
Title: Vice President and Chief Financial Officer