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

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended June 30, 2012

OR

 

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

For the transition period from          to         

Commission file number 1-31219

 

 

SUNOCO LOGISTICS PARTNERS L.P.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   23-3096839

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1818 Market Street, Suite 1500, Philadelphia, PA   19103
(Address of principal executive offices)   (Zip Code)

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

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

 

 

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

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

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

 

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

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

At June 30, 2012, the number of the registrant’s Common Units and Class A Units outstanding were 99,622,862 and 3,939,435, respectively.

 

 

 


Table of Contents

SUNOCO LOGISTICS PARTNERS L.P.

INDEX

 

          Page
Number
 
   PART I. FINANCIAL INFORMATION   
Item 1.   

Financial Statements

  
  

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2012 and 2011 (unaudited)

     2   
  

Condensed Consolidated Balance Sheets at June 30, 2012 (unaudited) and December 31, 2011

     3   
  

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011 (unaudited)

     4   
  

Consolidated Statements of Equity for the Six Months Ended June 30, 2012 and 2011 (unaudited)

     5   
  

Notes to Condensed Consolidated Financial Statements (unaudited)

     6   
Item 2.   

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

     29   
Item 3.   

Quantitative and Qualitative Disclosures About Market Risk

     38   
Item 4.   

Controls and Procedures

     40   
   PART II. OTHER INFORMATION   
Item 1.   

Legal Proceedings

     41   
Item 1A.   

Risk Factors

     41   
Item 2.   

Unregistered Sales of Equity Securities and Use of Proceeds

     41   
Item 3.   

Defaults Upon Senior Securities

     41   
Item 4.   

Mine Safety Disclosures

     41   
Item 5.   

Other Information

     41   
Item 6.   

Exhibits

     42   
SIGNATURE      43   

 

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PART I

FINANCIAL INFORMATION

 

Item 1. Financial Statements

SUNOCO LOGISTICS PARTNERS L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in millions, except per unit amounts)

 

     Three Months Ended
June  30,
    Six Months Ended
June  30,
 
     2012     2011     2012     2011  

Revenues

        

Sales and other operating revenue:

        

Unaffiliated customers

   $ 3,119      $ 2,385      $ 6,394      $ 4,340   

Affiliates (Note 3)

     194        39        320        342   

Other income

     5        4        7        6   

Gain on divestment and related matters (Note 2)

     —          —          11        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     3,318        2,428        6,732        4,688   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and Expenses

        

Cost of products sold and operating expenses

     3,089        2,266        6,314        4,411   

Depreciation and amortization expense

     25        19        50        37   

Impairment charge and related matters (Note 2)

     (10     —          (1     —     

Selling, general and administrative expenses

     30        22        56        44   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Costs and Expenses

     3,134        2,307        6,419        4,492   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

     184        121        313        196   

Interest cost and debt expense, net

     23        21        49        42   

Capitalized interest

     (2     (2     (4     (3
  

 

 

   

 

 

   

 

 

   

 

 

 

Income Before Provision for Income Taxes

   $ 163      $ 102      $ 268      $ 157   

Provision for income taxes (Note 6)

     8        6        16        11   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

   $ 155      $ 96      $ 252      $ 146   

Net income attributable to noncontrolling interests

     3        2        5        4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income Attributable to Partners

   $ 152      $ 94      $ 247      $ 142   

Less: General Partner’s interest

     (19     (14     (34     (26
  

 

 

   

 

 

   

 

 

   

 

 

 

Limited Partners’ interest(1)

   $ 133      $ 80      $ 213      $ 116   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income Attributable to Partners per Limited Partner unit (Note 4):

        

Basic

   $ 1.29      $ 0.80      $ 2.06      $ 1.17   

Diluted

   $ 1.28      $ 0.80      $ 2.05      $ 1.16   

Weighted average Limited Partners’ units outstanding:

        

Basic

     103.5        99.4        103.5        99.3   

Diluted

     103.9        99.8        103.9        99.8   

Comprehensive Income

   $ 155      $ 97      $ 248      $ 148   

Comprehensive income attributable to noncontrolling interests

     3        2        5        4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income Attributable to Partners

   $ 152      $ 95      $ 243      $ 144   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Includes interest in net income attributable to Class A units.

(See Accompanying Notes)

 

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SUNOCO LOGISTICS PARTNERS L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions)

 

     June 30,
2012
    December 31,
2011
 
     (UNAUDITED)        

Assets

    

Current Assets

    

Cash and cash equivalents

   $ 2      $ 5   

Advances to affiliated companies (Note 3)

     10        107   

Accounts receivable, affiliated companies (Note 3)

     8        —     

Accounts receivable, net

     1,803        2,188   

Inventories (Note 5)

     315        206   
  

 

 

   

 

 

 

Total Current Assets

     2,138        2,506   
  

 

 

   

 

 

 

Properties, plants and equipment

     3,345        3,234   

Less accumulated depreciation and amortization

     (748     (712
  

 

 

   

 

 

 

Properties, plants and equipment, net

     2,597        2,522   
  

 

 

   

 

 

 

Investment in affiliates (Note 7)

     75        73   

Goodwill

     77        77   

Intangible assets, net

     264        277   

Other assets

     37        22   
  

 

 

   

 

 

 

Total Assets

   $ 5,188      $ 5,477   
  

 

 

   

 

 

 

Liabilities and Equity

    

Accounts payable

   $ 1,862      $ 2,111   

Current portion of long-term debt (Note 8)

     —          250   

Accrued liabilities

     108        112   

Accrued taxes payable (Note 6)

     49        62   
  

 

 

   

 

 

 

Total Current Liabilities

     2,019        2,535   
  

 

 

   

 

 

 

Long-term debt (Note 8)

     1,559        1,448   

Other deferred credits and liabilities

     62        78   

Deferred income taxes (Note 6)

     222        222   

Commitments and contingent liabilities (Note 9)

    
  

 

 

   

 

 

 

Total Liabilities

     3,862        4,283   
  

 

 

   

 

 

 

Total Equity

     1,326        1,194   
  

 

 

   

 

 

 

Total Liabilities and Equity

   $ 5,188      $ 5,477   
  

 

 

   

 

 

 

(See Accompanying Notes)

 

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SUNOCO LOGISTICS PARTNERS L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in millions)

 

     Six Months Ended
June 30,
 
         2012             2011      

Cash Flows from Operating Activities:

    

Net Income

   $ 252      $ 146   

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

    

Depreciation and amortization expense

     50        37   

Impairment charge and related matters

     (1     —     

Deferred income tax expense

     —          (1

Amortization of financing fees and bond discount

     1        1   

Restricted unit incentive plan expense

     5        4   

Claim for recovery of environmental liability

     (14     —     

Changes in working capital pertaining to operating activities:

    

Accounts receivable, affiliated companies

     (8     154   

Accounts receivable, net

     401        (373

Inventories

     (109     (318

Accounts payable and accrued liabilities

     (273     343   

Accrued taxes

     (13     —     

Other

     (9     2   
  

 

 

   

 

 

 

Net cash provided by / (used in) operating activities

     282        (5
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Capital expenditures

     (134     (69

Acquisitions

     —          (99

Proceeds from divestments and related matters

     11        —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (123     (168
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Distributions paid to limited and general partners

     (112     (103

Distributions paid to noncontrolling interests

     (3     (2

Payments of statutory withholding on net issuance of limited partner units under restricted unit incentive plan

     (5     (3

Repayments under credit facility

     (176     (63

Borrowings under credit facility

     287        297   

Repayments of senior notes

     (250     —     

Advances to affiliated companies, net

     97        51   

Other

     —          —     
  

 

 

   

 

 

 

Net cash (used in) / provided by financing activities

     (162     177   
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     (3     4   

Cash and cash equivalents at beginning of year

     5        2   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 2      $ 6   
  

 

 

   

 

 

 

(See Accompanying Notes)

 

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SUNOCO LOGISTICS PARTNERS L.P.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

(in millions)

 

    Limited Partners     General
Partner
    Accumulated Other
Comprehensive
Income (Loss)
    Noncontrolling
Interests
    Total  
    Common     Class A                          

Balance at January 1, 2011

  $ 940      $ —        $ 28      $ (3   $ 77      $ 1,042   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income

           

Net Income

    116        —          26        —          4        146   

Change in cash flow hedges

    —          —          —          2        —          2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

    116        —          26        2        4        148   

Units issued under incentive plans

    4        —          —          —          —          4   

Distribution equivalent rights

    (1     —          —          —          —          (1

Payments of statutory withholding on net issuance of limited partner units under restricted unit incentive plan

    (3     —          —          —          —          (3

Noncontrolling equity in joint venture acquisitions

    —          —          —          —          18        18   

Distributions paid to limited partners, general partner and noncontrolling interests

    (79     —          (24     —          (2     (105

Other

    1        —          —          (1     1        1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

  $ 978      $ —        $ 30      $ (2   $ 98      $ 1,104   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Limited Partners     General
Partner
    Accumulated Other
Comprehensive
Income (Loss)
    Noncontrolling
Interests
    Total  
    Common     Class A                          

Balance at January 1, 2012

  $ 1,039      $ 22      $ 34      $ 1      $ 98      $ 1,194   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income

           

Net Income

    212        2        33        —          5        252   

Change in cash flow hedges

    —          —          —          (4     —          (4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

    212        2        33        (4     5        248   

Units issued under incentive plans

    5        —          —          —          —          5   

Distribution equivalent rights

    (1     —          —          —          —          (1

Payments of statutory withholding on net issuance of limited partner units under restricted unit incentive plan

    (5     —          —          —          —          (5

Distributions paid to limited partners, general partner and noncontrolling interests

    (84     —          (28     —          (3     (115
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

  $ 1,166      $ 24      $ 39      $ (3   $ 100      $ 1,326   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(See Accompanying Notes)

 

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SUNOCO LOGISTICS PARTNERS L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation

Sunoco Logistics Partners L.P. (“the Partnership”) is a publicly traded Delaware limited partnership that owns and operates a logistics business, consisting of refined products and crude oil pipelines, terminalling and storage assets, and refined products and crude oil acquisition and marketing assets. The Partnership is principally engaged in the transport, terminalling and storage of refined products and crude oil and the purchase and sale of crude oil, in 29 states located throughout the United States. Sunoco, Inc. and its wholly-owned subsidiaries including Sunoco, Inc. (R&M) are collectively referred to as “Sunoco.” Sunoco accounted for 4.8 percent of the Partnership’s total revenues for the six months ended June 30, 2012.

In April 2012, Sunoco entered into an agreement to be acquired by Energy Transfer Partners (“ETP”). In connection with this transaction, ETP will also become the owner of Sunoco’s interest in the Partnership including the general partner and the incentive distribution rights, as well as Sunoco’s 32.4 percent interest in the Partnership’s limited partner units. The transaction is expected to close in the fourth quarter 2012, subject to approval of Sunoco’s shareholders and customary regulatory approvals. In addition, under the merger agreement, Sunoco will continue its plan to exit its refining business, including the announced joint venture with the Philadelphia refinery. The Partnership does not expect that the proposed acquisition will have a material impact on its operations.

The consolidated financial statements reflect the results of Sunoco Logistics Partners L.P. and its wholly-owned subsidiaries, including Sunoco Logistics Partners Operations L.P., and include the accounts of entities in which the Partnership has a controlling financial interest. A controlling financial interest is evidenced by either a voting interest greater than 50 percent or a risk and rewards model that identifies the Partnership or one of its subsidiaries as the primary beneficiary of a variable interest entity. The Partnership holds a controlling financial interest in Inland Corporation (“Inland”), Mid-Valley Pipeline Company (“Mid-Valley”) and West Texas Gulf Pipe Line Company (“West Texas Gulf”), and as such, these joint ventures are reflected as consolidated subsidiaries of the Partnership from the respective dates of acquisition. All significant intercompany accounts and transactions are eliminated in consolidation and noncontrolling interests in equity and net income are shown separately in the condensed consolidated balance sheets and statements of comprehensive income. Equity ownership interests in corporate joint ventures in which the Partnership does not have a controlling financial interest are accounted for under the equity method of accounting.

In June 2011, the Financial Accounting Standards Board (“FASB”) codified guidance related to the presentation of comprehensive income. The guidance requires entities to present net income and other comprehensive income in a single continuous statement of comprehensive income or in two separate, but consecutive, statements. For the six months ended June 30, 2012, the Partnership presents the components of net income and total comprehensive income in its consolidated statements of comprehensive income. The new guidance does not change the components that are recognized in net income and the components that are recognized in other comprehensive income. The revised presentation has been retroactively applied to all periods presented.

The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and accounting principles generally accepted in the United States for interim financial reporting. They do not include all disclosures normally made in financial statements contained in Form 10-K. In management’s opinion, all adjustments necessary for a fair presentation of the results of operations, financial position and cash flows for the periods shown have been made. All such adjustments are of a normal recurring nature. The Partnership expects the interim increase in quantities of crude oil inventory to decline by year end and therefore has adjusted its interim LIFO calculation to produce a reasonable matching of the most recently incurred costs with current revenues. Results for the three and six months ended June 30, 2012 are not necessarily indicative of results for the full year 2012.

 

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2. Change in Business and Other Matters

In February 2012, the Partnership sold its refined product terminal and pipeline assets in Big Sandy, Texas for $11 million. The buyer also assumed a $1 million environmental liability associated with the assets. The net book value of the assets sold and liability transferred approximated the sale price. In connection with the sale, the Partnership also agreed to cancel existing throughput and deficiency agreements in exchange for cash payments of $11 million. During the first quarter 2012, the Partnership recognized a total gain of $11 million, which primarily related to the contract settlement. The gain was recorded as $5 and $6 million within the Refined Products Pipelines and Terminal Facilities segments, respectively.

In July 2012, Sunoco announced that it has agreed to form Philadelphia Energy Solutions, a joint venture with The Carlyle Group, at its Philadelphia refinery, enabling the facility to continue operating. During the second quarter 2012, the Partnership reversed $10 million of regulatory obligations for tank cleaning which was previously expected to be performed if the Philadelphia refinery was shut down.

3. Related Party Transactions

Advances to/from Affiliate

The Partnership has a treasury services agreement with Sunoco pursuant to which it, among other things, participates in Sunoco’s centralized cash management program. Under this program, all of the Partnership’s cash receipts and cash disbursements are processed, together with those of Sunoco and its other subsidiaries, through Sunoco’s cash accounts with a corresponding credit or charge to an intercompany account. The intercompany balances are settled periodically, but no less frequently than monthly. Amounts due from Sunoco earn interest at a rate equal to the average rate of the Partnership’s third-party money market investments, while amounts due to Sunoco bear interest at a rate equal to the interest rate provided in the Operating Partnership’s $350 million Credit Facility (see Note 8).

Administrative Services

Under the Omnibus Agreement, the Partnership pays Sunoco or the general partner an annual administrative fee that includes expenses incurred by Sunoco and its affiliates to perform certain centralized corporate functions, such as legal, accounting, treasury, engineering, information technology, insurance, and other corporate services, including the administration of employee benefit plans. This fee was $13 million for the year ended December 31, 2011. The fee increased to $18 million for 2012 to cover additional consolidation of services provided by Sunoco that were previously provided by third parties and includes an allocation of certain senior management costs from Sunoco that were previously included in the Partnership’s direct costs. This fee does not include the cost of shared insurance programs (which are allocated to the Partnership based upon its share of the cash premiums incurred), the salaries of pipeline and terminal personnel or other employees of the general partner or the cost of their employee benefits. The Partnership has no employees, and reimburses Sunoco and its affiliates for these costs and other direct expenses incurred on the Partnership’s behalf. These costs may be increased if the acquisition or construction of new assets or businesses requires an increase in the level of general and administrative services received by the Partnership.

In addition to the fees for the centralized corporate functions, selling, general and administrative expenses in the consolidated statements of comprehensive income include the allocation of shared insurance costs. The Partnership’s share of allocated Sunoco employee benefit plan expenses, including noncontributory 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 are reflected in cost of products sold and operating expenses and selling, general and administrative expenses in the consolidated statements of comprehensive income.

Affiliated Revenues and Accounts Receivable, Affiliated Companies

The Partnership is party to various agreements with Sunoco to supply crude oil and refined products and to provide pipeline and terminalling services. Affiliated revenues in the consolidated statements of comprehensive income consist of sales of refined products and crude oil as well as the related provision, and services including pipeline transportation, terminalling, and storage and blending for Sunoco. Affiliated revenues include sales of crude oil to Sunoco which were priced using market-based rates and sales of refined products which are priced using market based rates under agreements that are negotiated annually. Service revenues are recognized based on published tariffs or negotiated rates.

During 2011, Sunoco continued to execute its strategy to exit its refining operations which included selling its Toledo, Ohio refinery in March 2011 and announcing its intention to sell its remaining refineries located in Philadelphia and Marcus Hook, PA. In December 2011, Sunoco indefinitely idled the main processing units at its Marcus Hook refinery and is currently pursing options for alternative uses of the facility. In July 2012 Sunoco announced that it has agreed to form Philadelphia Energy Solutions, a joint venture with The Carlyle Group, at its Philadelphia refinery, enabling the facility to continue operating.

 

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Management has continued to assess the impact that Sunoco’s decision to exit its refining business in the northeast will have on the Partnership’s assets that have historically served the refineries and determined that the Partnership’s refined products pipeline and terminal assets continue to have expected future cash flows that support their carrying values. However, the Partnership recognized a $42 million charge in the fourth quarter 2011 for certain crude oil terminal assets which would be negatively impacted if the Philadelphia refinery is permanently idled. This includes a $31 million non-cash impairment for asset write-downs at the Fort Mifflin Terminal Complex and $11 million for regulatory obligations which would be incurred if these assets are permanently idled. During the second quarter 2012, the Partnership recognized a $10 million gain on the reversal of certain regulatory obligations for tank cleaning which will be delayed as a result of the announced joint venture with the Philadelphia refinery.

Capital Contributions

In the first six months of 2012 and 2011, the Partnership issued 0.2 million limited partnership units to participants in the Sunoco Partners LLC Long-Term Incentive Plan (“LTIP”) upon completion of award vesting requirements. As a result of these issuances of limited partnership units, the general partner contributed less than $1 million during the first six months of 2012 and 2011 to maintain its 2 percent general partner interest. The Partnership recorded these amounts as capital contributions to Equity within its condensed consolidated balance sheets.

4. Net Income Attributable to Sunoco Logistics Partners L.P. Per Limited Partner Unit Data

The general partner’s interest in net income attributable to Sunoco Logistics Partners L.P. (“net income attributable to Partners”) consists of its 2 percent general partner interest and “incentive distributions,” which are increasing percentages, up to 50 percent of quarterly distributions in excess of $0.1667 per common unit (see Note 11). The general partner was allocated net income attributable to Partners of $19 and $14 million (representing 13 and 15 percent respectively of total net income attributable to Partners) for the three months ended June 30, 2012 and 2011, respectively and $34 and $26 million (representing 14 and 18 percent of total net income attributable to Partners) for the six months ended June 30, 2012 and 2011, respectively. Diluted net income attributable to Partners per common unit is calculated by dividing net income attributable to Partners by the sum of the weighted average number of common and Class A units outstanding and the dilutive effect of incentive unit awards (see Note 12).

In July 2011, the Partnership issued 3.9 million Class A units to Sunoco in connection with the acquisition of the Eagle Point tank farm and related assets. These deferred distribution units represented a new class of units that were converted to common units in July 2012. The Class A units participated in the allocation of net income on a pro-rata basis with the common units.

 

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The following table sets forth the reconciliation of the weighted average number of common and Class A units used to compute basic net income attributable to Partners per common unit to those used to compute diluted net income attributable to Partners per common unit for the three and six months ended June 30, 2012 and 2011:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2012      2011      2012      2011  
     (in millions)      (in millions)  

Weighted average number of common units outstanding - basic

     103.5         99.4         103.5         99.3   

Add effect of dilutive incentive awards

     0.4         0.4         0.4         0.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of common units - diluted

     103.9         99.8         103.9         99.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

5. Inventories

The components of inventories are as follows:

 

     June 30,
2012
     December 31,
2011
 
     (in millions)  

Crude oil

   $ 264       $ 142   

Refined products

     40         55   

Refined products additives

     9         2   

Materials, supplies and other

     2         7   
  

 

 

    

 

 

 
   $ 315       $ 206   
  

 

 

    

 

 

 

6. Income Taxes

The Partnership is not a taxable entity for U.S. federal income tax purposes, or for the majority of states that impose income taxes. Rather, income taxes are generally assessed at the partner level. There are some states in which the Partnership operates where it is subject to state and local income taxes. Substantially all of the income tax reflected in the Partnership’s consolidated financial statements is derived from the operations of Inland, Mid-Valley and West Texas Gulf, all of which are entities subject to income taxes for federal and state purposes at the corporate level. The effective tax rates for these entities approximate the federal statutory rate of 35 percent.

In taxable jurisdictions, the Partnership records deferred income taxes on all significant temporary differences between the book basis and the tax basis of assets and liabilities. The net deferred tax liabilities reflected on the condensed consolidated balance sheets are derived principally from the difference in the book and tax bases of properties, plants and equipment associated with the Inland, Mid-Valley and West Texas Gulf acquisitions.

 

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7. Investment in Affiliates

The Partnership’s corporate joint ventures own refined products pipeline systems. The Partnership’s ownership percentages in corporate joint ventures as of June 30, 2012 and December 31, 2011 are as follows:

 

     Ownership
percentage
 

Explorer Pipeline Company

     9.4

Yellowstone Pipe Line Company

     14.0

West Shore Pipe Line Company

     17.1

Wolverine Pipe Line Company

     31.5

The following table provides summarized, unaudited income statement information on a 100 percent basis for the Partnership’s corporate joint ventures for the three and six months ended June 30, 2012 and 2011:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2012      2011      2012      2011  
     (in millions)      (in millions)  

Income Statement Data:

           

Total revenues

   $ 97       $ 104       $ 165       $ 176   

Income before income taxes

   $ 34       $ 46       $ 54       $ 69   

Net income

   $ 21       $ 28       $ 33       $ 41   

The following table provides summarized, unaudited balance sheet information on a 100 percent basis for the Partnership’s corporate joint ventures as of June 30, 2012 and December 31, 2011:

 

     June 30,
2012
     December 31,
2011
 
     (in millions)  

Balance Sheet Data:

     

Current assets

   $ 136       $ 130   

Non-current assets

   $ 646       $ 648   

Current liabilities

   $ 119       $ 127   

Non-current liabilities

   $ 545       $ 549   

Net equity

   $ 118       $ 102   

 

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8. Debt

The components of the Partnership’s debt balances are as follows:

 

     June 30,
2012
    December 31,
2011
 
     (in millions)  

Credit Facilities

    

$350 million Credit Facility, due August 2016

   $ 106      $ —     

$35 million Credit Facility, due April 2015 (1)

     5        —     

Senior Notes

    

Senior Notes - 7.25%, due February 2012 (2)

     —          250   

Senior Notes - 8.75%, due February 2014

     175        175   

Senior Notes - 6.125%, due May 2016

     175        175   

Senior Notes - 5.50%, due February 2020

     250        250   

Senior Notes - 4.65%, due February 2022

     300        300   

Senior Notes - 6.85%, due February 2040

     250        250   

Senior Notes - 6.10%, due February 2042

     300        300   
  

 

 

   

 

 

 

Total debt

     1,561        1,700   

Less:

    

Unamortized bond discount

     (2     (2

Current portion of long-term debt

     —          (250
  

 

 

   

 

 

 

Long-term debt, net of current portion

   $ 1,559      $ 1,448   
  

 

 

   

 

 

 

 

(1)

The $35 million Credit Facility is held by West Texas Gulf.

(2)

The 7.25 percent Senior Notes matured and were repaid in February 2012.

Credit Facilities

The Partnership maintains two credit facilities totaling $550 million to fund the Partnership’s working capital requirements, finance acquisitions and capital projects and for general partnership purposes. The credit facilities consist of a five-year $350 million unsecured credit facility (the “$350 million Credit Facility”) and a $200 million 364-day unsecured credit facility (the “$200 million Credit Facility”). Outstanding borrowings under these credit facilities were $106 million at June 30, 2012. At December 31, 2011 there were no outstanding borrowings under these credit facilities.

The $350 and $200 million Credit Facilities contain various covenants limiting the Partnership’s ability to incur indebtedness; grant certain liens; make certain loans, acquisitions and investments; make any material change to the nature of its business; or enter into a merger or sale of assets, including the sale or transfer of interests in the Operating Partnership’s subsidiaries. The credit facilities also limit the Partnership, on a rolling four-quarter basis, to a maximum total consolidated debt to consolidated EBITDA, as defined in the underlying credit agreements, ratio of 5.0 to 1, which can generally be increased to 5.5 to 1 during an acquisition period. The Partnership’s ratio of total debt to EBITDA was 2.3 to 1 at June 30, 2012, as calculated in accordance with the credit agreements.

In April 2012, Sunoco announced that it has entered into a definitive merger agreement to be acquired by ETP. Successful completion of the acquisition would represent an event of default under the Partnership’s credit facilities as the general partner interests would no longer be owned by Sunoco. The Partnership continues to monitor the progress of the proposed transaction and, as necessary, expects to amend this condition so that no event of default will occur if the acquisition is completed.

In May 2012, West Texas Gulf entered into a $35 million revolving credit facility (the “$35 million Credit Facility”), which matures in April 2015. The facility is available to fund West Texas Gulf’s general corporate purposes including working capital and capital expenditures. The credit facility limits West Texas Gulf on a rolling four-quarter basis, to a minimum fixed charge coverage ratio, as defined in the underlying credit agreement. The ratio for the fiscal quarter ending June 30, 2012 shall not be less than 0.85 to 1. The minimum ratio fluctuates between 0.80 to 1 and 1.00 to 1 throughout the term of the revolver as specified in the credit agreement. In addition, the credit facility limits West Texas Gulf to a maximum leverage ratio of 2.00 to 1. West Texas Gulf’s fixed charge coverage ratio and leverage ratio were 1.04 to 1 and 0.18 to 1, respectively, at June 30, 2012. Outstanding borrowings under this credit facility were $5 million at June 30, 2012.

 

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9. 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 can result in liabilities and loss contingencies for remediation at the Partnership’s facilities and at third-party or formerly owned sites. At June 30, 2012 and December 31, 2011, there were accrued liabilities for environmental remediation in the condensed consolidated balance sheets of $4 million. The accrued liabilities for environmental remediation do not include any amounts attributable to unasserted claims, since no unasserted claims are probable of settlement or reasonably estimable, nor have any recoveries from insurance been assumed. Charges against income for environmental remediation totaled $1 million for the three months ended June 30, 2012 and 2011, respectively and $5 and $3 million for the six months ended June 30, 2012 and 2011, respectively. The Partnership maintains insurance programs that cover certain of its existing or potential environmental liabilities. Claims for recovery of environmental liabilities and previous expenditures that are probable of realization totaled $14 million at June 30, 2012 and are included in other assets in the condensed consolidated balance sheets.

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

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

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 results of operations, financial position or cash flows of the Partnership at June 30, 2012. There are certain other pending legal proceedings related to matters arising after the 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 Partnership’s results of operations, financial position or cash flows at June 30, 2012.

 

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10. Equity

The changes in the number of common units outstanding from January 1, 2011 through June 30, 2012 are as follows:

 

     Common
Units
     Class A
Units
     Total Units  
     (in millions)  

Balance at January 1, 2011

     99.2         —           99.2   

Units issued under incentive plans

     0.2         —           0.2   

Class A Units issued to Sunoco in July 2011 (Note 3)

     —           3.9         3.9   
  

 

 

    

 

 

    

 

 

 

Balance at December 31, 2011

     99.4         3.9         103.3   
  

 

 

    

 

 

    

 

 

 

Units issued under incentive plans

     0.2         —           0.2   
  

 

 

    

 

 

    

 

 

 

Balance at June 30, 2012

     99.6         3.9         103.5   
  

 

 

    

 

 

    

 

 

 

In July 2011, the Partnership issued 3.9 million Class A units to Sunoco in connection with the acquisition of the Eagle Point tank farm and related assets. These deferred distribution units represented a new class of units that were converted to common units in July 2012. The Class A units participated in the allocation of net income on a pro-rata basis with the common units.

11. Cash Distributions

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

If cash distributions exceed $0.1667 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 percentage interests 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.

The following table shows the target distribution levels and distribution “splits” between the general partner and the holders of the Partnership’s common units:

 

     Total Quarterly
Distribution Target
Amount
    Marginal Percentage
Interest in Distributions
 
       General
Partner
    Unitholders  

Minimum Quarterly distribution

   $ 0.1500        2     98

First Target Distribution

     up to $0.1667        2     98

Second Target Distribution

     above $ 0.1667       
     up to $0.1917        15 %*      85

Third Target Distribution

     above $ 0.1917       
     up to $0.5275        37 %*      63

Thereafter

     above $ 0.5275        50 %*      50

 

* Includes 2 percent general partner interest.

 

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The distributions paid by the Partnership for the period from January 1, 2011 through June 30, 2012 are summarized below.

 

Date Cash

Distribution Paid

  

Cash
Distribution
per Limited
Partner Unit

    

Total Cash
Distribution
to the
Limited
Partners

    

Total Cash
Distribution to
the General
Partner

 
            (in millions)      (in millions)  

May 15, 2012

   $ 0.4275       $ 43       $ 14   

February 14, 2012

   $ 0.4200       $ 41       $ 14   

November 14, 2011

   $ 0.4133       $ 41       $ 13   

August 12, 2011

   $ 0.4050       $ 40       $ 13   

May 13, 2011

   $ 0.3983       $ 40       $ 12   

On August 2, 2012, Sunoco Partners LLC, the general partner of Sunoco Logistics Partners L.P., declared a cash distribution of $0.4700 per common unit ($1.88 annualized), representing the distribution for the second quarter 2012. The $66 million distribution, including $17 million to the general partner, will be paid on August 14, 2012 to common unitholders of record on August 8, 2012. The August 2012 payment will include distributions on the Class A units which were converted to common units in July 2012.

12. Management Incentive Plan

Sunoco Partners LLC, the general partner of the Partnership, has adopted the Sunoco Partners LLC LTIP for directors, officers and employees of the general partner who perform services for the Partnership. The LTIP is administered by the independent directors of the Compensation Committee of the general partner’s board of directors with respect to employee and officer awards, and by the non-independent members of the general partner’s board of directors with respect to awards granted to the independent members. The LTIP currently permits the grant of restricted units and unit options covering an additional 0.7 million common units. Restricted unit awards may also include tandem distribution equivalent rights (“DERs”) at the discretion of the Compensation Committee.

During each of the six month periods ended June 30, 2012 and 2011, the Partnership issued 0.2 million common units, respectively, under the LTIP. The Partnership recognized share-based compensation expense of $5 million and $4 million for the six months ended June 30, 2012 and 2011, respectively. Each of the restricted unit grants also have tandem DERs which are recognized as a reduction of equity when earned.

13. Derivatives and Risk Management

The Partnership is exposed to various market risks, including volatility in crude oil and refined product prices, counterparty credit risk and interest rate risk. In order to manage such exposure, the Partnership’s policy is to (i) only purchase crude oil and refined products for which sales contracts have been executed or for which ready markets exist, (ii) structure sales contracts so that price fluctuations do not materially impact the margins earned, and (iii) not acquire and hold physical inventory, futures contracts or other derivative instruments for the purpose of speculating on commodity price changes. Although the Partnership seeks to maintain a balanced inventory position within its commodity inventories, net unbalances may occur for short periods of time due to production, transportation and delivery variances. When temporary physical inventory builds or draws do occur, the Partnership continuously manages the variances to a balanced position over a period of time. Pursuant to the Partnership’s approved risk management policy, derivative contracts may be used to hedge or reduce exposure to price risk associated with acquired inventory or forecasted physical transactions.

Price Risk Management

The Partnership is exposed to risks associated with changes in the market price of crude oil and refined products as a result of the forecasted purchase or sale of these products. These risks are primarily associated with price volatility related to pre-existing or anticipated purchases, sales and storage. Price changes are often caused by shifts in the supply and demand for these commodities, as well as their locations. The physical contracts related to the Partnership’s crude oil and refined products businesses that qualify as derivates have been designated as normal purchases and sales and are accounted for using traditional accrual accounting. The Partnership accounts for derivatives that do not qualify as normal purchases and sales at fair value. The Partnership does utilize derivatives such as swaps, futures and other derivative instruments to mitigate the risk associated with market movements in the price of refined products. These derivative contracts act as a hedging mechanism against the volatility of prices by allowing the Partnership to transfer this price risk to counterparties who are able and willing to bear it.

 

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Table of Contents

While all derivative instruments utilized by the Partnership represent economic hedges, certain of these derivatives are not designated as hedges for accounting purposes. Such derivatives include certain contracts that were entered into and closed during the same accounting period and a limited number of contracts for which there is not sufficient correlation to the related items being economically hedged.

For refined product derivative contracts that are not designated as hedges for accounting purposes, all realized and unrealized gains and losses are recognized in the statement of comprehensive income during the current period. For refined product derivative contracts that are designated and qualify as cash flow hedges, the portion of the gain or loss on the derivative contract that is effective in offsetting the variable cash flows associated with the hedged forecasted transaction is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative contract in excess of the cumulative change in the present value of future cash flows of the hedged item, if any (i.e., the ineffective portion), is recognized in earnings during the current period. All realized gains and losses associated with refined product derivative contracts are recorded in earnings in the same line item as the forecasted transaction being hedged, either sales and other operating revenue or cost of products sold and operating expenses.

The Partnership had open derivative positions of approximately 3.0 and 1.5 million barrels of refined products at June 30, 2012 and December 31, 2011, respectively. The derivatives outstanding as of June 30, 2012 vary in duration but do not extend beyond one year. The Partnership records its derivatives at fair value based on observable market prices (levels 1 and 2). As of June 30, 2012 and December 31, 2011, the fair values of the Partnership’s derivative assets and liabilities were:

 

     June 30, 2012     December 31, 2011  
     (in millions)  

Derivative assets

   $ 20      $ 6   

Derivative liabilities

     (24     (2
  

 

 

   

 

 

 
   $ (4   $ 4   
  

 

 

   

 

 

 

Derivative asset and liability balances are recorded in accounts receivable and accrued liabilities, respectively, in the accompanying condensed consolidated balance sheets.

 

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Table of Contents

The Partnership’s derivative positions are comprised primarily of commodity contracts. The following tables set forth the impact of derivatives on the Partnership’s financial performance for the three and six months ended June 30, 2012 and 2011:

 

    Pretax Gains (Losses)
Recognized in Other
Comprehensive
Income
    Pretax Gains
(Losses)
Recognized in
Earnings
   

Location of Gains (Losses)

Recognized in Earnings

    (in millions)      
Three Months Ended June 30, 2012                

Derivatives designated as cash flow hedging instruments:

     

Commodity contracts

  $ —        $ —        Sales and other operating revenue

Commodity contracts

    —          —        Cost of product sold and operating expenses
 

 

 

   

 

 

   
  $ —        $ —       
 

 

 

   

 

 

   

Derivatives not designated as hedging instruments:

     

Commodity contracts

    $ 7      Sales and other operating revenue

Commodity contracts

      (8   Cost of product sold and operating expenses
   

 

 

   
    $ (1  
   

 

 

   
Three Months Ended June 30, 2011                

Derivatives designated as cash flow hedging instruments:

     

Commodity contracts

  $ 1      $ (1   Sales and other operating revenue

Commodity contracts

    —          —        Cost of product sold and operating expenses
 

 

 

   

 

 

   
  $ 1      $ (1  
 

 

 

   

 

 

   

Derivatives not designated as hedging instruments:

     

Commodity contracts

    $ 3      Sales and other operating revenue

Commodity contracts

      (2   Cost of product sold and operating expenses
   

 

 

   
    $ 1     
   

 

 

   

 

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Table of Contents
    Pretax Gains (Losses)
Recognized in Other
Comprehensive
Income
    Pretax Gains
(Losses)
Recognized in
Earnings
   

Location of Gains (Losses)

Recognized in Earnings

    (in millions)      
Six Months Ended June 30, 2012                

Derivatives designated as cash flow hedging instruments:

     

Commodity contracts

  $ (4   $ (3   Sales and other operating revenue

Commodity contracts

    —          1      Cost of product sold and operating expenses
 

 

 

   

 

 

   
  $ (4   $ (2  
 

 

 

   

 

 

   

Derivatives not designated as hedging instruments:

     

Commodity contracts

    $ 3      Sales and other operating revenue

Commodity contracts

      (7   Cost of product sold and operating expenses
   

 

 

   
    $ (4  
   

 

 

   
Six Months Ended June 30, 2011                

Derivatives designated as cash flow hedging instruments:

     

Commodity contracts

  $ 2      $ (4   Sales and other operating revenue

Commodity contracts

    —          1      Cost of product sold and operating expenses
 

 

 

   

 

 

   
  $ 2      $ (3  
 

 

 

   

 

 

   

Derivatives not designated as hedging instruments:

     

Commodity contracts

    $ 2      Sales and other operating revenue

Commodity contracts

      (2   Cost of product sold and operating expenses
   

 

 

   
    $ —       
   

 

 

   

Credit Risk Management

The Partnership faces counterparty credit risk as a result of our use of financial derivative contracts. The Partnership’s counterparties consist primarily of financial institutions and major integrated oil companies. This concentration of counterparties may impact the Partnership’s overall exposure to credit risk, either positively or negatively, in that the counterparties may be similarly affected by changes in economic, regulatory or other conditions.

The Partnership maintains credit policies with regard to its counterparties that management believes minimize the overall credit risk. The credit positions of the Partnership’s customers’ are analyzed prior to the extension of credit and periodically after credit has been extended. The Partnership manages its exposure to derivative counterparty credit risk through credit analysis, credit approvals, credit limits, and monitoring procedures. At June 30, 2012 and December 31, 2011, the Partnership did not hold any over-the-counter derivatives.

Interest Rate Risk Management

The Partnership has interest rate risk exposure for changes in interest rates related to its outstanding borrowings. The Partnership manages its exposure to changes in interest rates through the use of a combination of fixed- rate and variable-rate debt. At June 30, 2012, the Partnership had $111 million of consolidated variable-rate borrowings under its revolving credit facilities. This includes $5 million of outstanding borrowings on West Texas Gulf’s revolving credit facility.

14. Fair Value Measurements

The Partnership applies fair value accounting for all financial assets and liabilities that are required to be measured at fair value under current accounting rules, primarily derivatives. The assets and liabilities that are measured at fair value on a recurring basis are not material to the Partnership’s condensed consolidated balance sheets.

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

 

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Table of Contents

The estimated fair value of financial instruments has been determined based on the Partnership’s assessment of available market information and appropriate valuation methodologies. The Partnership’s current assets (other than derivatives and inventories) and current liabilities are financial instruments and most of these items are recorded at cost in the condensed consolidated balance sheets. The estimated fair value of these financial instruments approximates their carrying value due to their short-term nature. The Partnership’s derivatives are measured and recorded at fair value based on observable market prices (Note 13). The estimated fair values of the Senior Notes are determined using observable market prices, as these notes are actively traded. The estimated aggregate fair value of the Senior Notes at June 30, 2012 is $1.56 billion, compared to the carrying amount of $1.45 billion. The estimated aggregate fair value of the Senior Notes at December 31, 2011 was $1.91 billion, compared to the carrying amount of $1.70 billion.

In May 2011, the FASB issued a new accounting standard update, which amended the fair value measurement guidance and includes some enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for level 3 measurements based on unobservable inputs. The Partnership adopted the amended guidance on January 1, 2012. The adoption of the amended guidance did not have a material impact on the Partnership’s consolidated financial statements and disclosures.

15. Business Segment Information

The following tables summarize condensed statement of income information concerning the Partnership’s business segments and reconcile total segment operating income to net income attributable to Sunoco Logistics Partners L.P. for the three and six months ended June 30, 2012 and 2011, respectively.

 

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Table of Contents
     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  
     (in millions)     (in millions)  

Sales and other operating revenue (1)

        

Crude Oil Pipelines

   $ 100      $ 81      $ 180      $ 152   

Crude Oil Acquisition and Marketing

     3,056        2,259        6,248        4,357   

Terminal Facilities

     170        93        305        186   

Refined Products Pipelines

     32        29        63        56   

Intersegment eliminations

     (45     (38     (82     (69
  

 

 

   

 

 

   

 

 

   

 

 

 

Total sales and other operating revenue

   $ 3,313      $ 2,424      $ 6,714      $ 4,682   
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization

        

Crude Oil Pipelines

   $ 6      $ 6      $ 13      $ 12   

Crude Oil Acquisition and Marketing

     5        1        10        1   

Terminal Facilities

     9        8        18        16   

Refined Products Pipelines

     5        4        9        8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total depreciation and amortization

   $ 25      $ 19      $ 50      $ 37   
  

 

 

   

 

 

   

 

 

   

 

 

 

Impairment charge and related matters (2)(3)

        

Crude Oil Acquisition and Marketing

   $ —        $ —        $ 8      $ —     

Terminal Facilities

     (10     —          (10     —     

Refined Products Pipelines

     —          —          1        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total impairment charge

   $ (10   $ —        $ (1   $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

        

Crude Oil Pipelines

   $ 64      $ 47      $ 116      $ 86   

Crude Oil Acquisition and Marketing

     52        32        86        34   

Terminal Facilities

     61        34        98        63   

Refined Products Pipelines

     7        8        13        13   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating income

   $ 184      $ 121      $ 313      $ 196   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest expense

     21        19        45        39   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

   $ 163      $ 102      $ 268      $ 157   

Provision for income taxes

     8        6        16        11   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

   $ 155      $ 96      $ 252      $ 146   

Net Income attributable to noncontrolling interests

     3        2        5        4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income Attributable to Partners

   $ 152      $ 94      $ 247      $ 142   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Sales and other operating revenue includes amounts from Sunoco for the three and six months ended June 30, 2012 and 2011 of:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2012      2011      2012      2011  
     (in millions)      (in millions)  

Crude Oil Pipelines

   $ —         $ —         $ —         $ 6   

Crude Oil Acquisition and Marketing

     138         1         206         247   

Terminal Facilities

     45         24         90         58   

Refined Products Pipelines

     11         14         24         31   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total sales and other operating revenue from Sunoco

   $ 194       $ 39       $ 320       $ 342   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

19


Table of Contents
(2)

In the first quarter 2012, the Partnership recognized a non-cash impairment charge related to a cancelled software project for the crude oil acquisition and marketing business and a refined products pipeline project in Texas. The impairment was recorded as $8 and $1 million within the Crude Oil Acquisition and Marketing and Refined Products Pipelines segments, respectively.

(3)

In the second quarter 2012, the Partnership recognized a $10 million gain on the reversal of certain regulatory obligations for tank cleaning which was expected to be performed if Sunoco’s Philadelphia refinery was shut down. In July 2012, Sunoco announced its intention to form a joint venture with The Carlyle Group at its Philadelphia refinery, enabling the facility to continue operating.

The following table provides the identifiable assets for each segment as of June 30, 2012 and December 31, 2011:

 

     June 30,
2012
     December 31,
2011
 
     (in millions)  

Crude Oil Pipelines

   $ 1,073       $ 1,055   

Crude Oil Acquisition and Marketing

     2,217         2,469   

Terminal Facilities

     1,093         1,053   

Refined Products Pipelines

     746         736   

Corporate and other(1)

     59         164   
  

 

 

    

 

 

 

Total identifiable assets

   $ 5,188       $ 5,477   
  

 

 

    

 

 

 

 

(1)

Corporate and other assets consist primarily of cash and cash equivalents, advances to affiliates, deferred financing costs and properties, plants and equipment.

16. Supplemental Condensed Consolidating Financial Information

The Partnership serves as guarantor of the Senior Notes. These guarantees are full and unconditional. For purposes of the following footnote, Sunoco Logistics Partners L.P. is referred to as “Parent Guarantor” and Sunoco Logistics Partners Operations L.P. is referred to as “Subsidiary Issuer.” All other consolidated subsidiaries of the Partnership are collectively referred to as “Non-Guarantor Subsidiaries.”

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

 

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Consolidating Statement of Comprehensive Income

Three Months Ended June 30, 2012

(in millions, unaudited)

 

     Parent
Guarantor
     Subsidiary
Issuer
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Total  

Revenues

           

Sales and other operating revenue:

           

Unaffiliated customers

   $ —         $ —        $ 3,119      $ —        $ 3,119   

Affiliates

     —           —          194        —          194   

Other income

     —           —          5        —          5   

Equity in earnings of subsidiaries

     152         173        —          (325     —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     152         173        3,318        (325     3,318   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Costs and Expenses

           

Cost of products sold and operating expenses

     —           —          3,089        —          3,089   

Depreciation and amortization expense

     —           —          25        —          25   

Impairment charge and related matters

     —           —          (10     —          (10

Selling, general and administrative expenses

     —           —          30        —          30   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total Costs and Expenses

     —           —          3,134        —          3,134   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

     152         173        184        (325     184   

Interest cost and debt expense, net

     —           23        —          —          23   

Capitalized interest

     —           (2     —          —          (2
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income Before Provision for Income Taxes

     152         152        184        (325     163   

Provision for income taxes

     —           —          8        —          8   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

     152         152        176        (325     155   

Net income attributable to noncontrolling interests

     —           —          3        —          3   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net Income attributable to Partners

   $ 152       $ 152      $ 173      $ (325   $ 152   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income

   $ 152       $ 152      $ 176      $ (325   $ 155   

Comprehensive income attributable to noncontrolling interests

     —           —          3        —          3   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income Attributable to Partners

   $ 152       $ 152      $ 173      $ (325   $ 152   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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Consolidating Statement of Comprehensive Income

Three Months Ended June 30, 2011

(in millions, unaudited)

 

     Parent
Guarantor
     Subsidiary
Issuer
    Non-Guarantor
Subsidiaries
     Consolidating
Adjustments
    Total  

Revenues

            

Sales and other operating revenue:

            

Unaffiliated customers

   $ —         $ —        $ 2,385       $ —        $ 2,385   

Affiliates

     —           —          39         —          39   

Other income

     —           —          4         —          4   

Equity in earnings of subsidiaries

     94         112        —           (206     —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Revenues

     94         112        2,428         (206     2,428   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Costs and Expenses

            

Cost of products sold and operating expenses

     —           —          2,266         —          2,266   

Depreciation and amortization expense

     —           —          19         —          19   

Selling, general and administrative expenses

     —           —          22         —          22   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Costs and Expenses

     —           —          2,307         —          2,307   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Operating Income

     94         112        121         (206     121   

Interest cost and debt expense, net

     —           20        1         —          21   

Capitalized interest

     —           (2     —           —          (2
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Income Before Provision for Income Taxes

     94         94        120         (206     102   

Provision for income taxes

     —           —          6         —          6   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Net Income

     94         94        114         (206     96   

Net income attributable to noncontrolling interests

     —           —          2         —          2   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Net Income attributable to Partners

   $ 94       $ 94      $ 112       $ (206   $ 94   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive Income

   $ 94       $ 94      $ 115       $ (206   $ 97   

Comprehensive income attributable to noncontrolling interests

     —           —          2         —          2   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive Income Attributable to Partners

   $ 94       $ 94      $ 113       $ (206   $ 95   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

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Consolidating Statement of Comprehensive Income

Six Months Ended June 30, 2012

(in millions, unaudited)

 

     Parent
Guarantor
     Subsidiary
Issuer
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Total  

Revenues

           

Sales and other operating revenue:

           

Unaffiliated customers

   $ —         $ —        $ 6,394      $ —        $ 6,394   

Affiliates

     —           —          320        —          320   

Other income

     —           —          7        —          7   

Gain on sale and related matters

     —           —          11        —          11   

Equity in earnings of subsidiaries

     247         290        —          (537     —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     247         290        6,732        (537     6,732   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Costs and Expenses

           

Cost of products sold and operating expenses

     —           —          6,314        —          6,314   

Depreciation and amortization expense

     —           —          50        —          50   

Impairment charge and related matters

     —           —          (1     —          (1

Selling, general and administrative expenses

     —           —          56        —          56   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total Costs and Expenses

     —           —          6,419        —          6,419   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

     247         290        313        (537     313   

Interest cost and debt expense, net

     —           47        2        —          49   

Capitalized interest

     —           (4     —          —          (4
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income Before Provision for Income Taxes

     247         247        311        (537     268   

Provision for income taxes

     —           —          16        —          16   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

     247         247        295        (537     252   

Net income attributable to noncontrolling interests

     —           —          5        —          5   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net Income attributable to Partners

   $ 247       $ 247      $ 290      $ (537   $ 247   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income

   $ 247       $ 247      $ 291      $ (537   $ 248   

Comprehensive income attributable to noncontrolling interests

     —           —          5        —          5   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income Attributable to Partners

   $ 247       $ 247      $ 286      $ (537   $ 243   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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Consolidating Statement of Comprehensive Income

Six Months Ended June 30, 2011

(in millions, unaudited)

 

     Parent
Guarantor
     Subsidiary
Issuer
    Non-Guarantor
Subsidiaries
     Consolidating
Adjustments
    Total  

Revenues

            

Sales and other operating revenue:

            

Unaffiliated customers

   $ —         $ —        $ 4,340       $ —        $ 4,340   

Affiliates

     —           —          342         —          342   

Other income

     —           —          6         —          6   

Equity in earnings of subsidiaries

     142         179        —           (321     —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Revenues

     142         179        4,688         (321     4,688   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Costs and Expenses

            

Cost of products sold and operating expenses

     —           —          4,411         —          4,411   

Depreciation and amortization expense

     —           —          37         —          37   

Selling, general and administrative expenses

     —           —          44         —          44   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Costs and Expenses

     —           —          4,492         —          4,492   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Operating Income

     142         179        196         (321     196   

Interest cost and debt expense, net

     —           40        2         —          42   

Capitalized interest

     —           (3     —           —          (3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Income Before Provision for Income Taxes

     142         142        194         (321     157   

Provision for income taxes

     —           —          11         —          11   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Net Income

     142         142        183         (321     146   

Net income attributable to noncontrolling interests

     —           —          4         —          4   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Net Income attributable to Partners

   $ 142       $ 142      $ 179       $ (321   $ 142   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive Income

   $ 142       $ 142      $ 185       $ (321   $ 148   

Comprehensive income attributable to noncontrolling interests

     —           —          4         —          4   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive Income Attributable to Partners

   $ 142       $ 142      $ 181       $ (321   $ 144   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

24


Table of Contents

Condensed Consolidating Balance Sheet

June 30, 2012

(in millions, unaudited)

 

     Parent
Guarantor
    Subsidiary
Issuer
     Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Total  

Assets

           

Current Assets

           

Cash and cash equivalents

   $ —        $ 2       $ —        $ —        $ 2   

Advances to affiliated companies

     (24     48         (14     —          10   

Accounts receivable, affiliated companies

     —          —           8        —          8   

Accounts receivable, net

     —          —           1,803        —          1,803   

Inventories

     —          —           315        —          315   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Current Assets

     (24     50         2,112        —          2,138   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Properties, plants and equipment, net

     —          —           2,597        —          2,597   

Investment in affiliates

     1,251        2,774         75        (4,025     75   

Goodwill

     —          —           77        —          77   

Intangible assets, net

     —          —           264        —          264   

Other assets

     —          11         26        —          37   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Assets

   $ 1,227      $ 2,835       $ 5,151      $ (4,025   $ 5,188   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Liabilities and Equity

           

Current Liabilities

           

Accounts payable

   $ —        $ —         $ 1,862      $ —        $ 1,862   

Accrued liabilities

     1        30         77        —          108   

Accrued taxes payable

     —          —           49        —          49   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Current Liabilities

     1        30         1,988        —          2,019   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Long-term debt

     —          1,554         5        —          1,559   

Other deferred credits and liabilities

     —          —           62        —          62   

Deferred income taxes

     —          —           222        —          222   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Liabilities

     1        1,584         2,277        —          3,862   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Equity

     1,226        1,251         2,874        (4,025     1,326   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 1,227      $ 2,835       $ 5,151      $ (4,025   $ 5,188   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

Condensed Consolidating Balance Sheet

December 31, 2011

(in millions)

 

     Parent
Guarantor
     Subsidiary
Issuer
     Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Total  

Assets

            

Current Assets

            

Cash and cash equivalents

   $ —         $ 2       $ 3      $ —        $ 5   

Advances to affiliated companies

     90         48         (31     —          107   

Accounts receivable, net

     —           —           2,188        —          2,188   

Inventories

     —           —           206        —          206   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Current Assets

     90         50         2,366        —          2,506   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Properties, plants and equipment, net

     —           —           2,522        —          2,522   

Investment in affiliates

     1,007         2,680         73        (3,687     73   

Goodwill

     —           —           77        —          77   

Intangible assets, net

     —           —           277        —          277   

Other assets

     —           13         9        —          22   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Assets

   $ 1,097       $ 2,743       $ 5,324      $ (3,687   $ 5,477   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Liabilities and Equity

            

Accounts payable

     —           1         2,110        —          2,111   

Current portion of long-term debt

     —           250         —          —          250   

Accrued liabilities

     1         37         74        —          112   

Accrued taxes payable

     —           —           62        —          62   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Current Liabilities

     1         288         2,246        —          2,535   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Long-term debt

     —           1,448         —          —          1,448   

Other deferred credits and liabilities

     —           —           78        —          78   

Deferred income taxes

     —           —           222        —          222   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Liabilities

     1         1,736         2,546        —          4,283   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Equity

     1,096         1,007         2,778        (3,687     1,194   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 1,097       $ 2,743       $ 5,324      $ (3,687   $ 5,477   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Consolidating Statement of Cash Flows

Six Months Ended June 30, 2012

(in millions, unaudited)

 

     Parent
Guarantor
    Subsidiary
Issuer
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Total  

Net Cash Flows from Operating Activities

   $ 247      $ 241      $ 331      $ (537   $ 282   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Investing Activities:

          

Capital expenditures

     —          —          (134     —          (134

Proceeds from divestments and related matters

     —          —          11        —          11   

Intercompany

     (246     (97     (194     537        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (246     (97     (317     537        (123
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Financing Activities:

          

Distributions paid to limited and general partners

     (112     —          —          —          (112

Distributions paid to noncontrolling interests

     (3     —          —          —          (3

Payments of statutory withholding on net issuance of limited partner units under restricted unit incentive plan

     —          —          (5     —          (5

Repayments under credit facility

     —          (176     —          —          (176

Borrowings under credit facility

     —          282        5        —          287   

Repayment of senior notes

     —          (250     —          —          (250

Advances to affiliated companies, net

     114        —          (17     —          97   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (1     (144     (17     —          (162
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

     —          —          (3     —          (3

Cash and cash equivalents at beginning of period

     —          2        3        —          5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ —        $ 2      $ —        $ —        $ 2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Consolidating Statement of Cash Flows

Six Months Ended June 30, 2011

(in millions, unaudited)

 

     Parent
Guarantor
    Subsidiary
Issuer
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Total  

Net Cash Flows from Operating Activities

   $ 142      $ 144      $ 30      $ (321   $ (5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Investing Activities:

          

Capital expenditures

     —          —          (69     —          (69

Acquisitions

     —          —          (99     —          (99

Intercompany

     (90     (378     147        321        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (90     (378     (21     321        (168
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Financing Activities:

          

Distributions paid to limited and general partners

     (103     —          —          —          (103

Distributions paid to noncontrolling interests

     (2     —          —          —          (2

Payments of statutory withholding on net issuance of limited partner units under restricted unit incentive plan

     —          —          (3     —          (3

Repayments under credit facility

     —          (63     —          —          (63

Borrowings under credit facility

     —          297        —          —          297   

Advances to affiliated companies, net

     53        —          (2     —          51   

Other

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

     (52     234        (5     —          177   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

     —          —          4        —          4   

Cash and cash equivalents at beginning of period

     —          2        —          —          2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ —        $ 2      $ 4      $ —        $ 6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

Results of Operations

The following table presents our consolidated operating results for the three and six months ended June 30, 2012 and 2011:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  
     (in millions)     (in millions)  

Revenues

        

Sales and other operating revenue:

        

Unaffiliated customers

   $ 3,119      $ 2,385      $ 6,394      $ 4,340   

Affiliates

     194        39        320        342   

Other income

     5        4        7        6   

Gain on sale and related matters

     —          —          11        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     3,318        2,428        6,732        4,688   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and Expenses

        

Cost of products sold and operating expenses

     3,089        2,266        6,314        4,411   

Depreciation and amortization expense

     25        19        50        37   

Impairment charge and related matters

     (10     —          (1     —     

Selling, general and administrative expenses

     30        22        56        44   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Costs and Expenses

     3,134        2,307        6,419        4,492   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

     184        121        313        196   

Interest cost and debt expense, net

     23        21        49        42   

Capitalized interest

     (2     (2     (4     (3
  

 

 

   

 

 

   

 

 

   

 

 

 

Income Before Provision for Income Taxes

   $ 163      $ 102      $ 268      $ 157   

Provision for income taxes

     8        6        16        11   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

   $ 155      $ 96      $ 252      $ 146   

Net income attributable to noncontrolling interests

     3        2        5        4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Partners

   $ 152      $ 94      $ 247      $ 142   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Partners per Limited Partner unit:

        

Basic

   $ 1.29      $ 0.80      $ 2.06      $ 1.17   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 1.28      $ 0.80      $ 2.05      $ 1.16   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP Financial Measures

To supplement our financial information presented in accordance with United States generally accepted accounting principles (“GAAP”), management uses additional measures that are known as “non-GAAP financial measures” in its evaluation of past performance and prospects for the future. The primary measures used by management are earnings before interest, taxes, depreciation and amortization expenses and other non-cash items (“Adjusted EBITDA”) and distributable cash flow (“DCF”).

Our management believes Adjusted EBITDA and distributable cash flow information enhances an investor’s understanding of a business’s ability to generate cash for payment of distributions and other purposes. In addition, EBITDA calculations are also defined and used as a measure in determining our compliance with certain revolving credit facility covenants. However, there may be contractual, legal, economic or other reasons which may prevent us from satisfying principal and interest obligations with respect to indebtedness and may require us to allocate funds for other purposes. Adjusted EBITDA and distributable cash flow do not represent and should not be considered alternatives to net income or cash flows from operating activities as determined under GAAP and may not be comparable to other similarly titled measures of other businesses.

 

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Table of Contents

The following table reconciles the difference between net income, as determined under GAAP, and Adjusted EBITDA and distributable cash flows:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  
     (in millions)     (in millions)  

Net Income attributable to Partners

   $ 152      $ 94      $ 247      $ 142   

Interest cost, net

     21        19        45        39   

Depreciation and amortization expense

     25        19        50        37   

Impairment charge(1)

     —          —          9        —     

Provision for income taxes

     8        6        16        11   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (2)(3)

   $ 206      $ 138      $ 367      $ 229   

Interest cost, net

     (21     (19     (45     (39

Maintenance capital expenditures

     (11     (7     (18     (10

Provision for income taxes

     (8     (6     (16     (11
  

 

 

   

 

 

   

 

 

   

 

 

 

Distributable cash flow (3)

   $ 166      $ 106      $ 288      $ 169   
  

 

 

   

 

 

   

 

 

   

 

 

 

The following table reconciles the difference between net cash provided by operating activities and Adjusted EBITDA:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  
     (in millions)     (in millions)  

Net cash provided by operating activities

   $ 143      $ (12   $ 282      $ (5

Interest cost, net

     21        19        45        39   

Amortization and bond discount

     —          (1     (1     (1

Deferred income tax expense

     1        —          —          1   

Restricted unit incentive plan expense

     (2     (1     (5     (4

Claim on recovery of environmental liability

     2        —          14        —     

Gain on reversal of tank cleaning liability

     10        —          10        —     

Net working capital pertaining to operating activities

     24        129        2        194   

Provision for income taxes

     8        6        16        11   

Net income attributable to noncontrolling interests

     (3     (2     (5     (4

Other

     2        —          9        (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (1)(2)

   $ 206      $ 138      $ 367      $ 229   
  

 

 

   

 

 

   

 

 

   

 

 

 
(1) In the first quarter 2012, the Partnership recognized a non-cash impairment charge related to a