Q3 2013 Form 10-Q


 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
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 former 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  ý    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  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer," "non-accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
ý
  
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  ý
At September 30, 2013, the number of the registrant’s Common Units outstanding were 103,809,638.
 
 
 
 
 





SUNOCO LOGISTICS PARTNERS L.P.
INDEX
 
 
 
 
 
 
Page
Number
 
PART I. FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2013 and 2012 (unaudited)
 
 
 
 
Condensed Consolidated Balance Sheets at September 30, 2013 and December 31, 2012 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Equity for the Nine Months Ended September 30, 2013 and 2012 (unaudited)
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 3.
Defaults Upon Senior Securities
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
Exhibits
 
 
SIGNATURE

1



PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements
SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in millions, except per unit amounts)
 
 
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
 
 
Three Months Ended 
 September 30, 2013
 
 
Three Months Ended 
 September 30, 2012
 
Nine Months Ended 
 September 30, 2013
 
 
Nine Months Ended 
 September 30, 2012
Revenues
 
 
 
 
 
 
 
 
 
 
Sales and other operating revenue:
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
 
$
4,120

 
 
$
3,066

 
$
11,166

 
 
$
9,460

Affiliates (Note 4)
 
408

 
 
141

 
1,185

 
 
461

Gain on divestment and related matters (Note 2)
 

 
 

 

 
 
11

Total Revenues
 
4,528

 
 
3,207

 
12,351

 
 
9,932

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
Cost of products sold
 
4,287

 
 
2,958

 
11,534

 
 
9,214

Operating expenses
 
36

 
 
39

 
87

 
 
97

Selling, general and administrative expenses
 
33

 
 
30

 
100

 
 
86

Depreciation and amortization expense
 
68

 
 
26

 
196

 
 
76

Impairment charge and related matters (Notes 2 and 16)
 

 
 

 

 
 
(1
)
Total Costs and Expenses
 
4,424

 
 
3,053

 
11,917

 
 
9,472

Operating Income
 
104

 
 
154

 
434

 
 
460

Interest cost and debt expense, net
 
(25
)
 
 
(24
)
 
(72
)
 
 
(73
)
Capitalized interest
 
3

 
 
4

 
14

 
 
8

Other income
 
7

 
 
11

 
16

 
 
18

Income Before Provision for Income Taxes
 
89

 
 
145

 
392

 
 
413

Provision for income taxes (Note 8)
 
(8
)
 
 
(8
)
 
(23
)
 
 
(24
)
Net Income
 
81

 
 
137

 
369

 
 
389

Less: Net income attributable to noncontrolling interests
 
(3
)
 
 
(3
)
 
(8
)
 
 
(8
)
Net Income Attributable to Sunoco Logistics Partners L.P.
 
78

 
 
134

 
361

 
 
381

Less: General Partner's interest
 
(31
)
 
 
(21
)
 
(88
)
 
 
(55
)
Limited Partners' interest(1)
 
$
47

 
 
$
113

 
$
273

 
 
$
326

 
 
 
 
 
 
 
 
 
 
 
Net Income Attributable to Sunoco Logistics Partners L.P. per Limited Partner unit (Note 5):
 
 
 
 

 
 
 
 
 
Basic
 
$
0.45

 
 
$
1.09

 
$
2.63

 
 
$
3.15

Diluted
 
$
0.45

 
 
$
1.09

 
$
2.62

 
 
$
3.14

 
 
 
 
 
 
 
 
 
 
 
Weighted average Limited Partners' units outstanding (Note 5):
 
 
 
 

 
 
 
 
 
Basic
 
103.8

 
 
103.6

 
103.8

 
 
103.5

Diluted
 
104.3

 
 
103.9

 
104.3

 
 
103.9

 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income
 
$
81

 
 
$
120

 
$
369

 
 
$
368

Less: Comprehensive income attributable to noncontrolling interests
 
(3
)
 
 
(3
)
 
(8
)
 
 
(8
)
Comprehensive Income Attributable to Sunoco Logistics Partners L.P.
 
$
78

 
 
$
117

 
$
361

 
 
$
360

 
(1) Includes interest in net income attributable to Class A units, which were converted to common units in July 2012.
(See Accompanying Notes)

2



SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions)
 
 
 
Successor
 
 
September 30,
2013
 
December 31,
2012
Assets
 
 
 
 
Cash and cash equivalents
 
$
2

 
$
3

Advances to affiliated companies (Note 4)
 
182

 
56

Accounts receivable, affiliated companies (Note 4)
 
7

 
19

Accounts receivable, net
 
2,233

 
1,834

Inventories (Note 6)
 
568

 
478

Total Current Assets
 
2,992

 
2,390

Properties, plants and equipment
 
6,401

 
5,673

Less accumulated depreciation and amortization
 
(209
)
 
(50
)
Properties, plants and equipment, net
 
6,192

 
5,623

Investment in affiliates
 
121

 
118

Goodwill
 
1,346

 
1,368

Intangible assets, net
 
806

 
843

Other assets
 
41

 
19

Total Assets
 
$
11,498

 
$
10,361

Liabilities and Equity
 
 
 
 
Accounts payable
 
$
2,374

 
$
1,932

Accounts payable, affiliated companies (Note 4)
 
12

 
12

Accrued liabilities
 
84

 
127

Accrued taxes payable (Note 8)
 
73

 
60

Total Current Liabilities
 
2,543

 
2,131

Long-term debt (Note 9)
 
2,309

 
1,732

Other deferred credits and liabilities
 
75

 
60

Deferred income taxes (Note 8)
 
252

 
243

Commitments and contingent liabilities (Note 10)
 

 

Total Liabilities
 
5,179

 
4,166

Total Equity
 
6,319

 
6,195

Total Liabilities and Equity
 
$
11,498

 
$
10,361

(See Accompanying Notes)


3



SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
 
 
 
Successor
 
 
Predecessor
 
 
Nine Months Ended 
 September 30, 2013
 
 
Nine Months Ended 
 September 30, 2012
Cash Flows from Operating Activities:
 
 
 
 
 
Net Income
 
$
369

 
 
$
389

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization expense
 
196

 
 
76

Impairment charge and related matters
 

 
 
(1
)
Claim for recovery of environmental liability
 

 
 
(14
)
Expected proceeds from insurance recovery
 
(3
)
 
 

Amortization of bond premium
 
(17
)
 
 

Restricted unit incentive plan expense
 
10

 
 
6

Deferred income tax expense
 
4

 
 

Changes in working capital pertaining to operating activities:
 
 
 
 
 
Accounts receivable, affiliated companies
 
12

 
 
(1
)
Accounts receivable, net
 
(388
)
 
 
190

Inventories
 
(85
)
 
 
(44
)
Accounts payable and accrued liabilities
 
369

 
 
(174
)
Accrued taxes payable
 
13

 
 
(6
)
Other
 
(19
)
 
 
(10
)
Net cash provided by operating activities
 
461

 
 
411

Cash Flows from Investing Activities:
 
 
 
 
 
Capital expenditures
 
(605
)
 
 
(235
)
Acquisitions
 
(60
)
 
 

Proceeds from divestments and related matters
 

 
 
11

Net cash used in investing activities
 
(665
)
 
 
(224
)
Cash Flows from Financing Activities:
 
 
 
 
 
Distributions paid to limited and general partners
 
(256
)
 
 
(178
)
Distributions paid to noncontrolling interests
 
(7
)
 
 
(5
)
Payments of statutory withholding on net issuance of limited partner units under restricted unit incentive plan
 
(1
)
 
 
(5
)
Repayments under credit facilities
 
(119
)
 
 
(322
)
Borrowings under credit facilities
 
15

 
 
501

Net proceeds from issuance of long-term debt
 
691

 
 

Repayments of senior notes
 

 
 
(250
)
Changes in advances to affiliated companies
 
(126
)
 
 
69

Contributions attributable to acquisition from affiliate
 
6

 
 

Net cash provided by (used in) financing activities
 
203

 
 
(190
)
Net change in cash and cash equivalents
 
(1
)
 
 
(3
)
Cash and cash equivalents at beginning of period
 
3

 
 
5

Cash and cash equivalents at end of period
 
$
2

 
 
$
2

(See Accompanying Notes)

4



SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
(in millions)
 
 
 
Limited Partners
 
General
Partner
 
Accumulated Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
Total
 
 
Common
 
Class A
 
 
 
 
 
 
 
 
Predecessor
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2012
 
$
1,039

 
$
22

 
$
34

 
$
1

 
$
98

 
$
1,194

Net Income
 
324

 
2

 
55

 

 
8

 
389

Change in cash flow hedges
 

 

 

 
(21
)
 

 
(21
)
Total comprehensive income (loss)
 
324

 
2

 
55

 
(21
)
 
8

 
368

Units issued under incentive plans
 
6

 

 

 

 

 
6

Distribution equivalent rights
 
(1
)
 

 

 

 

 
(1
)
Payments of statutory withholding on net issuance of limited partner units under restricted unit incentive plan
 
(5
)
 

 

 

 

 
(5
)
Conversion of Class A Units to Common Units
 
24

 
(24
)
 

 

 

 

Distributions
 
(133
)
 

 
(45
)
 

 
(5
)
 
(183
)
Balance at September 30, 2012
 
$
1,254

 
$

 
$
44

 
$
(20
)
 
$
101

 
$
1,379

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Successor
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2013
 
$
5,175

 
$

 
$
897

 
$

 
$
123

 
$
6,195

Net Income
 
273

 

 
88

 

 
8

 
369

Total comprehensive income
 
273

 

 
88

 

 
8

 
369

Units issued under incentive plans
 
10

 

 

 

 

 
10

Distribution equivalent rights
 
(2
)
 

 

 

 

 
(2
)
Payments of statutory withholding on net issuance of limited partner units under restricted unit incentive plan
 
(1
)
 

 

 

 

 
(1
)
Distributions
 
(178
)
 

 
(78
)
 

 
(7
)
 
(263
)
Contributions attributable to acquisition from affiliate
 
6

 

 

 

 

 
6

Increase attributable to acquisition from affiliate
 
4

 

 

 

 

 
4

Other
 

 

 
1

 

 

 
1

Balance at September 30, 2013
 
$
5,287

 
$

 
$
908

 
$

 
$
124

 
$
6,319

(See Accompanying Notes)

5



SUNOCO LOGISTICS PARTNERS L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. Organization and 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 these activities in more than 30 states located throughout the United States.

The condensed consolidated financial statements reflect the results of Sunoco Logistics Partners L.P. and its wholly-owned subsidiaries, including Sunoco Logistics Partners Operations L.P. (the "Operating Partnership"), 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. 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, but over which the Partnership can exercise significant influence, are accounted for under the equity method of accounting.

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. The accompanying condensed consolidated balance sheet at December 31, 2012 has been derived from the Partnership's audited financial statements for the year ended December 31, 2012. In management's opinion, all adjustments necessary for a fair presentation of the results of operations, financial position and cash flows for the periods shown have been made. All such adjustments are of a normal recurring nature. Results for the three and nine months ended September 30, 2013 are not necessarily indicative of results for the full year 2013.

During the first quarter 2013, the Partnership adjusted its presentation of operating income and the presentation of certain amounts reported in the condensed consolidated statements of comprehensive income to conform to the presentation utilized by Energy Transfer Partners, L.P. ("ETP"), the majority owner of the Partnership's general partner. Other income, which is comprised primarily of equity income from the Partnership's unconsolidated joint-venture interests, is presented separately and is no longer included as a component of operating income. These changes did not impact the Partnership's net income. Prior period amounts have been recast to conform to current presentation.

On October 5, 2012, Sunoco, Inc. ("Sunoco") was acquired by ETP. Prior to this transaction, Sunoco (through its wholly-owned subsidiary Sunoco Partners LLC) served as the Partnership's general partner and owned a two percent general partner interest, all of the Partnership's incentive distribution rights and a 32.4 percent limited partner interest in the Partnership. In connection with the acquisition, Sunoco's general and limited partner interests in the Partnership were contributed to ETP, resulting in a change of control of the Partnership's general partner. As a result, the Partnership became a consolidated subsidiary of ETP and elected to apply "push-down" accounting, which required the Partnership's assets and liabilities to be adjusted to fair value on the closing date, October 5, 2012. The effective date of the acquisition for accounting and reporting purposes was deemed to be October 1, 2012. Due to the application of push-down accounting, the Partnership's condensed consolidated financial statements and certain footnote disclosures are presented in two distinct periods to indicate the application of two different bases of accounting during those periods. The periods prior to the acquisition date, October 5, 2012, are identified as "Predecessor" and the periods from October 5, 2012 forward are identified as "Successor." The Partnership performed an analysis and determined that the activity from October 1, 2012 through October 4, 2012 was not material in relation to the Partnership's financial position, results of operations or cash flows. Therefore, operating results between October 1, 2012 and October 4, 2012 were included within the "Successor" period in the Partnership's 2012 consolidated financial statements.

6



With the assistance of a third-party valuation firm, management developed models to estimate the enterprise value of the Partnership on October 5, 2012. These models utilized a combination of observable market inputs and management assumptions, including application of a discounted cash flow approach to projected operating results, growth estimates and projected changes in market conditions. The estimated fair value of the partners' capital balances as of October 5, 2012 was as follows:
 
Successor
 
(in millions)
Fair value of Limited Partners' interests
$
5,118

Fair value of General Partner's interest
893

Fair value of Noncontrolling interests
123

 
$
6,134

The Partnership then determined the estimated fair value of its assets and liabilities. The fair values of the Partnership's current assets and current liabilities (with the exception of inventory) were assumed to approximate their carrying values. The estimated fair values of the Partnership's long-lived tangible assets and inventory were determined utilizing observable market inputs where available or estimated replacement cost adjusted for a usage or obsolescence factor. The Partnership's identifiable intangible assets consist of customer relationships and technology patents, the fair value of which were estimated by applying a discounted cash flow approach, which was adjusted for customer attrition assumptions and projected market conditions. The estimated fair values of the Partnership's long-term liabilities were determined utilizing observable market inputs where available or estimated based on their current carrying values. The Partnership recorded goodwill as the excess of the estimated enterprise value over the sum of the fair values allocated to the Partnership's assets and liabilities. The following table summarizes the allocation of the fair value of partners' capital balances to the assets and liabilities of the Partnership as of the acquisition date. Based on management's review of the valuation, certain amounts included in the purchase price allocation have been adjusted as of September 30, 2013 from those amounts reflected in the preliminary purchase price allocation as of October 5, 2012. The adjustments made in 2013 are not material to the original valuation recorded in the fourth quarter of 2012. The preliminary allocation to certain assets and/or liabilities may be adjusted by material amounts as the Partnership continues to finalize the fair value estimates.
 
Successor
 
(in millions)
Current assets
$
2,449

Properties, plants and equipment
5,555

Investment in affiliates
119

Goodwill (1)
1,346

Intangible assets
855

Other assets
25

Current liabilities
(2,132
)
Long-term debt
(1,778
)
Other deferred credits and liabilities
(61
)
Deferred income taxes
(244
)
 
$
6,134

 
(1) 
Includes $200, $545 and $601 million allocated to the Crude Oil Pipelines, Crude Oil Acquisition and Marketing and Terminal Facilities segments, respectively.

In July 2013, the limited liability agreement of Sunoco Partners LLC was amended to reflect the addition of ETE Common Holdings, LLC ("ETE Holdings") as an owner of a 0.1 percent membership interest in the Partnership's general partner. ETE Holdings is a wholly-owned subsidiary of Energy Transfer Equity, L.P., and an affiliate of ETP. This change in the ownership of the general partner did not impact the Partnership's consolidated financial statements. Subsequent to the amendment, the Partnership remains a consolidated subsidiary of ETP. In addition, the 33.5 million common units owned by Sunoco Partners LLC were assigned to ETP.

2. Change in Business and Other Matters

In February 2012, the Partnership sold its refined products 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

7



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 settlements. 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 agreed to form Philadelphia Energy Solutions, a joint venture with The Carlyle Group, for its Philadelphia refinery, which enabled 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. Acquisitions

In the second quarter 2013, the Partnership acquired Sunoco's Marcus Hook facility and related assets (the "Marcus Hook Facility") for $60 million in cash including certain acquisition costs. The acquisition included terminalling and storage assets located in Pennsylvania and Delaware and commercial agreements, including a reimbursement agreement under which Sunoco will reimburse the Partnership $40 million for certain operating expenses of the Marcus Hook Facility through March 31, 2017. The reimbursement proceeds will be reflected as contributions to equity. The Partnership will be indemnified against environmental liabilities resulting from events which occurred at the Marcus Hook Facility prior to the closing of the transaction. Since the transaction was with a related party, the assets acquired and liabilities assumed were recorded by the Partnership at Sunoco's net carrying value plus acquisition costs. The net assets acquired are included within the Terminal Facilities segment.

The following table summarizes the preliminary effects of the acquisition on the Partnership's condensed consolidated balance sheet:
 
Marcus Hook Facility
 
(in millions)
Increase in:
 
Current assets
$
6

Properties, plants and equipment, net
66

Other assets
8

Current liabilities
(1
)
Other deferred credits and liabilities
(15
)
Sunoco Logistics Partners L.P. equity
(4
)
Cash paid for acquisition
$
60


4. Related Party Transactions

Acquisition of Sunoco

The general and limited partner interests that were previously owned by Sunoco were contributed to ETP in connection with the acquisition of Sunoco by ETP (Note 1). As a result of these transactions, both the Partnership and Sunoco became consolidated subsidiaries of ETP. The Partnership has various operating and administrative agreements with Sunoco, including the agreements described below. Sunoco continues to perform the administrative functions defined in such agreements on the Partnership's behalf.

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 subsidiaries, through Sunoco's cash accounts with a corresponding credit or charge to an affiliated account. The affiliated 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 (Note 9).


8



Administrative Services

The Partnership has no employees and reimburses the general partner and its affiliates for certain costs and direct expenses incurred on the Partnership's behalf. These costs may increase if the acquisition or construction of new businesses or assets requires an increase in the level of general and administrative services performed for the Partnership.

Under the Omnibus Agreement, the Partnership pays Sunoco an annual administrative fee for 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 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'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, operating expenses and selling, general and administrative expenses in the condensed consolidated statements of comprehensive income.

Affiliated Revenues and Accounts Receivable, Affiliated Companies

The Partnership is party to various agreements with ETP and its affiliates (including Sunoco) to supply crude oil and refined products, as well as to provide pipeline and terminalling services. Affiliated revenues in the condensed consolidated statements of comprehensive income consist of revenues from ETP and its affiliated entities related to sales of crude oil and refined products and services including pipeline transportation, terminalling, storage and blending.

Capital Contributions

During the nine months ended September 30, 2013, the Partnership issued less than 0.1 million limited partnership units to participants in the Sunoco Partners LLC Long-Term Incentive Plan ("LTIP") upon completion of award vesting requirements, compared to 0.3 million limited partnership units issued during the nine months ended September 30, 2012. As a result of these issuances of limited partnership units, the general partner contributed less than $1 million in each period to maintain its two percent general partner interest. The Partnership recorded these amounts as capital contributions to Equity within its condensed consolidated balance sheets.

In connection with the acquisition of the Marcus Hook Facility in the second quarter 2013, the Partnership and Sunoco entered into an agreement under which Sunoco will reimburse the Partnership $40 million for certain operating expenses of the facility through March 31, 2017. The reimbursement proceeds will be reflected as contributions to equity. See Note 3 for additional details on this transaction.

5. Net Income Attributable to Sunoco Logistics Partners L.P. per Limited Partner Unit

The general partner's interest in net income attributable to Sunoco Logistics Partners L.P. ("net income attributable to partners") consists of its two 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 (Note 12). The general partner was allocated net income attributable to partners of $31 and $21 million (representing 40 and 16 percent of total net income attributable to partners) for the three months ended September 30, 2013 and 2012, respectively, and $88 and $55 million (representing 24 and 14 percent of total net income attributable to partners) for the nine months ended September 30, 2013 and 2012, respectively. Diluted net income attributable to partners per limited partner unit is calculated by dividing the limited partners' interest in net income attributable to partners by the sum of the weighted average number of common and Class A units outstanding, prior to conversion to common units, and the dilutive effect of unvested incentive unit awards (Note 13).


9



The following table reconciles the weighted average number of common and Class A units used to compute basic net income attributable to limited partners per unit to those used to compute diluted net income attributable to limited partners per unit for the three and nine months ended September 30, 2013 and 2012:
 
 
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
 
 
Three Months Ended 
 September 30, 2013
 
 
Three Months Ended 
 September 30, 2012
 
Nine Months Ended 
 September 30, 2013
 
 
Nine Months Ended 
 September 30, 2012
 
 
(in millions)
 
 
(in millions)
 
(in millions)
 
 
(in millions)
Weighted average number of units outstanding, basic
 
103.8

 
 
103.6

 
103.8

 
 
103.5

Add effect of dilutive incentive awards
 
0.5

 
 
0.3

 
0.5

 
 
0.4

Weighted average number of units, diluted
 
104.3

 
 
103.9

 
104.3

 
 
103.9


6. Inventories

The components of inventories are as follows:
 
 
 
Successor
 
 
September 30,
2013
 
December 31,
2012
 
 
(in millions)
Crude oil
 
$
464

 
$
418

Refined products
 
90

 
48

Refined products additives
 
2

 
3

Materials, supplies and other
 
12

 
9

 
 
$
568

 
$
478

The increase in crude oil inventory at September 30, 2013 was attributable to increased operating activities.
7. Intangible Assets
The components of intangible assets are as follows:
 
 
 
 
Successor
 
 
Weighted Average
Amortization Period
 
September 30,
2013
 
December 31, 2012
 
 
(in years)
 
(in millions)
Gross
 
 
 
 
 
 
Customer relationships
 
18
 
$
808

 
$
808

Technology
 
10
 
47

 
47

Total gross
 
 
 
855

 
855

Accumulated amortization
 
 
 
 
 
 
Customer relationships
 
 
 
(44
)
 
(11
)
Technology
 
 
 
(5
)
 
(1
)
Total accumulated amortization
 
 
 
(49
)
 
(12
)
Total Net
 
 
 
$
806

 
$
843


Amortization expense was $12 and $7 million for the three months ended September 30, 2013 and 2012, respectively, and $37 and $20 million for the nine months ended September 30, 2013 and 2012, respectively. The Partnership forecasts $49 million of annual amortization expense for each year through the year 2017 for these intangible assets.

Intangible assets associated with rights of way are included in properties, plants and equipment in the Partnership's condensed consolidated balance sheets.

10



8. 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 condensed consolidated financial statements is related to 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 differences in the book and tax bases of properties, plants and equipment of Inland, Mid-Valley and West Texas Gulf.

9. Debt

The components of the Partnership's debt balances are as follows:
 
 
 
Successor
 
 
September 30,
2013
 
December 31,
2012
 
 
(in millions)
Credit Facilities
 
 
 
 
$350 million Credit Facility, due August 2016
 
$

 
$
93

$200 million Credit Facility, due August 2014
 

 
26

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

 
20

Senior Notes
 
 
 
 
Senior Notes - 8.75%, due February 2014 (2)
 
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 - 3.45%, due January 2023
 
350

 

Senior Notes - 6.85%, due February 2040
 
250

 
250

Senior Notes - 6.10%, due February 2042
 
300

 
300

Senior Notes - 4.95%, due January 2043
 
350

 

Unamortized fair value adjustments
 
126

 
143

Total debt
 
2,311

 
1,732

Less:
 
 
 
 
Unamortized bond discount
 
(2
)
 

Long-term debt
 
$
2,309

 
$
1,732

 
(1) The $35 million Credit Facility is held by West Texas Gulf.
(2) The 8.75 percent Senior Notes due February 2014 have been classified as long-term debt as the Partnership has the ability and intent to refinance such notes on a long-term basis under its existing credit facilities.

Credit Facilities

The Operating 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 $350 million unsecured credit facility which expires in August 2016 (the "$350 million Credit Facility") and a $200 million unsecured credit facility which expires in August 2014 (the "$200 million Credit Facility"). Outstanding borrowings under these credit facilities of $119 million at December 31, 2012 were repaid during the first quarter of 2013.

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

11



subsidiaries. These credit facilities also limit the Partnership, on a rolling four-quarter basis, to a maximum total consolidated debt to consolidated Adjusted EBITDA ratio, as defined in the underlying credit agreements, 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 consolidated debt, excluding net unamortized fair value adjustments, to consolidated Adjusted EBITDA was 2.5 to 1 at September 30, 2013, as calculated in accordance with the credit agreements.

In May 2012, West Texas Gulf entered into a $35 million revolving credit facility (the "$35 million Credit Facility") which expires in April 2015. The facility is available to fund West Texas Gulf's general corporate purposes including working capital and capital expenditures. The $35 million Credit Facility contains various covenants limiting West Texas Gulf's ability to grant certain liens; make certain loans, acquisitions and investments; make any material changes to the nature of its business; or enter into a merger or sale of assets. The credit facility also limits West Texas Gulf, on a rolling four-quarter basis, to a minimum fixed charge coverage ratio of 1.00 to 1 as of the fiscal quarter ending September 30, 2013, as defined in the underlying credit agreement. In addition, the credit facility limits West Texas Gulf to a maximum leverage ratio of 2.00 to 1. At September 30, 2013, West Texas Gulf's fixed charge coverage ratio and leverage ratio were 1.19 to 1 and 0.94 to 1, respectively. Outstanding borrowings under this credit facility were $35 and $20 million at September 30, 2013 and December 31, 2012, respectively.

Senior Notes

The Operating Partnership had $250 million of 7.25 percent Senior Notes which matured and were repaid in February 2012.

In January 2013, the Operating Partnership issued $350 million of 3.45 percent Senior Notes and $350 million of 4.95 percent Senior Notes (the "2023 and 2043 Senior Notes"), due January 2023 and January 2043, respectively. The terms and conditions of the 2023 and 2043 Senior Notes are comparable to those of the Operating Partnership's other outstanding senior notes. The net proceeds of $691 million from the 2023 and 2043 Senior Notes were used to repay outstanding borrowings under the $350 and $200 million credit facilities and for general partnership purposes.

10. 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 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 September 30, 2013 and December 31, 2012, there were accrued liabilities for environmental remediation in the condensed consolidated balance sheets of $3 million. The accrued liabilities for environmental remediation do not include any amounts attributable to unasserted claims, since unasserted claims are not considered probable of settlement or reasonably estimable, nor have any expected recoveries from insurance been recognized in earnings. Charges against income for environmental remediation totaled $1 million for the three months ended September 30, 2013 and 2012, respectively, and $7 and $6 million for the nine months ended September 30, 2013 and 2012, 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 were not material in relation to the Partnership's consolidated financial position at September 30, 2013.

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. Management believes it is reasonably possible that additional environmental remediation losses will be incurred. At September 30, 2013, the aggregate of the estimated maximum additional reasonably possible losses, which relate to numerous individual sites, totaled $4 million.

Sunoco has indemnified the Partnership for 30 years for environmental and toxic tort liabilities related to the assets contributed to the Partnership arising from the operation of such assets prior to the closing of the February 2002 initial public offering ("IPO"). Sunoco is required to indemnify the Partnership for 100 percent of all losses asserted within the first 21 years after the closing of the IPO. Sunoco's share of the 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

12



assets occurring on or after the closing of the IPO and for environmental and toxic tort liabilities to the extent that 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 September 30, 2013. 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 September 30, 2013.

11. Equity

The changes in the number of units outstanding from January 1, 2012 through September 30, 2013 are as follows:
 
 
 
Common
Units
 
Class A
Units
 
Total Units
 
 
(in millions)
Predecessor
 
 
 
 
 
 
Balance at January 1, 2012
 
99.4

 
3.9

 
103.3

Units issued under incentive plans
 
0.3

 

 
0.3

Conversion of Class A Units
 
3.9

 
(3.9
)
 

Balance at October 4, 2012
 
103.6

 

 
103.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Successor
 
 
 
 
 
 
Balance at October 5, 2012
 
103.6

 

 
103.6

Units issued under incentive plans
 
0.2

 

 
0.2

Balance at December 31, 2012
 
103.8

 

 
103.8

Units issued under incentive plans
 

 

 

Balance at September 30, 2013
 
103.8

 

 
103.8

The Partnership's 3.9 million Class A deferred distribution units converted to common units in July 2012. The Class A units were issued to Sunoco in connection with the acquisition of the Eagle Point tank farm and related assets in July 2011. Prior to their conversion, the Class A units participated in the allocation of net income on a pro-rata basis with the common units.

12. Cash Distributions

The distributions paid by the Partnership for the periods presented were as follows:
 
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)
Successor
 
 
 
 
 
 
August 14, 2013
 
$
0.6000

 
$
62

 
$
29

May 15, 2013
 
$
0.5725

 
$
59

 
$
26

February 14, 2013
 
$
0.5450

 
$
57

 
$
23

November 14, 2012
 
$
0.5175

 
$
54

 
$
20

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Predecessor
 
 
 
 
 
 
August 14, 2012
 
$
0.4700

 
$
49

 
$
17

May 15, 2012
 
$
0.4275

 
$
43

 
$
14

February 14, 2012
 
$
0.4200

 
$
41

 
$
14


13



On October 22, 2013, Sunoco Partners LLC, the general partner of Sunoco Logistics Partners L.P., announced a cash distribution of $0.63 per common unit ($2.52 annualized), representing the distribution for the third quarter 2013. The $97 million distribution, including $32 million to the general partner for its two percent interest and incentive distribution rights, will be paid on November 14, 2013 to unitholders of record on November 8, 2013.

13. 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 awards, and by 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 0.6 million common units. Restricted unit awards may also include tandem distribution equivalent rights ("DERs") at the discretion of the Compensation Committee.

During the nine months ended September 30, 2013, the Partnership issued less than 0.1 million common units under the LTIP, compared to 0.3 million common units during the nine months ended September 30, 2012. The Partnership recognized share-based compensation expense of $10 and $6 million for the nine months ended September 30, 2013 and 2012, respectively. Each of the outstanding restricted unit grants have tandem DERs which are recognized as a reduction to equity when earned.

14. Derivatives and Risk Management

The Partnership is exposed to various 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 preexisting 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 derivatives 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 utilizes 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 market prices by allowing the Partnership to transfer this price risk to counterparties who are able and willing to bear it.

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 earnings in the condensed consolidated 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 (loss) 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 contracts 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

14



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.

The Partnership had open derivative positions on approximately 5.5 and 1.5 million barrels of refined products at September 30, 2013 and December 31, 2012, respectively. The derivatives outstanding as of September 30, 2013 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). At September 30, 2013, the Partnership's gross derivative asset and liability balances were $14 and $5 million, respectively, compared to $4 and $7 million, respectively, at December 31, 2012.

Derivative asset and liability balances are recorded in accounts receivable and accrued liabilities, respectively, in the condensed consolidated balance sheets.
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 nine months ended September 30, 2013 and 2012:
 
 
 
Gains (Losses)
Recognized in Other
Comprehensive
Income (Loss)
 
Gains
(Losses)
Recognized in
Earnings
 
Location of Gains (Losses)
Recognized in Earnings
 
 
(in millions)
 
 
Successor
 
 
 
 
 
 
Three Months Ended September 30, 2013
 
 
 
 
Derivatives designated as cash flow hedging instruments:
 
 
 
 
 
 
Commodity contracts
 
$

 
$

 
Sales and other operating revenue
Commodity contracts
 

 

 
Cost of products sold
 
 
$

 
$

 
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Commodity contracts
 
 
 
$
1

 
Sales and other operating revenue
Commodity contracts
 
 
 
4

 
Cost of products sold
 
 
 
 
$
5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Predecessor
 
 
 
 
 
 
Three Months Ended September 30, 2012
 
 
 
 
Derivatives designated as cash flow hedging instruments:
 
 
 
 
 
 
Commodity contracts
 
$
(17
)
 
$

 
Sales and other operating revenue
Commodity contracts
 

 

 
Cost of products sold
 
 
$
(17
)
 
$

 
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Commodity contracts
 
 
 
$
(10
)
 
Sales and other operating revenue
Commodity contracts
 
 
 
3

 
Cost of products sold
 
 
 
 
$
(7
)
 
 

15




 
 
Gains (Losses)
Recognized in Other
Comprehensive
Income (Loss)
 
Gains
(Losses)
Recognized in
Earnings
 
Location of Gains (Losses)
Recognized in Earnings
 
 
(in millions)
 
 
Successor
 
 
 
 
 
 
Nine Months Ended September 30, 2013
 
 
 
 
Derivatives designated as cash flow hedging instruments:
 
 
 
 
 
 
Commodity contracts
 
$

 
$
(1
)
 
Sales and other operating revenue
Commodity contracts
 

 

 
Cost of products sold
 
 
$

 
$
(1
)
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Commodity contracts
 
 
 
$
2

 
Sales and other operating revenue
Commodity contracts
 
 
 

 
Cost of products sold
 
 
 
 
$
2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Predecessor
 
 
 
 
 
 
Nine Months Ended September 30, 2012
 
 
 
 
Derivatives designated as cash flow hedging instruments:
 
 
 
 
 
 
Commodity contracts
 
$
(21
)
 
$
(3
)
 
Sales and other operating revenue
Commodity contracts
 

 
1

 
Cost of products sold
 
 
$
(21
)
 
$
(2
)
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Commodity contracts
 
 
 
$
(7
)
 
Sales and other operating revenue
Commodity contracts
 
 
 
(4
)
 
Cost of products sold
 
 
 
 
$
(11
)
 
 

Credit Risk Management

The Partnership maintains credit policies with regard to its counterparties that management believes minimize the overall credit risk through credit analysis, credit approvals, credit limits and monitoring procedures. The credit positions of the Partnership's customers are analyzed prior to the extension of credit and periodically after credit has been extended. At September 30, 2013 and December 31, 2012, 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 September 30, 2013, the Partnership had $35 million of consolidated variable-rate borrowings under its revolving credit facilities.

15. 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. The assets and liabilities that are measured at fair value on a recurring basis are comprised primarily of derivatives.


16



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 Financial Accounting Standards Board. 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.

The estimated fair value of the Partnership's financial instruments has been determined based on the assessment of available market information and appropriate valuation methodologies. The Partnership's current assets and current liabilities (other than derivatives and inventories) 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 14). The estimated fair values of the Partnership's senior notes are determined using observable market prices, as these notes are actively traded. The estimated aggregate fair value of the senior notes at September 30, 2013 was $2.18 billion, compared to the carrying amount of $2.28 billion. The estimated aggregate fair value of the senior notes at December 31, 2012 was $1.64 billion, compared to the carrying amount of $1.59 billion.

16. Business Segment Information

The following tables summarize condensed statement of comprehensive income information for the Partnership's business segments and reconcile total segment Adjusted EBITDA to net income attributable to Sunoco Logistics Partners L.P. for the three and nine months ended September 30, 2013 and 2012, respectively:
 

17



 
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
 
 
Three Months Ended 
 September 30, 2013
 
 
Three Months Ended 
 September 30, 2012
 
Nine Months Ended 
 September 30, 2013
 
 
Nine Months Ended 
 September 30, 2012
 
 
(in millions)
 
 
(in millions)
 
(in millions)
 
 
(in millions)
Sales and other operating revenue(1)
 
 
 
 
 
 
 
 
 
 
Crude Oil Pipelines
 
$
139

 
 
$
108

 
$
356

 
 
$
288

Crude Oil Acquisition and Marketing
 
4,244

 
 
3,010

 
11,550

 
 
9,258

Terminal Facilities
 
177

 
 
101

 
536

 
 
406

Refined Products Pipelines
 
34

 
 
33

 
96

 
 
96

Intersegment eliminations
 
(66
)
 
 
(45
)
 
(187
)
 
 
(127
)
Total sales and other operating revenue
 
$
4,528

 
 
$
3,207

 
$
12,351

 
 
$
9,921

 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
Crude Oil Pipelines
 
$
23

 
 
$
6

 
$
67

 
 
$
19

Crude Oil Acquisition and Marketing
 
12

 
 
6

 
36

 
 
16

Terminal Facilities
 
27

 
 
10

 
75

 
 
28

Refined Products Pipelines
 
6

 
 
4

 
18

 
 
13

Total depreciation and amortization
 
$
68

 
 
$
26

 
$
196

 
 
$
76

 
 
 
 
 
 
 
 
 
 
 
Impairment charge and related matters(2)(3)
 
 
 
 
 
 
 
 
 
 
Crude Oil Acquisition and Marketing
 
$

 
 
$

 
$

 
 
$
8

Terminal Facilities
 

 
 

 

 
 
(10
)
Refined Products Pipelines
 

 
 

 

 
 
1

Total impairment charge and related matters
 
$

 
 
$

 
$

 
 
$
(1
)
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
 
 
 
 
 
 
 
 
 
Crude Oil Pipelines
 
$
98

 
 
$
73

 
$
247

 
 
$
203

Crude Oil Acquisition and Marketing
 
18

 
 
54

 
200

 
 
158

Terminal Facilities
 
47

 
 
52

 
171

 
 
173

Refined Products Pipelines
 
18

 
 
25

 
43

 
 
57

Total Adjusted EBITDA
 
181

 
 
204

 
661

 
 
591

Interest expense, net
 
(22
)
 
 
(20
)
 
(58
)
 
 
(65
)
Depreciation and amortization expense
 
(68
)
 
 
(26
)
 
(196
)
 
 
(76
)
Impairment charge
 

 
 

 

 
 
(9
)
Provision for income taxes
 
(8
)
 
 
(8
)
 
(23
)
 
 
(24
)
Non-cash compensation expense
 
(4
)
 
 
(1
)
 
(10
)
 
 
(6
)
Unrealized gains (losses) on commodity risk management activities
 
8

 
 
(3
)
 
12

 
 
(6
)
Amortization of excess joint-venture investment
 

 
 

 
(1
)
 
 

Proportionate share of unconsolidated affiliates' interest, depreciation and provision for income taxes
 
(6
)
 
 
(9
)
 
(16
)
 
 
(16
)
Net Income
 
81

 
 
137

 
369

 
 
389

Less: Net Income attributable to noncontrolling interests
 
(3
)
 
 
(3
)
 
(8
)
 
 
(8
)
Net Income Attributable to Sunoco Logistics Partners L.P.
 
$
78

 
 
$
134

 
$
361

 
 
$
381



18



(1) Sales and other operating revenue includes the following amounts from ETP and its affiliates (including Sunoco) for the three and nine months ended September 30, 2013 and 2012:
 
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
 
 
Three Months Ended 
 September 30, 2013
 
 
Three Months Ended 
 September 30, 2012
 
Nine Months Ended 
 September 30, 2013
 
 
Nine Months Ended 
 September 30, 2012
 
 
(in millions)
 
 
(in millions)
 
(in millions)
 
 
(in millions)
Crude Oil Pipelines
 
$

 
 
$

 
$

 
 
$

Crude Oil Acquisition and Marketing
 
367

 
 
101

 
1,048

 
 
307

Terminal Facilities
 
32

 
 
28

 
111

 
 
118

Refined Products Pipelines
 
9

 
 
12

 
26

 
 
36

Total sales and other operating revenue from affiliates
 
$
408

 
 
$
141

 
$
1,185

 
 
$
461

 
(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.
(3) In the second quarter 2012, the Partnership recognized a $10 million gain on the reversal of certain regulatory obligations. Such expenses were no longer expected to be incurred as the Philadelphia refinery will continue to operate in connection with Sunoco's joint venture with The Carlyle Group.

The following table summarizes the identifiable assets for each segment as of September 30, 2013 and December 31, 2012:
 
 
Successor
 
 
September 30,
2013
 
December 31,
2012
 
 
(in millions)
Crude Oil Pipelines
 
$
3,288

 
$
3,197

Crude Oil Acquisition and Marketing
 
3,885

 
3,495

Terminal Facilities
 
2,620

 
2,402

Refined Products Pipelines
 
1,461

 
1,168

Corporate and other(1)
 
244

 
99

Total identifiable assets
 
$
11,498

 
$
10,361

 
(1) Corporate and other assets consist of cash and cash equivalents, advances to affiliates, properties, plants and equipment and other assets.

17. 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.

19



Condensed Consolidating Statement of Comprehensive Income (Loss)
Three Months Ended September 30, 2013 (Successor)
(in millions, unaudited)
 
 
 
Parent
Guarantor
 
Subsidiary
Issuer
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
Sales and other operating revenue:
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
 
$

 
$

 
$
4,120

 
$

 
$
4,120

Affiliates
 

 

 
408

 

 
408

Total Revenues
 

 

 
4,528

 

 
4,528

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
Cost of products sold
 

 

 
4,287

 

 
4,287

Operating expenses
 

 

 
36

 

 
36

Selling, general and administrative expenses
 

 

 
33

 

 
33

Depreciation and amortization expense
 

 

 
68

 

 
68

Total Costs and Expenses
 

 

 
4,424

 

 
4,424

Operating Income
 

 

 
104

 

 
104

Interest cost and debt expense, net
 

 
(23
)
 
(2
)
 

 
(25
)
Capitalized interest
 

 
3