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, 2015
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.)
 
 
3807 West Chester Pike,
Newtown Square, PA
 
19073
(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 November 1, 2015, the number of the registrant’s Common and Class B Units outstanding were 260,443,414 and 9,416,196, respectively.
 
 
 
 
 




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, 2015 and 2014 (unaudited)
 
 
 
 
Condensed Consolidated Balance Sheets at September 30, 2015 (unaudited) and
    December 31, 2014
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
    September 30, 2015 and 2014 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Equity for the Nine Months Ended
    September 30, 2015 and 2014 (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
(in millions, except per unit amounts, unaudited)
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Revenues
 
 
 
 
 
 
 
 
Sales and other operating revenue:
 
 
 
 
 
 
 
 
Unaffiliated customers
 
$
2,317

 
$
4,616

 
$
7,766

 
$
13,199

Affiliates (Note 4)
 
90

 
299

 
415

 
1,014

Total Revenues
 
2,407

 
4,915

 
8,181

 
14,213

Costs and Expenses
 
 
 
 
 
 
 
 
Cost of products sold
 
2,024

 
4,581

 
7,154

 
13,308

Operating expenses
 
58

 
55

 
162

 
124

Selling, general and administrative expenses
 
26

 
30

 
76

 
82

Depreciation and amortization expense
 
102

 
77

 
278

 
220

Impairment charge and other matters (Notes 6 and 16)
 
103

 

 
44

 

Total Costs and Expenses
 
2,313

 
4,743

 
7,714

 
13,734

Operating Income
 
94

 
172

 
467

 
479

Interest cost and debt expense, net
 
(49
)
 
(38
)
 
(151
)
 
(101
)
Capitalized interest
 
12

 
24

 
54

 
50

Other income
 
7

 
7

 
19

 
18

Income Before Provision for Income Taxes
 
64

 
165

 
389

 
446

Provision for income taxes (Note 8)
 
(7
)
 
(8
)
 
(18
)
 
(21
)
Net Income
 
57

 
157

 
371

 
425

Net income attributable to noncontrolling interests
 
(1
)
 
(2
)
 
(2
)
 
(7
)
Net income attributable to redeemable noncontrolling interests
 

 

 
(1
)
 

Net Income Attributable to Sunoco Logistics Partners L.P.
 
56

 
155

 
368

 
418

Less: General Partner's interest
 
(74
)
 
(49
)
 
(205
)
 
(131
)
Limited Partners' interest
 
$
(18
)
 
$
106

 
$
163

 
$
287

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

 
 
 
 
Basic
 
$
(0.07
)
 
$
0.50

 
$
0.67

 
$
1.37

Diluted
 
$
(0.07
)
 
$
0.50

 
$
0.66

 
$
1.36

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

 
 
 
 
Basic
 
255.0

 
212.5

 
244.3

 
209.6

Diluted
 
255.0

 
213.8

 
245.2

 
210.8

 
 
 
 
 
 
 
 
 
Net Income
 
$
57

 
$
157

 
$
371

 
$
425

Adjustment to affiliate's pension funded status
 

 

 
(1
)
 
1

Other Comprehensive Loss
 

 

 
(1
)
 
1

Comprehensive Income
 
57

 
157

 
370

 
426

Less: Comprehensive income attributable to
        noncontrolling interests
 
(1
)
 
(2
)
 
(2
)
 
(7
)
Less: Comprehensive income attributable to redeemable
        noncontrolling interests
 

 

 
(1
)
 

Comprehensive Income Attributable to Sunoco Logistics Partners L.P.
 
$
56

 
$
155

 
$
367

 
$
419

(See Accompanying Notes)

2



SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, unaudited)
 
 
 
September 30, 2015
 
December 31, 2014
Assets
 
 
 
 
Cash and cash equivalents
 
$
45

 
$
101

Accounts receivable, affiliated companies (Note 4)
 
48

 
9

Accounts receivable, net
 
1,373

 
1,766

Inventories (Note 6)
 
647

 
470

Other current assets
 
7

 
3

Total Current Assets
 
2,120

 
2,349

Properties, plants and equipment
 
10,826

 
9,358

Less accumulated depreciation and amortization
 
(748
)
 
(509
)
Properties, plants and equipment, net
 
10,078

 
8,849

Investment in affiliates
 
277

 
226

Goodwill
 
1,358

 
1,358

Intangible assets, net (Note 7)
 
731

 
770

Other assets
 
98

 
92

Total Assets
 
$
14,662

 
$
13,644

Liabilities and Equity
 
 
 
 
Accounts payable
 
$
1,334

 
$
1,934

Accounts payable, affiliated companies (Note 4)
 
51

 
21

Accrued liabilities
 
181

 
304

Accrued taxes payable (Note 8)
 
44

 
52

Total Current Liabilities
 
1,610

 
2,311

Long-term debt (Note 9)
 
4,944

 
4,260

Other deferred credits and liabilities
 
81

 
71

Deferred income taxes (Note 8)
 
244

 
249

Total Liabilities
 
6,879

 
6,891

Commitments and contingent liabilities (Note 10)
 


 


Redeemable noncontrolling interests
 
15

 
15

Total Equity
 
7,768

 
6,738

Total Liabilities and Equity
 
$
14,662

 
$
13,644

(See Accompanying Notes)


3



SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions, unaudited)
 
 
Nine Months Ended September 30,
 
 
2015
 
2014
Cash Flows from Operating Activities:
 
 
 
 
Net Income
 
$
371

 
$
425

Adjustments to reconcile net income to net cash provided by
     operating activities:
 
 
 
 
Depreciation and amortization expense
 
278

 
220

Impairment charge and other matters
 
44

 

Deferred income tax benefit
 
(5
)
 
(4
)
Amortization of bond premium
 
(10
)
 
(11
)
Non-cash compensation expense
 
12

 
12

Equity in earnings of unconsolidated affiliates
 
(21
)
 
(18
)
Distributions from unconsolidated affiliates
 
14

 
9

Changes in working capital pertaining to operating activities:
 
 
 
 
Accounts receivable, affiliated companies
 
(39
)
 
14

Accounts receivable, net
 
400

 
(642
)
Inventories
 
(221
)
 
18

Accounts payable, affiliated companies
 
30

 
(2
)
Accounts payable and accrued liabilities
 
(558
)
 
326

Accrued taxes payable
 
(8
)
 
1

Unrealized (gains) losses on commodity risk
     management activities
 
(9
)
 
(14
)
Other
 
19

 
(8
)
Net cash provided by operating activities
 
297

 
326

Cash Flows from Investing Activities:
 
 
 
 
Capital expenditures
 
(1,678
)
 
(1,826
)
Investment in joint venture interests
 

 
(42
)
Acquisitions, net of cash received
 
(131
)
 
(65
)
Change in long-term note receivable
 
(14
)
 
(11
)
Net cash used in investing activities
 
(1,823
)
 
(1,944
)
Cash Flows from Financing Activities:
 
 
 
 
Distributions paid to limited and general partners
 
(491
)
 
(335
)
Distributions paid to noncontrolling interests
 
(1
)
 
(4
)
Contributions from general partner
 

 
2

Net proceeds from issuance of limited partner units
 
1,274

 
593

Payments of statutory withholding on net issuance of limited partner units under LTIP
 
(10
)
 
(6
)
Repayments under credit facilities
 
(1,760
)
 
(1,770
)
Borrowings under credit facilities
 
2,454

 
2,095

Repayments of senior notes
 

 
(175
)
Net proceeds from issuance of long-term debt
 

 
989

Advances to affiliated companies, net
 

 
239

Contributions attributable to acquisition from affiliate
 
8

 
9

Other
 
(4
)
 

Net cash provided by financing activities
 
1,470

 
1,637

Net change in cash and cash equivalents
 
(56
)
 
19

Cash and cash equivalents at beginning of period
 
101

 
39

Cash and cash equivalents at end of period
 
$
45

 
$
58

(See Accompanying Notes)

4



SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in millions, unaudited)
 
 
 
Limited
Partners
 
General
Partner
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
Total
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2014
 
$
5,292

 
$
912

 
$

 
$
121

 
$
6,325

Net Income
 
287

 
131

 

 
7

 
425

Adjustment to affiliate's pension funded status
 

 

 
1

 

 
1

Total comprehensive income
 
287

 
131

 
1

 
7

 
426

Issuance of limited partner units to the public
 
593

 
2

 

 

 
595

Non-cash compensation expense
 
12

 

 

 

 
12

Distribution equivalent rights
 
(3
)
 

 

 

 
(3
)
Payments of statutory withholding on issuance under LTIP
 
(6
)
 

 

 

 
(6
)
Distributions
 
(218
)
 
(117
)
 

 
(4
)
 
(339
)
Contributions attributable to acquisition from affiliate
 
9

 

 

 

 
9

Other
 
(1
)
 

 

 

 
(1
)
Balance at September 30, 2014
 
$
5,965

 
$
928

 
$
1

 
$
124

 
$
7,018

 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2015
 
$
5,752

 
$
925

 
$
1

 
$
60

 
$
6,738

Net Income
 
163

 
205

 

 
2

 
370

Adjustment to affiliate's pension funded status
 

 

 
(1
)
 

 
(1
)
Total comprehensive income (loss)
 
163

 
205

 
(1
)
 
2

 
369

Issuance of limited partner units to the public
 
1,274

 

 

 

 
1,274

Non-cash compensation expense
 
12

 

 

 

 
12

Distribution equivalent rights
 
(1
)
 

 

 

 
(1
)
Payments of statutory withholding on issuance under LTIP
 
(10
)
 

 

 

 
(10
)
Distributions
 
(306
)
 
(185
)
 

 
(1
)
 
(492
)
Contributions attributable to acquisition from affiliate
 
8

 

 

 

 
8

Acquisition of a noncontrolling interest
        in a consolidated subsidiary
 
(103
)
 
(2
)
 

 
(26
)
 
(131
)
Other
 
2

 
(1
)
 

 

 
1

Balance at September 30, 2015
 
$
6,791

 
$
942

 
$

 
$
35

 
$
7,768

(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 crude oil, refined products and natural gas liquids ("NGL") pipelines, terminalling and storage assets, and crude oil, refined products and NGL acquisition and marketing assets. The Partnership conducts its business activities in 35 states located throughout the United States.
The consolidated financial statements reflect the results of the Partnership and its wholly-owned subsidiaries, including Sunoco Logistics Partners Operations L.P. (the "Operating Partnership"), the proportionate shares of the Partnership's undivided interests in assets, and 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. At September 30, 2015, the Partnership held a controlling financial interest in Inland Corporation ("Inland"), Mid-Valley Pipeline Company ("Mid-Valley"), and Price River Terminal, LLC ("PRT"), and as such, these entities are reflected as consolidated subsidiaries of the Partnership. In January 2015, the Partnership acquired the outstanding noncontrolling interest in the West Texas Gulf Pipe Line Company ("West Texas Gulf"), which resulted in West Texas Gulf becoming a wholly-owned subsidiary of the Partnership. The Partnership is not the primary beneficiary of any variable interest entities ("VIEs"). All significant intercompany accounts and transactions are eliminated in consolidation, and noncontrolling interests in net income and equity are shown separately in the condensed consolidated statements of comprehensive income and equity. 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.
In May 2014, the Financial Accounting Standards Board ("FASB") codified guidance related to the recognition of revenue from contracts with customers. The new guidance outlines the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods, with early adoption permitted. The Partnership is currently assessing the impact, if any, that adoption of new guidance will have on its consolidated financial position and results of operations.
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 annual financial statements contained in Form 10-K. The accompanying condensed consolidated balance sheet at December 31, 2014 has been derived from the Partnership's audited financial statements for the year ended December 31, 2014. 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 the quantity of its refined product and NGL 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 nine months ended September 30, 2015 are not necessarily indicative of results for the full year 2015.
Certain amounts in the prior year condensed consolidated financial statements have been reclassified to conform to the current-year presentation.

2. Changes in Business and Other Matters
In October 2015, the Partnership finalized its participation in the Bakken Pipeline project with Energy Transfer Partners, L.P. ("ETP") and Phillips 66. The Partnership obtained a 30 percent economic interest in the project which, combined with ETP's 45 percent interest, will be a consolidated subsidiary of ETP. The project consists of existing and newly constructed pipelines that are expected to provide aggregate takeaway capacity of approximately 450,000 barrels per day of crude oil from the Bakken/Three Forks production area in North Dakota to key refinery and terminalling hubs in the Midwest and Gulf Coast, including the Partnership's Nederland terminal. The ultimate takeaway capacity target for the project is 570,000 barrels per day. The pipeline system is supported by long-term fee-based contracts and is expected to begin commercial operations in the fourth quarter of 2016.

6



In exchange for its 30 percent economic interest in the project, the Partnership issued 9.4 million Class B units to ETP, representing limited partner interests in the Partnership, and paid $382 million in cash to cover the Partnership’s proportionate share of contributions at the time of closing. Since the interest in the project was acquired from a related party, the Partnership's investment will be recorded at ETP's historical carrying value. Subsequent contributions will be made by the joint partners in proportion to their respective economic ownership interests. The Partnership expects to reach agreement to become the operator of the pipeline system, and will account for its investment in the project as an equity method investment within its Crude Oil Pipelines segment. See Note 11 for additional information on the issuance of the Class B units.
In July 2015, the Partnership entered into an agreement with ETP and Phillips 66 to participate in the Bayou Bridge Pipeline project. The Partnership obtained a 30 percent economic interest in the project which, combined with ETP's 30 percent interest, will be a consolidated subsidiary of ETP. The project currently consists of newly constructed pipeline that will deliver crude oil from Nederland, Texas to Lake Charles, Louisiana. Commercial operations are expected to begin in the first quarter 2016.
The Partnership will be the operator of the pipeline and will fund its proportionate share of the cost of the project, which will be accounted for as an equity method investment within the Partnership’s Crude Oil Pipelines segment.
In the second quarter 2014, the Partnership entered into a joint agreement for a 49 percent economic and voting interest in Bayview Refining Company, LLC ("Bayview"). Bayview constructed and will operate the facility to process crude oil into intermediate petroleum products. The entity is a variable interest entity for which the Partnership is not the primary beneficiary. Through September 30, 2015, the owners made contributions totaling $54 million. Construction was completed in the third quarter 2015. The Partnership's investment in Bayview is reflected as an equity method investment within the Crude Oil Acquisition and Marketing segment.
In connection with the formation of Bayview, the joint owners agreed to guarantee the obligations of the entity with respect to certain third-party operating agreements over a ten-year term. The fair value of the liability recognized in connection with the guarantee was not material in relation to the Partnership’s financial position at September 30, 2015. The Partnership's note receivable from the joint owner of Bayview is reflected in other assets in the condensed consolidated balance sheet.
In the first quarter 2014, the Partnership exercised its rights to acquire an additional ownership interest in Explorer Pipeline Company ("Explorer") from Chevron Pipe Line Company for $42 million, increasing the Partnership's ownership interest from 9.4 to 13.3 percent. Explorer owns approximately 1,850 miles of refined products pipelines running from the Gulf Coast of the United States to the Chicago, Illinois area. The fair value of the investment was estimated based on the fair value of the consideration transferred. The investment continues to be accounted for as an equity method investment within the Partnership's Products Pipelines segment, with the equity income recorded based on the Partnership's ownership percentage for each period presented.
No pro forma information has been presented, as the impact of these investments was not material to the Partnership's consolidated financial position or results of operations.

3. Acquisitions
In December 2014, the Partnership acquired an additional 28.3 percent ownership interest in West Texas Gulf from Chevron Pipe Line Company, increasing its controlling financial interest to 88.6 percent. As this transaction represented the acquisition of ownership interest in a consolidated subsidiary, the $325 million purchase price resulted in the reduction of noncontrolling interest and partners’ equity of $66 and $259 million, respectively, in accordance with applicable accounting guidance. In January 2015, the Partnership acquired the remaining noncontrolling interest in West Texas Gulf from the Southwest Pipeline Holding Company for $131 million. The acquisition of the remaining ownership interest reduced noncontrolling interest and partners’ equity by $26 and $105 million, respectively, in the first quarter 2015.
In the second quarter 2014, the Partnership acquired a crude oil purchasing and marketing business from EDF Trading North America, LLC ("EDF"). The purchase consisted of a crude oil acquisition and marketing business and related assets for approximately 20 thousand barrels per day. The acquisition also included a promissory note that was convertible to an equity interest in a rail facility (see below). The acquisition is included in the Crude Oil Acquisition and Marketing segment.
Also in the second quarter 2014, the Partnership acquired a 55 percent economic and voting interest in Price River Terminal, LLC ("PRT"), a rail facility in Wellington, Utah. As the Partnership acquired a controlling financial interest in PRT, the entity is reflected as a consolidated subsidiary of the Partnership from the acquisition date within the Crude Oil Acquisition and Marketing segment. The terms of the acquisition provide PRT’s noncontrolling interest holders the option to sell their interests to the Partnership at a price defined in the agreement. As a result, the noncontrolling interests attributable to PRT are

7



excluded from total equity and are instead reflected as a redeemable interests in the Partnership’s condensed consolidated balance sheet.
The $65 million purchase price for these acquisitions (net of cash received) consisted primarily of net working capital largely attributable to inventory ($22 million), properties, plants and equipment ($14 million), and intangible assets ($28 million). These fair value allocations also resulted in an increase to goodwill ($13 million) and redeemable noncontrolling interests ($15 million).
No pro forma information has been presented, as the impact of these acquisitions was not material in relation to the Partnership's consolidated financial position or results of operations.

4. Related Party Transactions
The Partnership is a consolidated subsidiary of ETP. ETP and one of its affiliates own Sunoco Partners LLC, the Partnership's general partner, and a 28.3 percent limited partner interest in the Partnership, including the issuance of Class B units in October 2015. The Partnership has various operating and administrative agreements with ETP and its affiliates, which include the agreements described below.
Administrative Services
The Partnership has no employees. The operations of the Partnership are carried out by employees of the general partner. The Partnership reimburses the general partner and its affiliates for certain costs and direct expenses incurred on the Partnership's behalf. These costs may be increased if the acquisition or construction of new businesses or assets requires an increase in the level of services received by the Partnership.
The Partnership pays ETP and its affiliates an annual administrative fee for expenses incurred by ETP and its affiliates to perform certain centralized corporate functions, such as legal, accounting, information technology, insurance, office rent, and other corporate services, including the administration of employee benefit plans. This fee does not include the salaries or wages of employees of the general partner, or the cost of employee benefits.
The Partnership's share of allocated ETP employee benefit plan expenses, including non-contributory defined benefit retirement plans, defined contribution 401(k) plans, employee and retiree medical, dental and life insurance plans, incentive compensation plans and other such benefits are reflected in 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 to supply crude oil, refined products and NGLs, as well as to provide pipeline and terminalling services. The revenues associated with these activities are reflected as affiliated revenues in the condensed consolidated statements of comprehensive income.
Acquisitions
See Notes 2 and 11 for additional information related to the Partnership's participation in the Bayou Bridge and Bakken pipeline projects.
Capital Contributions
Contributions were previously required for the general partner to maintain its two percent general partner interest. In July 2014, the Partnership agreement was amended to remove the obligation of the general partner to make capital contributions upon the issuance of limited partner units to retain a two percent interest. No capital contributions have been made by the general partner subsequent to the Partnership agreement modification.
In connection with the acquisition of the Marcus Hook Facility in the second quarter 2013, the Partnership will be reimbursed $40 million by an affiliate of ETP for certain operating expenses of the facility through March 31, 2017. The reimbursement proceeds are reflected as contributions to equity within the condensed consolidated statements of equity.





8



5. Net Income Attributable to Sunoco Logistics Partners L.P. per Limited Partner Unit
The general partner's interest in net income attributable to SXL consists of its approximate two percent general partner interest and "incentive distributions," which are increasing percentages of up to 50 percent of quarterly distributions in excess of $0.0833 per common unit (Note 12). The general partner was allocated net income attributable to SXL of $74 and $49 million (representing 132 and 32 percent of total net income attributable to SXL) for the three months ended September 30, 2015 and 2014, respectively. The general partner was allocated net income attributable to SXL of $205 and $131 million (representing 56 and 31 percent of total net income attributable to SXL) for the nine months ended September 30, 2015 and 2014, respectively. Diluted net income attributable to SXL per limited partner unit is calculated by dividing the limited partners' interest in net income attributable to SXL by the sum of the weighted average number of common units outstanding and the dilutive effect of unvested incentive unit awards (Note 13).
The following table sets forth the reconciliation of the weighted average number of limited partner units used to compute basic net income attributable to SXL per limited partner unit to those used to compute diluted net income attributable to SXL per limited partner unit for the three and nine months ended September 30, 2015 and 2014:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
(in millions)
 
(in millions)
Weighted average number of units outstanding, basic
 
255.0

 
212.5

 
244.3

 
209.6

Add effect of dilutive incentive awards (1)
 

 
1.3

 
0.9

 
1.2

Weighted average number of units, diluted
 
255.0

 
213.8

 
245.2

 
210.8

(1) 
Unvested incentive unit awards are not included within the calculation of the dilutive weighted average number of units for the three months ended September 30, 2015 since the effect on the net loss attributable to SXL per limited partner unit would have been antidilutive.

6. Inventories
The components of inventories are as follows:
 
 
September 30, 2015
 
December 31, 2014
 
 
(in millions)
Crude oil
 
$
461

 
$
364

Refined products and NGLs
 
168

 
90

Refined products additives
 
3

 
4

Materials, supplies and other
 
15

 
12

Total Inventories
 
$
647

 
$
470

In the fourth quarter 2014, the Partnership established lower of cost or market ("LCM") reserves of $231 and $27 million, respectively, on its crude oil and products inventories as a result of declining commodity prices. At September 30, 2015, the LCM reserve amounted to $302 million, related entirely to its crude oil inventory.


9



7. Goodwill and Intangible Assets
Intangible Assets
The components of intangible assets are as follows:
 
 
Weighted Average
Amortization Period
 
September 30, 2015
 
December 31, 2014
 
 
(in years)
 
(in millions)
Gross
 
 
 
 
 
 
Customer relationships
 
18
 
$
836

 
$
836

Technology
 
10
 
47

 
47

Total gross
 
 
 
883

 
883

Accumulated amortization
 
 
 
 
 
 
Customer relationships
 
 
 
(138
)
 
(102
)
Technology
 
 
 
(14
)
 
(11
)
Total accumulated amortization
 
 
 
(152
)
 
(113
)
Total Net
 
 
 
$
731

 
$
770

In connection with the EDF acquisition in the second quarter 2014, the Partnership recognized intangible assets related to customer relationships. The customer relationship intangible assets represent the estimated economic value associated with certain relationships acquired in connection with the business combination whereby (i) the Partnership acquired information about or access to customers, (ii) the customers now have the ability to transact business with the Partnership and (iii) the Partnership is uniquely positioned to provide products or services to the customers. The customer relationship intangible assets are amortized on a straight-line basis over their respective economic lives.
Amortization expense was $13 and $14 million for the three months ended September 30, 2015 and 2014, respectively, and $39 million for the nine months ended September 30, 2015 and 2014. The Partnership forecasts annual amortization expense of $52 million in 2015 and approximately $51 million of annual amortization expense for each year thereafter, through 2019, 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.
Goodwill
Goodwill, which represents the excess of the purchase price in a business combination over the fair value of net assets acquired, is tested for impairment annually in the fourth quarter, or more often if events or changes in circumstances indicate that the carrying value of goodwill may exceed its estimated fair value. The Partnership’s goodwill balance was $1,358 million at September 30, 2015 and December 31, 2014. The Partnership continues to monitor the volatility in the crude oil markets and the impact it could have on the conclusion as to whether goodwill is impaired. It is possible that continued negative volatility within the crude oil markets could change the Partnership’s conclusion regarding whether goodwill is impaired.

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 amounts reflected in the Partnership's condensed consolidated financial statements are 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 in 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.


10



9. Debt
The components of the Partnership's debt balance are as follows:
 
 
September 30, 2015
 
December 31, 2014
 
 
 
Credit Facilities
 
(in millions)
$2.50 billion Credit Facility, due March 2020 (1)
 
$
879

 
$
150

$35 million Credit Facility, matured and repaid April 2015
 

 
35

Senior Notes
 
 
 
 
Senior Notes - 6.125%, due May 2016 (2)
 
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

 
350

Senior Notes - 4.25% due April 2024
 
500

 
500

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

 
350

Senior Notes - 5.30% due April 2044
 
700

 
700

Senior Notes - 5.35% due May 2045
 
800

 
800

Unamortized fair value adjustments
 
96

 
106

Total debt
 
4,950

 
4,266

Less:
 
 
 
 
Unamortized bond discount
 
(6
)
 
(6
)
Long-term debt
 
$
4,944

 
$
4,260

(1) 
Includes $44 million of commercial paper issued at September 30, 2015.
(2) 
The 6.125 percent Senior Notes were classified as long-term debt at September 30, 2015 as the Partnership has the ability and intent to refinance such borrowings on a long-term basis.
Credit Facilities
In March 2015, the Operating Partnership amended and restated its $1.50 billion Credit Facility, which was scheduled to mature in November 2018. The amended and restated credit facility is a $2.50 billion unsecured revolving credit agreement (the "$2.50 billion Credit Facility"), which matures in March 2020, that will continue to fund the Partnership's working capital requirements, finance acquisitions and capital projects, and be used for general partnership purposes. The $2.50 billion Credit Facility contains an "accordion" feature, under which the total aggregate commitment may be extended to $3.25 billion under certain conditions. In June 2015, the $2.50 billion Credit Facility was amended to create a segregated tranche of borrowings that will be guaranteed by ETP. The amendment did not modify the outstanding borrowings, total capacity or terms of the facility. In September 2015, the Operating Partnership initiated a commercial paper program under the borrowing limits established by its $2.50 billion Credit Facility. The $2.50 billion Credit Facility bears interest at LIBOR or the Base Rate (as defined in the facility), each plus an applicable margin. The credit facility may be repaid at any time. Outstanding borrowings under this credit facility were $879 and $150 million at September 30, 2015 and December 31, 2014, respectively.
The $2.50 billion Credit Facility contains various covenants, including limitations on the creation of indebtedness and liens, and related to the operation and conduct of the business of the Partnership and its subsidiaries. The credit facility also limits 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 agreement, 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 3.4 to 1 at September 30, 2015, as calculated in accordance with the credit agreement.
The West Texas Gulf $35 million revolving credit facility matured in April 2015 and was repaid with borrowings from the $2.50 billion Credit Facility.




11



Senior Notes
In April 2014, the Operating Partnership issued $300 million of 4.25 percent Senior Notes and $700 million of 5.30 percent Senior Notes (the "2024 and 2044 Senior Notes"), due April 2024 and April 2044 respectively.
The terms and conditions of the 2024 and 2044 Senior Notes are comparable to those of the Operating Partnership's other outstanding senior notes. The net proceeds from these offerings were used to repay outstanding credit facility borrowings 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, 2015 and December 31, 2014, there were accrued liabilities for environmental remediation in the condensed consolidated balance sheets of $8 and $14 million, respectively. The accrued liabilities for environmental remediation do not include any amounts attributable to unasserted claims, since there are no unasserted claims that are probable of settlement or are reasonably estimable, nor have any recoveries from insurance been assumed. Charges against income for environmental remediation totaled $2 and $3 million for the three months ended September 30, 2015 and 2014, respectively, and $7 and $11 million for the nine months ended September 30, 2015 and 2014, 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, 2015.
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, 2015, the aggregate of the estimated maximum additional reasonably possible losses, which relate to numerous individual sites, totaled $9 million.
The Partnership is a party to certain pending and threatened claims. Although the ultimate outcome of these claims cannot be ascertained at this time, nor can a range of reasonably possible losses be determined, it is reasonably possible that some portion of them could be resolved unfavorably for the Partnership. Management does not believe that any liabilities which may arise from such claims or the environmental matters discussed above would be material in relation to the Partnership's financial position, results of operations or cash flows at September 30, 2015. Furthermore, management does not believe that the overall costs for such matters will have a material impact, over an extended period of time, on the Partnership's financial position, results of operations or cash flows.
Sunoco, Inc. ("Sunoco") has indemnified the Partnership for 30 years for 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 also indemnified 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 the 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 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 Partnership's financial position, results of operations or cash flows at September 30, 2015. 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 financial position, results of operations or cash flows at September 30, 2015.


12



11. Equity
The changes in the number of units outstanding from January 1, 2014 through September 30, 2015 are as follows:
 
 
Common Units
 
 
(in millions)
Balance at January 1, 2014
 
207.7

Units issued in public offering
 
7.7

Units issued under ATM program
 
10.3

Units issued under incentive plans
 
0.4

Balance at December 31, 2014
 
226.1

Units issued in public offering
 
15.5

Units issued under ATM program
 
17.2

Units issued under incentive plans
 
0.4

Balance at September 30, 2015
 
259.2

On June 12, 2014, the Partnership completed a two-for-one split of its common units. The unit split resulted in the issuance of one additional common unit for every one common unit owned. All unit and per unit information included in this report are presented on a post-split basis.
In 2014, the Partnership established an at-the-market equity offering program ("ATM" program) which allows the Partnership to issue common units directly to the public and raise capital in a timely and efficient manner to finance its growth capital program, while supporting the Partnership's investment grade credit ratings. In the third quarter 2014, the Partnership filed an additional registration statement which increased the total capacity of the ATM program to $1.25 billion. In 2014, the Partnership issued 10.3 million common units under the ATM program for net proceeds of $477 million. For the three and nine months ended September 30, 2015, the Partnership issued 7.6 and 17.2 million common units under this program, for net proceeds of $261 and $645 million, respectively.
In March 2015, the Partnership completed an overnight public offering of 13.5 million common units for net proceeds of $547 million. The net proceeds from this offering were used to repay outstanding borrowings under the Partnership's revolving credit facility and for general partnership purposes. In April 2015, an additional 2.0 million common units were issued for net proceeds of $82 million related to the exercise of an option in connection with the March 2015 offering.
In October 2015, the Partnership issued 9.4 million Class B units to ETP in connection with its investment interest in the Bakken Pipeline project. The Class B units represent a new class of limited partner interests in the Partnership, which are not entitled to receive quarterly distributions that are made on the Partnership’s common units, but are otherwise entitled to share in earnings pro-rata with common units. The Class B units will automatically convert to common units on a one-for-one basis during the third quarter 2017. However, the Class B units provide the Partnership with an option to call the units for $300 million in the first quarter 2017. ETP also has a put right on the Class B units during the third quarter 2017, which is effective prior to the one-for-one conversion date, for the greater of $313.5 million or the fair market value of the units as defined by the unitholder agreement. As a result of the available put option, the amount attributable to the class B units will be excluded from total equity and instead reflected as redeemable interests in the Partnership’s condensed consolidated balance sheet.

12. 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 $0.0833 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 the quarterly distribution amounts that are less than the minimum quarterly distribution.

13



The following table shows the target distribution levels and distribution "splits" between the general partner and the holders of the Partnership's common units through September 30, 2015:
 
 
 
 
Marginal Percentage Interest in Distributions
 
Total Quarterly
Distribution Target Amount
 
General Partner
 
Unitholders
Minimum Quarterly Distribution
 
$0.0750
 
2
%
 
 
98
%
First Target Distribution
up to
$0.0833
 
2
%
 
 
98
%
Second Target Distribution
above
$0.0833
 
 
 
 
 
up to
$0.0958
 
15
%
(1) 
85
%
Third Target Distribution
above
$0.0958
 
 
 
 
up to
$0.2638
 
37
%
(1) 
63
%
Thereafter
above
$0.2638
 
50
%
(1) 
50
%
(1) 
Includes general partner interest.
The distributions paid by the Partnership for the periods presented were as follows:
Cash Distribution Payment Date
 
Cash Distribution
per Limited Partner Unit
 
Total Cash Distribution
to the Limited Partners
 
Total Cash Distribution
to the General Partner
 
 
 
 
(in millions)
 
(in millions)
August 14, 2015
 
$
0.4380

 
$
111

 
$
69

May 15, 2015
 
$
0.4190

 
$
103

 
$
62

February 13, 2015
 
$
0.4000

 
$
92

 
$
54

November 14, 2014
 
$
0.3825

 
$
84

 
$
49

August 14, 2014
 
$
0.3650

 
$
77

 
$
43

May 15, 2014
 
$
0.3475

 
$
72

 
$
39

February 14, 2014
 
$
0.3312

 
$
69

 
$
35

On October 20, 2015, the Partnership's general partner announced a cash distribution of $0.458 per common unit ($1.83 annualized), representing the distribution for the third quarter 2015. The $195 million distribution, including $76 million to the general partner for its interests and incentive distribution rights, will be paid on November 13, 2015 to unitholders of record on November 9, 2015.

13. Management Incentive Plan
The general partner has adopted the LTIP for employees and directors of the general partner who perform services for the Partnership. The LTIP is administered by the independent directors of the Compensation Committee of the general partner's board of directors with respect to employee awards, and by the general partner's board of directors with respect to awards granted to the independent directors. The LTIP currently permits the grant of restricted units and unit options covering an additional 0.7 million common units.
The Partnership issued 0.4 and 0.3 million common units under the LTIP, and recognized share-based compensation expense of $12 million for the nine months ended September 30, 2015 and 2014, respectively. Each of the outstanding restricted unit grants have tandem distribution equivalent rights which are recognized as a reduction to equity when earned.
Additionally, the general partner granted 0.1 million phantom unit incentive awards during the nine months ended September 30, 2015. The Partnership recognized share-based compensation expense in relation to the phantom units of $0.5 million for the period. The phantom units will be settled in cash upon vesting, and have been accounted for as a liability within the condensed consolidated balance sheet.



14



14. Derivatives and Risk Management
The Partnership is exposed to various risks, including volatility in the prices of the products that the Partnership markets, counterparty credit risk and changes in interest rates.
Price Risk Management
The Partnership is exposed to risks associated with changes in the market price of crude oil, refined products and NGLs. 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. In order to manage such exposure, the Partnership's policy is (i) to only purchase crude oil, refined products and NGLs for which sales contracts have been executed or for which ready markets exist, (ii) to structure sales contracts so that price fluctuations do not materially impact the margins earned, and (iii) not to 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 physical inventory builds or draws do occur, the Partnership continuously manages the variances to a balanced position over a period of time.
The physical contracts related to the Partnership's crude oil, refined products and NGL businesses that qualify as derivatives are designated as normal purchases and sales and accounted for using accrual accounting under United States generally accepted accounting principles. The Partnership accounts for derivatives that do not qualify as normal purchases and sales at fair value. The Partnership currently does not utilize derivative instruments to manage its exposure to prices related to crude oil purchase and sale activities.
Pursuant to the Partnership's approved risk management policy, derivative contracts such as swaps, futures and other instruments may be used to hedge or reduce exposure to price risk associated with acquired inventory or forecasted physical transactions. The Partnership uses such derivative instruments to mitigate the risk associated with market movements in the price of crude oil, refined products and NGLs. 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. The Partnership does not designate any of its derivative contracts as hedges for accounting purposes. Therefore, all realized and unrealized gains and losses from these derivative contracts are recognized in the condensed consolidated statement of comprehensive income as they are incurred. All realized gains and losses associated with derivative contracts are recorded in earnings in the same line item associated with the forecasted transaction (either in sales and other operating revenue or cost of products sold).
The Partnership had open derivative positions on approximately 16.7 and 3.6 million barrels of refined products and NGLs at September 30, 2015 and December 31, 2014, respectively. The derivatives outstanding as of September 30, 2015 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 September 30, 2015, the fair value of the Partnership's derivative assets and liabilities were approximately $35 and $10 million, respectively, compared to $29 and $14 million at December 31, 2014. Derivative asset and liability balances are recorded in accounts receivable and accrued liabilities, respectively, in the condensed consolidated balance sheets.
The following table sets forth the impact of derivatives on the Partnership's results of operations for the three and nine months ended September 30, 2015 and 2014:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Location of Gains (Losses) Recognized in Earnings
 
(in millions)
 
(in millions)
Commodity contracts not designated as cash flow hedging instruments:
 
 
 
 
 
 
 
 
Sales and other operating revenue
 
$
47

 
$
22

 
$
39

 
$
13

Cost of products sold
 
(14
)
 
(3
)
 
(24
)
 
(3
)
 
 
$
33

 
$
19

 
$
15

 
$
10





15



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. 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, as the counterparties may be similarly affected by changes in economic, regulatory or other conditions.
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, 2015, the Partnership had $879 million of consolidated variable-rate borrowings under its revolving credit facility.

15. Fair Value Measurements
The Partnership applies fair value accounting for all assets and liabilities that are required to be measured at fair value under current accounting rules. The assets and liabilities measured at fair value on a recurring basis are comprised primarily of derivative instruments.
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.
The estimated fair value of the Partnership's financial instruments has been determined based on management's assessment of available market information and appropriate valuation methodologies. The Partnership's current assets (other than derivatives and inventories) and current liabilities (other than derivatives) 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 (level 1). The estimated aggregate fair value of the senior notes at September 30, 2015 was $3.49 billion, compared to the carrying amount of $4.07 billion. The estimated aggregate fair value of the senior notes at December 31, 2014 was $4.09 billion, compared to the carrying amount of $4.08 billion.
For further information regarding the Partnership's fair value measurements, see Notes 3 and 14.









16



16. Business Segment Information
The following tables summarize condensed consolidated statements of comprehensive income information for the Partnership's business segments and reconcile total segment Adjusted EBITDA to net income attributable to the Partnership for the three and nine months ended September 30, 2015 and 2014, respectively: 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
(in millions)
 
(in millions)
Sales and other operating revenue (1)
 
 
 
 
 
 
 
 
Crude Oil Pipelines
 
$
180

 
$
144

 
$
450

 
$
413

Crude Oil Acquisition and Marketing
 
1,860

 
4,497

 
6,748

 
13,023

Terminal Facilities
 
375

 
298

 
1,012

 
868

Products Pipelines
 
82

 
46

 
222

 
127

Intersegment eliminations
 
(90
)
 
(70
)
 
(251
)
 
(218
)
Total sales and other operating revenue
 
$
2,407

 
$
4,915

 
$
8,181

 
$
14,213

 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
 
 
 
Crude Oil Pipelines
 
$
31

 
$
25

 
$
85

 
$
73

Crude Oil Acquisition and Marketing
 
12

 
15

 
38

 
41

Terminal Facilities
 
37

 
29

 
106

 
83

Products Pipelines
 
22

 
8

 
49

 
23

Total depreciation and amortization
 
$
102

 
$
77

 
$
278

 
$
220

 
 
 
 
 
 
 
 
 
Impairment charge and other matters
 
 
 
 
 
 
 
 
Crude Oil Acquisition and Marketing
 
$
108

 
$

 
$
71

 
$

Terminal Facilities
 
(5
)
 

 
(27
)
 

Total impairment charge and other matters
 
$
103

 
$

 
$
44

 
$

 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
 
 
 
 
 
 
 
Crude Oil Pipelines
 
$
133

 
$
95

 
$
317

 
$
292

Crude Oil Acquisition and Marketing
 
(1
)
 
66

 
71

 
131

Terminal Facilities
 
96

 
61

 
288

 
244

Products Pipelines
 
61

 
24

 
160

 
67

Total Adjusted EBITDA
 
289

 
246

 
836

 
734

Interest expense, net
 
(37
)
 
(14
)
 
(97
)
 
(51
)
Depreciation and amortization expense
 
(102
)
 
(77
)
 
(278
)
 
(220
)
Impairment charge and other matters

 
(103
)
 

 
(44
)
 

Provision for income taxes
 
(7
)
 
(8
)
 
(18
)
 
(21
)
Non-cash compensation expense
 
(4
)
 
(4
)
 
(12
)
 
(12
)
Unrealized gains (losses) on commodity risk management activities
 
32

 
21

 
9

 
14

Amortization of excess equity method investment
 
(1
)
 
(1
)
 
(2
)
 
(2
)
Proportionate share of unconsolidated affiliates' interest, depreciation and provision for income taxes
 
(10
)
 
(6
)
 
(23
)
 
(17
)
Net Income
 
57

 
157

 
371

 
425

Less: Net income attributable to noncontrolling interests
 
(1
)
 
(2
)
 
(2
)
 
(7
)
Less: Net income attributable to redeemable noncontrolling interests
 

 

 
(1
)
 

Net Income attributable to Sunoco Logistics Partners L.P.
 
$
56

 
$
155

 
$
368

 
$
418

(1) 
Sales and other operating revenue includes the following amounts from ETP and its affiliates for the three and nine months ended September 30, 2015 and 2014:

17



 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
(in millions)
 
(in millions)
Crude Oil Acquisition and Marketing
 
$

 
$
231

 
$
165

 
$
842

Terminal Facilities
 
77

 
64

 
217

 
157

Products Pipelines
 
13

 
4

 
33

 
15

Total sales and other operating revenue
 
$
90

 
$
299

 
$
415

 
$
1,014


The following table summarizes the identifiable assets for each segment as of September 30, 2015 and December 31, 2014:
 
 
September 30, 2015
 
December 31, 2014
 
 
(in millions)
Crude Oil Pipelines
 
$
4,202

 
$
3,765

Crude Oil Acquisition and Marketing
 
2,947

 
3,329

Terminal Facilities
 
4,059

 
3,534

Products Pipelines
 
3,240

 
2,763

Corporate and other assets (1)
 
214

 
253

Total identifiable assets
 
$
14,662

 
$
13,644

(1) 
Corporate and other assets consist of cash and cash equivalents, 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 the purposes of this 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.

18



Condensed Consolidating Statement of Comprehensive Income (Loss)
Three Months Ended September 30, 2015
(in millions, unaudited)
 
 
 
Parent
Guarantor
 
Subsidiary
Issuer
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
Sales and other operating revenue:
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
 
$

 
$

 
$
2,317

 
$

 
$
2,317

Affiliates
 

 

 
90

 

 
90

Total Revenues
 

 

 
2,407

 

 
2,407

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
Cost of products sold
 

 

 
2,024

 

 
2,024

Operating expenses
 

 

 
58

 

 
58

Selling, general and administrative expenses
 

 
1

 
25

 

 
26

Depreciation and amortization expense
 

 

 
102

 

 
102

Impairment charge and other matters
 

 

 
103

 

 
103

Total Costs and Expenses
 

 
1

 
2,312

 

 
2,313

Operating Income
 

 
(1
)
 
95

 

 
94

Interest cost and debt expense, net
 

 
(49
)
 

 

 
(49
)
Capitalized interest
 

 
12

 

 

 
12

Other income
 

 

 
7

 

 
7

Equity in earnings of subsidiaries
 
56

 
94

 

 
(150
)
 

Income (Loss) Before Provision for Income Taxes
 
56

 
56

 
102

 
(150
)
 
64

Provision for income taxes
 

 

 
(7
)
 

 
(7
)
Net Income (Loss)
 
56

 
56

 
95

 
(150
)
 
57

Less: Net income attributable to noncontrolling interests
 

 

 
(1
)
 

 
(1
)
Net Income (Loss) Attributable to Sunoco Logistics Partners L.P.
 
$
56

 
$
56

 
$
94

 
$
(150
)
 
$
56

 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss)
 
$
56

 
$
56


$
95

 
$
(150
)
 
$
57

Less: Comprehensive income attributable to noncontrolling interests
 

 

 
(1
)
 

 
(1
)
Comprehensive Income (Loss) Attributable to Sunoco Logistics Partners L.P.
 
$
56

 
$
56

 
$
94

 
$
(150
)
 
$
56


19



Condensed Consolidating Statement of Comprehensive Income (Loss)
Three Months Ended September 30, 2014
(in millions, unaudited)
 
 
 
Parent
Guarantor
 
Subsidiary
Issuer
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
Sales and other operating revenue:
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
 
$

 
$

 
$
4,616

 
$

 
$
4,616

Affiliates
 

 

 
299

 

 
299

Total Revenues
 

 

 
4,915

 

 
4,915

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
Cost of products sold
 

 

 
4,581

 

 
4,581

Operating expenses
 

 

 
55

 

 
55

Selling, general and administrative expenses
 

 

 
30

 

 
30

Depreciation and amortization expense
 

 

 
77

 

 
77

Total Costs and Expenses
 

 

 
4,743

 

 
4,743

Operating Income
 

 

 
172

 

 
172

Interest cost and debt expense, net
 

 
(37
)
 
(1
)
 

 
(38
)
Capitalized interest
 

 
24

 

 

 
24

Other income
 

 

 
7

 

 
7

Equity in earnings of subsidiaries
 
155

 
168

 

 
(323
)
 

Income (Loss) Before Provision for Income Taxes
 
155

 
155

 
178

 
(323
)
 
165

Provision for income taxes
 

 

 
(8
)
 

 
(8
)
Net Income (Loss)
 
155

 
155

 
170

 
(323
)
 
157

Less: Net income attributable to noncontrolling interests
 

 

 
(2
)
 

 
(2
)
Net Income (Loss) Attributable to Sunoco Logistics Partners L.P.
 
$
155

 
$
155

 
$
168

 
$
(323
)
 
$
155

 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss)
 
$
155

 
$
155

 
$
170

 
$
(323
)
 
$
157

Less: Comprehensive income attributable to noncontrolling interests
 

 

 
(2
)
 

 
(2
)
Comprehensive Income (Loss) Attributable to Sunoco Logistics Partners L.P.
 
$
155

 
$
155

 
$
168

 
$
(323
)
 
$
155








 

20



Condensed Consolidating Statement of Comprehensive Income (Loss)
Nine Months Ended September 30, 2015
(in millions, unaudited)
 
 
 
Parent
Guarantor
 
Subsidiary
Issuer
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
Sales and other operating revenue:
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
 
$

 
$

 
$
7,766

 
$

 
$
7,766

Affiliates
 

 

 
415

 

 
415

Total Revenues
 

 

 
8,181