Document


 
 
 
 
 
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 June 30, 2016
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 August 1, 2016, the number of the registrant's Common and Class B Units outstanding were 297,903,172 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 Six Months Ended June 30, 2016 and 2015 (unaudited)
 
 
 
 
Condensed Consolidated Balance Sheets at June 30, 2016 and December 31, 2015 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
    June 30, 2016 and 2015 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Equity for the Six Months Ended
    June 30, 2016 and 2015 (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 June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 
 
 
Sales and other operating revenue:
 
 
 
 
 
 
 
 
Unaffiliated customers
 
$
2,174

 
$
2,996

 
$
3,842

 
$
5,449

Affiliates (Note 4)
 
94

 
206

 
203

 
325

Total Revenues
 
2,268

 
3,202

 
4,045

 
5,774

Costs and Expenses
 
 
 
 
 
 
 
 
Cost of products sold
 
1,991

 
2,837

 
3,404

 
5,155

Operating expenses
 
33

 
39

 
56

 
79

Selling, general and administrative expenses
 
28

 
25

 
54

 
50

Depreciation and amortization expense
 
109

 
94

 
215

 
176

Impairment charge and other matters (Notes 6 and 16)
 
(132
)
 
(100
)
 
(106
)
 
(59
)
Total Costs and Expenses
 
2,029

 
2,895

 
3,623

 
5,401

Operating Income
 
239

 
307

 
422

 
373

Interest cost and debt expense, net
 
(65
)
 
(52
)
 
(130
)
 
(102
)
Capitalized interest
 
26

 
21

 
52

 
42

Other income
 
8

 
6

 
15

 
12

Income Before Provision for Income Taxes
 
208

 
282

 
359

 
325

Provision for income taxes (Note 8)
 
(6
)
 
(5
)
 
(11
)
 
(11
)
Net Income
 
202

 
277

 
348

 
314

Net income attributable to noncontrolling interests
 

 

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

 
(1
)
 

 
(1
)
Net Income Attributable to Sunoco Logistics Partners L.P.
 
202

 
276

 
347

 
312

Less: General Partner's interest
 
(98
)
 
(71
)
 
(188
)
 
(131
)
Limited Partners' interest
 
$
104

 
$
205

 
$
159

 
$
181

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

 
 
 
 
Basic
 
$
0.34

 
$
0.83

 
$
0.53

 
$
0.76

Diluted
 
$
0.34

 
$
0.83

 
$
0.52

 
$
0.75

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

 
 
 
 
Basic
 
296.5

 
246.7

 
289.5

 
238.9

Diluted
 
297.2

 
247.5

 
290.2

 
239.8

 
 
 
 
 
 
 
 
 
Net Income
 
$
202

 
$
277

 
$
348

 
$
314

Adjustment to affiliate's pension funded status
 

 

 
1

 
(1
)
Other Comprehensive Income (Loss)
 

 

 
1

 
(1
)
Comprehensive Income
 
202

 
277

 
349

 
313

Less: Comprehensive income attributable to
        noncontrolling interests
 

 

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

 
(1
)
 

 
(1
)
Comprehensive Income Attributable to Sunoco Logistics Partners L.P.
 
$
202

 
$
276

 
$
348

 
$
311

(See Accompanying Notes)

2



SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, unaudited)
 
 
 
June 30, 2016
 
December 31, 2015
Assets
 
 
 
 
Cash and cash equivalents
 
$
36

 
$
37

Accounts receivable, net
 
1,397

 
1,165

Accounts receivable, affiliated companies (Note 4)
 
36

 
20

Inventories (Note 6)
 
763

 
607

Note receivable, affiliated companies (Note 4)
 
128

 

Other current assets
 
16

 
19

Total Current Assets
 
2,376

 
1,848

Properties, plants and equipment
 
12,375

 
11,527

Less accumulated depreciation and amortization
 
(1,025
)
 
(835
)
Properties, plants and equipment, net
 
11,350

 
10,692

Investment in affiliates
 
951

 
802

Goodwill
 
1,358

 
1,358

Intangible assets, net (Note 7)
 
693

 
718

Other assets
 
71

 
71

Total Assets
 
$
16,799

 
$
15,489

Liabilities and Equity
 
 
 
 
Accounts payable
 
$
1,571

 
$
1,251

Accounts payable, affiliated companies (Note 4)
 
38

 
39

Accrued liabilities
 
215

 
329

Accrued taxes payable (Note 8)
 
46

 
44

Total Current Liabilities
 
1,870

 
1,663

Long-term debt (Note 9)
 
6,112

 
5,591

Other deferred credits and liabilities
 
127

 
125

Deferred income taxes (Note 8)
 
255

 
254

Total Liabilities
 
8,364

 
7,633

Commitments and contingent liabilities (Note 10)
 


 


Redeemable noncontrolling interests
 
15

 
15

Redeemable Limited Partners' interests (Note 11)
 
293

 
286

Total Equity
 
8,127

 
7,555

Total Liabilities and Equity
 
$
16,799

 
$
15,489

(See Accompanying Notes)


3



SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions, unaudited)
 
 
Six Months Ended June 30,
 
 
2016
 
2015
Cash Flows from Operating Activities:
 
 
 
 
Net Income
 
$
348

 
$
314

Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
 
 
 
 
Depreciation and amortization expense
 
215

 
176

Impairment charge and other matters
 
(106
)
 
(59
)
Deferred income tax expense (benefit)
 
1

 
(3
)
Amortization of bond premium
 
(6
)
 
(6
)
Non-cash compensation expense
 
11

 
8

Equity in earnings of unconsolidated affiliates
 
(16
)
 
(13
)
Distributions from unconsolidated affiliates
 
10

 
10

Changes in working capital pertaining to operating activities:
 
 
 
 
Accounts receivable, net
 
(252
)
 
(31
)
Accounts receivable, affiliated companies
 
(16
)
 
(43
)
Inventories
 
(50
)
 
(201
)
Accounts payable, affiliated companies
 
(1
)
 
(6
)
Accounts payable and accrued liabilities
 
213

 
(52
)
Accrued taxes payable
 
2

 
(4
)
Unrealized losses on commodity risk management activities
 
17

 
23

Other
 
5

 
(1
)
Net cash provided by operating activities
 
375

 
112

Cash Flows from Investing Activities:
 
 
 
 
Capital expenditures
 
(995
)
 
(1,074
)
Acquisitions
 

 
(131
)
Change in note receivable, affiliated companies
 
(128
)
 

Change in long-term note receivable
 
(1
)
 
(9
)
Net cash used in investing activities
 
(1,124
)
 
(1,214
)
Cash Flows from Financing Activities:
 
 
 
 
Distributions paid to limited and general partners
 
(448
)
 
(311
)
Distributions paid to noncontrolling interests
 
(2
)
 

Net proceeds from issuance of limited partner units
 
667

 
1,013

Payments of statutory withholding on net issuance of limited partner units under LTIP
 

 
(9
)
Repayments under credit facilities
 
(1,863
)
 
(1,160
)
Borrowings under credit facilities
 
2,564

 
1,525

Repayments of senior notes
 
(175
)
 

Contributions attributable to acquisition from affiliate
 
4

 
6

Other
 
1

 
(5
)
Net cash provided by financing activities
 
748

 
1,059

Net change in cash and cash equivalents
 
(1
)
 
(43
)
Cash and cash equivalents at beginning of period
 
37

 
101

Cash and cash equivalents at end of period
 
$
36

 
$
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, 2015
 
$
5,752

 
$
925

 
$
1

 
$
60

 
$
6,738

Net Income
 
181

 
131

 

 
1

 
313

Adjustment to affiliate's pension funded status
 

 

 
(1
)
 

 
(1
)
Total comprehensive income (loss)
 
181

 
131

 
(1
)
 
1

 
312

Issuance of limited partner units to the public
 
1,013

 

 

 

 
1,013

Non-cash compensation expense
 
8

 

 

 

 
8

Distribution equivalent rights
 
(1
)
 

 

 

 
(1
)
Payments of statutory withholding on issuance under LTIP
 
(9
)
 

 

 

 
(9
)
Distributions
 
(195
)
 
(116
)
 

 

 
(311
)
Contributions attributable to acquisition from affiliate
 
6

 

 

 

 
6

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

 
(26
)
 
(131
)
Other
 
2

 

 

 

 
2

Balance at June 30, 2015
 
$
6,654

 
$
938

 
$

 
$
35

 
$
7,627

 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2016
 
$
6,577

 
$
944

 
$

 
$
34

 
$
7,555

Net Income
 
159

 
188

 

 
1

 
348

Adjustment to affiliate's pension funded status
 

 

 
1

 

 
1

Total comprehensive income
 
159

 
188

 
1

 
1

 
349

Issuance of limited partner units to the public
 
667

 

 

 

 
667

Non-cash compensation expense
 
11

 

 

 

 
11

Distribution equivalent rights
 
(2
)
 

 

 

 
(2
)
Distributions
 
(271
)
 
(177
)
 

 
(2
)
 
(450
)
Contributions attributable to acquisition from affiliate
 
4

 

 

 

 
4

Decrease attributable to Class B units
 
(7
)
 

 

 

 
(7
)
Other
 
(1
)
 
1

 

 

 

Balance at June 30, 2016
 
$
7,137

 
$
956

 
$
1

 
$
33

 
$
8,127

(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" or "SXL") is a publicly traded Delaware limited partnership that owns and operates a logistics business, consisting of geographically diverse portfolio of integrated pipeline, terminalling, and acquisition and marketing assets which are used to facilitate the purchase and sale of crude oil, natural gas liquids ("NGLs") and refined products. The Partnership conducts its business activities in 35 states located throughout the United States.
During the fourth quarter 2015, the Partnership realigned its reporting segments as a result of the continued investment in its organic growth capital program which has served to increase the integration that exists between its assets that service each commodity. This has also resulted in a shift in Management's strategic decision making process, resource allocation methodology, and assessment of the Partnership's financial results. The updated reporting segments are: Crude Oil, Natural Gas Liquids and Refined Products. The new segmentation provides the Partnership's investors with a more meaningful view of its business that is consistent with that of Management. For the purpose of comparability, all prior period segment disclosures have been recast to conform to the current presentation. Such recasts have no impact on previously reported consolidated earnings.
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 June 30, 2016, 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. 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 February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, which created Topic 842, Leases, and superseded the leases requirements in Topic 840. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Partnership is currently evaluating the impact that it will have on its consolidated financial statements and related disclosures.
In May 2014, the FASB codified guidance in ASU 2014-09 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 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.
In the fourth quarter 2015, the Partnership adjusted its presentation of costs associated with issuances of debt in response to the early adoption of ASU 2015-03. This guidance requires costs incurred to issue certain debt instruments to be reflected as a reduction of the reported long-term debt liability within the consolidated balance sheet, as opposed to being reported as an asset. All prior periods are reported presenting the impact of ASU 2015-03. The adoption did not impact the Partnership's overall financial position or results of operations.
The Partnership also adjusted its balance sheet presentation of deferred tax assets and liabilities in response to the early adoption of ASU 2015-17. This guidance requires all deferred tax assets and liabilities to be presented as noncurrent within the consolidated balance sheet, and is retrospectively applied to all prior reporting periods presented. This change did not impact the Partnership's financial position or results of operations.


6



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, 2015 has been derived from the Partnership's audited financial statements for the year ended December 31, 2015. 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 six months ended June 30, 2016 are not necessarily indicative of results for the full year 2016.
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 is 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 thousand 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 thousand barrels per day. The Partnership expects to reach agreement to become the operator of the pipeline system, which is expected to begin commercial operations in the fourth quarter of 2016.
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 initial investment was recorded at ETP's historical carrying value. The Partnership's investment in the Bakken Pipeline project is reflected as an equity method investment within the Crude Oil segment. See Note 11 for additional information on the issuance of the Class B units. Subsequent contributions will be made by the joint partners in proportion to their respective economic ownership interests.
In May 2016, the joint partners agreed to provide the Bakken entities with a short-term loan in connection with ongoing construction of the project. The loan was made by the partners in proportion to the respective ownership interests. At June 30, 2016, the outstanding balance of the note receivable due to the Partnership was $128 million and is reflected as a note receivable from affiliated companies in the condensed consolidated balance sheet.
In August 2016, the Partnership, ETP, and Phillips 66 announced the completion of project-level financing of the Bakken Pipeline project. The $2.5 billion credit facility is anticipated to provide substantially all of the remaining capital necessary to complete the project. The note receivable in connection with the Bakken Pipeline project was repaid in August 2016 with borrowings under the project's $2.5 billion credit facility. Additionally, the Partnership and ETP announced the signing of an agreement to sell 49 percent of their respective interests in the Bakken Pipeline project for $2 billion in cash to MarEn Bakken Company LLC, an entity jointly owned by Enbridge Energy Partners, L.P. and Marathon Petroleum Corporation. The transaction is expected to close in the third quarter 2016, subject to certain closing conditions, at which time the Partnership will receive $800 million in cash. The carrying amount of the Partnership's investment in the Bakken Pipeline project was $623 million at June 30, 2016. Subsequent to closing, the Partnership's ownership interest in the Bakken Pipeline project will be 15.3 percent.
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 consists of a newly constructed pipeline that will deliver crude oil from Nederland, Texas to refinery markets in Louisiana. Commercial operations from Nederland, Texas to Lake Charles, Louisiana commenced in the second quarter 2016, with continued progress on the pipeline segment to St. James, Louisiana. The Partnership is the operator of the pipeline and will continue to fund its proportionate share of the cost of the project, which is accounted for as an equity method investment within the Partnership's Crude Oil segment.



7



In connection with the formation of Bayview Refining Company, LLC ("Bayview") in the second quarter 2014, 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 June 30, 2016. The Partnership's note receivable from the joint owner of Bayview is reflected in other assets in the condensed consolidated balance sheet.
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 January 2015, the Partnership acquired the remaining noncontrolling interest in West Texas Gulf Pipe Line Company ("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.
No pro forma information has been presented, as the impact of this acquisition 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 25 percent limited partner interest in the Partnership, including the Class B units issued 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 space rental, 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 or shared insurance.
The Partnership's share of allocated ETP employee benefit plan expenses, including 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, NGLs and refined products, 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 Note 2 for additional information related to the Partnership's participation in the Bayou Bridge and Bakken pipeline projects.
Capital Contributions
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



Notes Receivable from Affiliated Companies
See Note 2 for additional information related to the note receivable in connection with the Bakken Pipeline project.

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 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 $98 and $71 million (representing 49 and 26 percent of total net income attributable to SXL) for the three months ended June 30, 2016 and 2015, respectively. The general partner was allocated net income attributable to SXL of $188 and $131 million (representing 54 and 42 percent of total net income attributable to SXL) for the six months ended June 30, 2016 and 2015, 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 and Class B units outstanding and the dilutive effect of unvested incentive unit awards (Note 13).
For the three and six months ended June 30, 2016, net income attributable to SXL was reduced by $3 and $7 million, respectively, in determining earnings per limited partner unit in accordance with accounting guidance applicable to the Class B units, which are reflected as redeemable limited partner interests.
The following table sets forth the reconciliation of the weighted average number of limited partner and Class B 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 six months ended June 30, 2016 and 2015:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(in millions)
 
(in millions)
Weighted average number of units outstanding, basic
 
296.5

 
246.7

 
289.5

 
238.9

Add effect of dilutive incentive awards
 
0.7

 
0.8

 
0.7

 
0.9

Weighted average number of units, diluted
 
297.2

 
247.5

 
290.2

 
239.8


6. Inventories
The components of inventories are as follows:
 
 
June 30, 2016
 
December 31, 2015
 
 
(in millions)
Crude oil
 
$
564

 
$
424

NGLs
 
80

 
83

Refined products
 
104

 
83

Refined products additives
 
2

 
3

Materials, supplies and other
 
13

 
14

Total Inventories
 
$
763

 
$
607

The Partnership's lower of cost or market ("LCM") reserves totaled $284 and $30 million, respectively, on its crude oil and NGLs inventories at June 30, 2016. At December 31, 2015, the LCM reserves totaled $381, $37 and $2 million on the Partnership's crude oil, NGLs and refined products inventories, respectively. See Note 16 for additional information on the LCM adjustments related to the Partnership's LIFO inventory balances, which are reported as impairment charge and other matters within the condensed consolidated statement of comprehensive income.


9



7. Goodwill and Intangible Assets
Intangible Assets
The components of intangible assets are as follows:
 
 
Weighted Average
Amortization Period
 
June 30, 2016
 
December 31, 2015
 
 
(in years)
 
(in millions)
Gross
 
 
 
 
 
 
Customer relationships
 
18
 
$
836

 
$
836

Technology
 
10
 
47

 
47

Total gross
 
 
 
883

 
883

Accumulated amortization
 
 
 
 
 
 
Customer relationships
 
 
 
(172
)
 
(149
)
Technology
 
 
 
(18
)
 
(16
)
Total accumulated amortization
 
 
 
(190
)
 
(165
)
Total Net
 
 
 
$
693

 
$
718

Amortization expense was $12 and $13 million for the three months ended June 30, 2016 and 2015, respectively, and $25 and $26 million for the six months ended June 30, 2016 and 2015, respectively. The Partnership forecasts annual amortization expense of $51 million for each year through the year 2020, for its 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 June 30, 2016 and December 31, 2015. The Partnership will continue to monitor the volatility in the energy markets and the impact it could have on the estimated fair value of its reporting segments. It is possible that continued negative volatility within these 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:
 
 
June 30, 2016
 
December 31, 2015
 
 
 
Credit Facilities
 
(in millions)
$2.50 billion Credit Facility, due March 2020 (1)
 
$
1,263

 
$
562

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

 
175

Senior Notes - 5.50%, due February 2020
 
250

 
250

Senior Notes - 4.40%, due April 2021
 
600

 
600

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 - 5.95%, due December 2025
 
400

 
400

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 (3)
 
87

 
93

Total debt
 
6,150

 
5,630

Less:
 
 
 
 
Unamortized bond discount and debt issuance costs (4)
 
(38
)
 
(39
)
Long-term debt
 
$
6,112

 
$
5,591

(1) 
Includes $106 million of commercial paper outstanding at June 30, 2016. There was no commercial paper outstanding at December 31, 2015.
(2) 
The 6.125 percent Senior Notes were classified as long-term debt at December 31, 2015 as the Partnership repaid these notes in May 2016 with borrowings under its $2.50 billion Credit Facility, due in 2020.
(3) 
Represents fair value adjustments on senior notes resulting from the application of push-down accounting in connection with the acquisition of the Partnership's general partner by ETP on October 5, 2012.
(4) 
In the fourth quarter 2015, the Partnership adopted accounting guidance which requires certain debt issuance costs to be reflected as a reduction in the total long-term debt liability for all periods presented. The net long-term debt balance now includes $31 and $32 million of debt issuance costs at June 30, 2016 and December 31, 2015, respectively. Refer to Note 1 for additional information.
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.
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 3.7 to 1 at June 30, 2016, as calculated in accordance with the credit agreement.

11



Senior Notes
The Operating Partnership had $175 million of 6.125 percent Senior Notes which matured and were repaid in May 2016, using borrowings under the $2.50 billion Credit Facility.
In July 2016, the Operating Partnership issued $550 million of 3.90 percent Senior Notes (the "2026 Senior Notes"), due July 2026. The terms and conditions of the 2026 Senior Notes are comparable to those of the Operating Partnership's other outstanding senior notes. The net proceeds from this offering 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 June 30, 2016 and December 31, 2015, there were accrued liabilities for environmental remediation in the condensed consolidated balance sheets of $6 million. 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 million for the three months ended June 30, 2016 and 2015; $4 and $5 million for six months ended June 30, 2016 and 2015, 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 June 30, 2016.
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 June 30, 2016, 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 June 30, 2016. 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 June 30, 2016. 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 June 30, 2016.


12



11. Equity
The changes in the number of common units outstanding from January 1, 2015 through June 30, 2016 are as follows:
 
 
Common Units
 
 
(in millions)
Balance at January 1, 2015
 
226.1

Units issued in public offering
 
15.5

Units issued under ATM program
 
26.8

Units issued under incentive plans
 
0.4

Balance at December 31, 2015
 
268.8

Units issued in public offering
 

Units issued under ATM program
 
26.3

Units issued under incentive plans
 

Balance at June 30, 2016
 
295.1

The Partnership maintains an at-the-market equity offering program ("ATM" program) which allows it 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. For the three months ended June 30, 2016 and 2015, the Partnership issued 14.2 and 6.2 million common units under this program, for proceeds of $366 and $242 million, net of $4 and $3 million in fees and commissions to managers, respectively. For the six months ended June 30, 2016 and 2015, the Partnership issued 26.3 and 9.6 million common units under this program, for proceeds of $667 and $384 million, net of $7 and $5 million in fees and commissions to managers, 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 conjunction with the purchase of an ownership interest in the Bakken pipeline. 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 in the third quarter 2017. However, the Partnership can exercise an option to call the Class B units for $300 million. If not exercised, ETP can exercise a put right during the third quarter 2017, 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 in the unitholder agreement. As a result of the available put option, the amount attributable to the Class B units is 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 June 30, 2016:
 
 
 
 
Marginal Percentage Interest in Distributions
 
Total Quarterly
Distribution Target Amount
 
General Partner
 
Unitholders
Minimum Quarterly Distribution
 
$0.0750
 
1
%
 
 
99
%
First Target Distribution
up to
$0.0833
 
1
%
 
 
99
%
Second Target Distribution
above
$0.0833
 
14
%
(1) 
86
%
up to
$0.0958
 
Third Target Distribution
above
$0.0958
 
36
%
(1) 
64
%
up to
$0.2638
 
Thereafter
above
$0.2638
 
49
%
(1) 
51
%
(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)
May 13, 2016
 
$
0.4890

 
$
140

 
$
92

February 12, 2016
 
$
0.4790

 
$
131

 
$
85

November 13, 2015
 
$
0.4580

 
$
119

 
$
76

August 14, 2015
 
$
0.4380

 
$
111

 
$
69

May 15, 2015
 
$
0.4190

 
$
103

 
$
62

February 13, 2015
 
$
0.4000

 
$
92

 
$
54

On July 25, 2016, the Partnership's general partner announced a cash distribution of $0.50 per common unit ($2.00 annualized), representing the distribution for the second quarter 2016. The $247 million distribution, including $98 million to the general partner for its interests and incentive distribution rights, will be paid on August 12, 2016 to unitholders of record on August 8, 2016.

13. Management Incentive Plan
Sunoco Partners LLC, the general partner of the Partnership, has adopted the Sunoco Partners LLC Long-Term Incentive Plan ("LTIP") for employees and directors of the general partner who perform services for the Partnership.
In the fourth quarter 2015, the Partnership's unitholders approved the Sunoco Partners LLC Long-Term Incentive Plan, as amended and restated (the "Restated LTIP"), which was previously approved by the board of directors of Sunoco Partners LLC, the Partnership's general partner. The Restated LTIP authorized an additional 10.0 million common units to be available under the plan; added additional types of awards that can be granted under the plan, such as phantom unit awards, unit appreciation rights, unrestricted unit awards and other unit-based awards ("plan awards"); added a prohibition on repricing of unit options and unit appreciation rights without the approval of the unitholders; provided for termination of the plan at the earliest date it is terminated by the board of directors, the date no more units remain available for grants, and December 1, 2025; and incorporated certain other administrative changes.
The Restated LTIP benefits eligible employees and directors of the general partner and its affiliates who perform services for the Partnership. The Restated 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 Restated LTIP currently permits the grant of restricted units and unit options covering an additional 9.6 million common units.


14



The Partnership issued less than 0.1 and 0.3 million common units under its long-term incentive plan, and recognized share-based compensation expense of $11 and $8 million for the six months ended June 30, 2016 and 2015, respectively. Each of the outstanding restricted unit grants have tandem distribution equivalent rights 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 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, NGLs and refined products. These risks are primarily associated with price volatility related to pre-existing or anticipated purchases, sales and storage. Price changes are often caused by shifts in the supply and demand for these commodities, as well as their locations. In order to manage such exposure, the Partnership's policy is (i) to only purchase crude oil, NGLs and refined products 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) to 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 physical inventory builds or draws do occur, the Partnership continuously manages the variance to a balanced position over a period of time.
The physical contracts related to the Partnership's commodity purchase and sale activities that qualify as derivatives have been designated as normal purchases and sales and are accounted for using accrual accounting under United States' generally accepted accounting principles. The Partnership accounts for derivatives that do not qualify as normal purchases or 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. All derivative balances are presented on a gross basis.
Pursuant to the Partnership's approved risk management policy, derivative contracts, such as swaps, futures and other derivative instruments, may be used to hedge or reduce exposure to price risk associated with acquired inventory or forecasted physical transactions. The Partnership utilizes derivative instruments to mitigate the risk associated with market movements in the price of NGLs, refined products, and other commodities as necessary. 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 has not designated 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 consolidated statement of comprehensive income in the period in which they occur. All realized gains and losses associated with the Partnership's derivative contracts are recorded in earnings in the same line item associated with the forecasted transaction (either sales and other operating revenue or cost of products sold).
The Partnership had open derivative positions on approximately 10.4 and 9.2 million barrels of refined products and NGLs at June 30, 2016 and December 31, 2015, respectively. The derivatives outstanding as of June 30, 2016 vary in duration but do not extend beyond one year. The Partnership records its derivatives at fair value based on observable market prices (levels 1 and 2). As of June 30, 2016, the fair value of the Partnership's derivative assets and liabilities were approximately $10 and $15 million, respectively, compared to $30 and $18 million at December 31, 2015. 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 six months ended June 30, 2016 and 2015:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
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
 
$
(20
)
 
$
(7
)
 
$
(17
)
 
$
(8
)
Cost of products sold
 
6

 
(10
)
 
5

 
(10
)
 
 
$
(14
)
 
$
(17
)
 
$
(12
)
 
$
(18
)

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 June 30, 2016, the Partnership had $1.3 billion 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 value of the Partnership's senior notes is determined using observable market prices, as these notes are actively traded (level 1). The estimated aggregate fair value of the senior notes at June 30, 2016 was $4.9 billion, compared to the carrying amount of $4.9 billion. The estimated aggregate fair value of the senior notes at December 31, 2015 was $4.2 billion, compared to the carrying amount of $5.1 billion.
For further information regarding the Partnership's fair value measurements, see Note 14.

16. Business Segment Information
During the fourth quarter 2015, the Partnership realigned its reporting segments as a result of the continued investment in its organic growth capital program which has served to increase the integration that exists between its assets that service each commodity. This has also resulted in a shift in Management's strategic decision making process, resource allocation methodology, and assessment of the Partnership's financial results. The updated reporting segments are: Crude Oil, Natural Gas Liquids and Refined Products. The new segmentation will provide the Partnership's investors with a more meaningful view of its business that is consistent with that of Management. For the purpose of comparability, all prior year segment disclosures have been recast to conform to the current year presentation. Such recasts have no impact on previously reported consolidated earnings.




16



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 six months ended June 30, 2016 and 2015, respectively: 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(in millions)
 
(in millions)
Sales and other operating revenue (1)
 
 
 
 
 
 
 
 
Crude Oil
 
$
1,892

 
$
2,799

 
$
3,272

 
$
5,125

Natural Gas Liquids
 
196

 
343

 
429

 
529

Refined Products
 
180

 
60

 
344

 
120

Total sales and other operating revenue
 
$
2,268

 
$
3,202

 
$
4,045

 
$
5,774

 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
 
 
 
Crude Oil
 
$
57

 
$
54

 
$
116

 
$
102

Natural Gas Liquids
 
28

 
20

 
49

 
36

Refined Products
 
24

 
20

 
50

 
38

Total depreciation and amortization
 
$
109

 
$
94

 
$
215

 
$
176

 
 
 
 
 
 
 
 
 
Impairment charge and other matters
 
 
 
 
 
 
 
 
Crude Oil
 
$
(121
)
 
$
(105
)
 
$
(97
)
 
$
(37
)
Natural Gas Liquids
 
(11
)
 
5

 
(7
)
 
(22
)
Refined Products
 

 

 
(2
)
 

Total impairment charge and other matters
 
$
(132
)
 
$
(100
)
 
$
(106
)
 
$
(59
)
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
 
 
 
 
 
 
 
Crude Oil
 
$
114

 
$
163

 
$
338

 
323

Natural Gas Liquids
 
78

 
129

 
152

 
157

Refined Products
 
53

 
34

 
104

 
67

Total Adjusted EBITDA
 
245

 
326

 
594

 
547

Interest expense, net
 
(39
)
 
(31
)
 
(78
)
 
(60
)
Depreciation and amortization expense
 
(109
)
 
(94
)
 
(215
)
 
(176
)
Impairment charge and other matters

 
132

 
100

 
106

 
59

Provision for income taxes
 
(6
)
 
(5
)
 
(11
)
 
(11
)
Non-cash compensation expense
 
(6
)
 
(4
)
 
(11
)
 
(8
)
Unrealized losses on commodity risk management activities
 
(4
)
 
(8
)
 
(17
)
 
(23
)
Amortization of excess equity method investment
 

 

 
(1
)
 
(1
)
Proportionate share of unconsolidated affiliates' interest, depreciation and provision for income taxes
 
(11
)
 
(7
)
 
(19
)
 
(13
)
Net Income
 
202

 
277

 
348

 
314

Less: Net income attributable to noncontrolling interests
 

 

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

 
(1
)
 

 
(1
)
Net Income attributable to Sunoco Logistics Partners L.P.
 
$
202

 
$
276

 
$
347

 
$
312

(1) 
Sales and other operating revenue includes the following amounts from ETP and its affiliates for the three and six months ended June 30, 2016 and 2015:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(in millions)
 
(in millions)
Crude Oil
 
$
4

 
$
112

 
$
8

 
$
173

Natural Gas Liquids
 
36

 
70

 
85

 
106

Refined Products
 
54

 
24

 
110

 
46

Total sales and other operating revenue
 
$
94

 
$
206

 
$
203

 
$
325





17



The following table summarizes the identifiable assets for each segment as of June 30, 2016 and December 31, 2015:
 
 
June 30, 2016
 
December 31, 2015
 
 
(in millions)
Crude Oil
 
$
9,651

 
$
8,802

Natural Gas Liquids
 
4,230

 
3,764

Refined Products
 
2,751

 
2,747

Corporate and other assets (1)
 
167

 
176

Total identifiable assets
 
$
16,799

 
$
15,489

(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 June 30, 2016
(in millions, unaudited)
 
 
 
Parent
Guarantor
 
Subsidiary
Issuer
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
Sales and other operating revenue:
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
 
$

 
$

 
$
2,174

 
$

 
$
2,174

Affiliates
 

 

 
94

 

 
94

Total Revenues
 

 

 
2,268

 

 
2,268

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
Cost of products sold
 

 

 
1,991

 

 
1,991

Operating expenses
 

 

 
33

 

 
33

Selling, general and administrative expenses
 

 
1

 
27

 

 
28

Depreciation and amortization expense
 

 

 
109

 

 
109

Impairment charge and other matters
 

 

 
(132
)
 

 
(132
)
Total Costs and Expenses
 

 
1

 
2,028

 

 
2,029

Operating Income
 

 
(1
)
 
240

 

 
239

Interest cost and debt expense, net
 

 
(65
)
 

 

 
(65
)
Capitalized interest
 

 
26

 

 

 
26

Other income
 

 

 
8

 

 
8

Equity in earnings of subsidiaries
 
202

 
242

 

 
(444
)
 

Income (Loss) Before Provision for Income Taxes
 
202

 
202

 
248

 
(444
)
 
208

Provision for income taxes
 

 

 
(6
)
 

 
(6
)
Net Income (Loss)
 
202

 
202

 
242

 
(444
)
 
202

Net Income (Loss) Attributable to Sunoco Logistics Partners L.P.
 
$
202

 
$
202

 
$
242

 
$
(444
)
 
$
202

 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss)
 
$
202

 
$
202


$
242

 
$
(444
)
 
$
202

Comprehensive Income (Loss) Attributable to Sunoco Logistics Partners L.P.
 
$
202

 
$
202

 
$
242

 
$
(444
)
 
$
202


19



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

 
$

 
$
2,996

 
$

 
$
2,996

Affiliates
 

 

 
206

 

 
206

Total Revenues
 

 

 
3,202

 

 
3,202

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
Cost of products sold
 

 

 
2,837

 

 
2,837

Operating expenses
 

 

 
39

 

 
39

Selling, general and administrative expenses
 

 

 
25

 

 
25

Depreciation and amortization expense
 

 

 
94

 

 
94

Impairment charge and other matters
 

 

 
(100
)
 

 
(100
)
Total Costs and Expenses
 

 

 
2,895

 

 
2,895

Operating Income
 

 

 
307

 

 
307

Interest cost and debt expense, net
 

 
(51
)
 
(1
)
 

 
(52
)
Capitalized interest
 

 
21

 

 

 
21

Other income
 

 

 
6

 

 
6

Equity in earnings of subsidiaries
 
276

 
306

 

 
(582
)
 

Income (Loss) Before Provision for Income Taxes
 
276

 
276

 
312

 
(582
)
 
282

Provision for income taxes
 

 

 
(5
)
 

 
(5
)
Net Income (Loss)
 
276

 
276

 
307

 
(582
)
 
277

Less: Net income attributable to redeemable noncontrolling interests
 

 

 
(1
)
 

 
(1
)
Net Income (Loss) Attributable to Sunoco Logistics Partners L.P.
 
$
276

 
$
276

 
$
306

 
$
(582
)
 
$
276

 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss)
 
$
276

 
$
276

 
$
307

 
$
(582
)
 
$
277

Less: Comprehensive income attributable to redeemable noncontrolling interests
 

 

 
(1
)
 

 
(1
)
Comprehensive Income (Loss) Attributable to Sunoco Logistics Partners L.P.
 
$
276

 
$
276

 
$
306

 
$
(582
)
 
$
276



 

20



Condensed Consolidating Statement of Comprehensive Income (Loss)
Six Months Ended June 30, 2016
(in millions, unaudited)
 
 
 
Parent
Guarantor
 
Subsidiary
Issuer
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
Sales and other operating revenue:
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
 
$

 
$

 
$
3,842

 
$

 
$
3,842

Affiliates
 

 

 
203

 

 
203

Total Revenues
 

 

 
4,045

 

 
4,045

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
Cost of products sold
 

 

 
3,404

 

 
3,404

Operating expenses