e10vq
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2007
OR
     
o   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
(State or other jurisdiction of
incorporation or organization)
  23-3096839
(I.R.S. Employer
Identification No.)
     
Mellon Bank Center
1735 Market Street, Suite LL, Philadelphia, PA
(Address of principal executive offices)
   
19103-7583
(Zip Code)
Registrant’s telephone number, including area code: (866) 248-4344
Former name, former address and formal fiscal year, if changed since last report: Not Applicable
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ   No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No þ
At July 31, 2007, the number of the registrant’s Common Units outstanding was 28,586,280.
 
 

 


 

SUNOCO LOGISTICS PARTNERS L.P.
INDEX
             
        Page No.  
PART I. FINANCIAL INFORMATION
 
  Financial Statements        
 
 
  Condensed Consolidated Statements of Income for the Three Months Ended June 30, 2007 and 2006 (unaudited)     3  
 
 
  Condensed Consolidated Statements of Income for the Six Months Ended June 30, 2007 and 2006 (unaudited)     4  
 
 
  Condensed Consolidated Balance Sheets at June 30, 2007 (unaudited) and December 31, 2006     5  
 
 
  Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006 (unaudited)     6  
 
 
  Notes to Condensed Consolidated Financial Statements (unaudited)     7  
 
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     27  
 
  Quantitative and Qualitative Disclosures about Market Risk     32  
 
  Controls and Procedures     34  
 
PART II. OTHER INFORMATION
 
  Legal Proceedings     34  
 
  Risk Factors     34  
 
  Unregistered Sales of Equity Securities and Use of Proceeds     34  
 
  Defaults Upon Senior Securities     34  
 
  Submission of Matters to a Vote of Security Holders     35  
 
  Other Information     35  
 
  Exhibits     36  
 
        37  
 Products Terminal Services Agreement
 Statement of Computation of Ratio of Earnings to Fixed Charges
 Chieef Executive Officer Certification
 Chieef Financial Officer Certification
 CEO and CFO Certification Pursuant to Exchange Act Rule 13a-14(b) and U.S.C. Section 1350

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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except unit and per unit amounts)
                 
    Three Months Ended  
    June 30,  
    2007     2006  
 
               
Revenues
               
 
               
Sales and other operating revenue:
               
Affiliates (Note 3)
  $ 391,370     $ 518,439  
Unaffiliated customers
    1,238,910       973,057  
Other income
    7,698       3,872  
 
           
Total Revenues
    1,637,978       1,495,368  
 
           
 
               
Costs and Expenses
               
Cost of products sold and operating expenses
    1,580,330       1,439,674  
Depreciation and amortization
    9,407       9,211  
Selling, general and administrative expenses
    13,487       13,522  
 
           
Total Costs and Expenses
    1,603,224       1,462,407  
 
           
 
               
Operating Income
    34,754       32,961  
Net interest cost paid to affiliates (Note 3)
    1,059       414  
Other interest cost and debt expense, net
    9,386       7,416  
Capitalized interest
    (945 )     (1,189 )
 
           
Net Income
  $ 25,254     $ 26,320  
 
           
 
               
Calculation of Limited Partners’ interest in Net Income (Note 4):
               
Net Income
  $ 25,254     $ 26,320  
Less: General Partner’s interest in Net Income
    (3,552 )     (4,101 )
 
           
Limited Partners’ interest in Net Income
  $ 21,702     $ 22,219  
 
           
 
               
Net Income per Limited Partner unit:
               
Basic
  $ 0.76     $ 0.81  
 
           
Diluted
  $ 0.76     $ 0.81  
 
           
 
               
Weighted average Limited Partners’ units outstanding (Note 4):
               
Basic
    28,586,280       27,466,092  
 
           
Diluted
    28,723,884       27,589,644  
 
           
(See Accompanying Notes)

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SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except unit and per unit amounts)
                 
    Six Months Ended  
    June 30,  
    2007     2006  
 
               
Revenues
               
 
               
Sales and other operating revenue:
               
Affiliates (Note 3)
  $ 843,439     $ 996,760  
Unaffiliated customers
    2,336,411       1,755,707  
Other income
    12,737       6,263  
 
           
Total Revenues
    3,192,587       2,758,730  
 
           
 
               
Costs and Expenses
               
Cost of products sold and operating expenses
    3,079,588       2,654,460  
Depreciation and amortization
    18,311       18,157  
Selling, general and administrative expenses
    29,006       28,525  
 
           
Total Costs and Expenses
    3,126,905       2,701,142  
 
           
 
               
Operating Income
    65,682       57,588  
Net interest cost paid to affiliates (Note 3)
    1,594       723  
Other interest cost and debt expense, net
    18,025       13,866  
Capitalized interest
    (1,498 )     (1,745 )
 
           
Net Income
  $ 47,561     $ 44,744  
 
           
 
               
Calculation of Limited Partners’ interest in Net Income (Note 4):
               
Net Income
  $ 47,561     $ 44,744  
Less: General Partner’s interest in Net Income
    (5,631 )     (5,445 )
 
           
Limited Partners’ interest in Net Income
  $ 41,930     $ 39,299  
 
           
 
               
Net Income per Limited Partner unit:
               
Basic
  $ 1.47     $ 1.48  
 
           
Diluted
  $ 1.46     $ 1.48  
 
           
 
               
Weighted average Limited Partners’ units outstanding (Note 4):
               
Basic
    28,575,697       26,499,007  
 
           
Diluted
    28,713,365       26,623,554  
 
           
 
               
(See Accompanying Notes)

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SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
                 
    June 30,     December 31,  
    2007     2006  
    (UNAUDITED)          
Assets
               
Current Assets
               
Cash and cash equivalents
  $ 9,035     $ 9,412  
Advances to affiliates (Note 3)
    11,305       7,431  
Accounts receivable, affiliated companies (Note 3)
    75,926       98,952  
Accounts receivable, net
    922,304       776,505  
Inventories:
               
Crude oil
    90,911       69,552  
Materials, supplies and other
    724       732  
 
           
Total Current Assets
    1,110,205       962,584  
 
           
Properties, plants and equipment
    1,569,959       1,506,350  
Less accumulated depreciation and amortization
    (517,652 )     (499,682 )
 
           
Properties, plants and equipment, net
    1,052,307       1,006,668  
 
           
Investment in affiliates (Note 5)
    82,829       81,934  
Deferred charges and other assets
    25,800       30,891  
 
           
Total Assets
  $ 2,271,141     $ 2,082,077  
 
           
 
               
Liabilities and Partners’ Capital
               
Current Liabilities
               
Accounts payable
  $ 1,044,552     $ 922,495  
Accrued liabilities
    37,427       34,843  
Accrued taxes other than income
    19,953       22,869  
Advances from affiliates (Note 3)
           
 
           
Total Current Liabilities
    1,101,932       980,207  
Long-term debt (Note 6)
    563,907       491,910  
Other deferred credits and liabilities
    29,456       27,049  
Commitments and contingent liabilities (Note 7)
               
 
           
Total Liabilities
    1,695,295       1,499,166  
 
           
 
               
Partners’ Capital:
               
Limited partners’ interest
    573,737       576,004  
General partner’s interest
    2,109       6,907  
 
           
Total Partners’ Capital
    575,846       582,911  
 
           
Total Liabilities and Partners’ Capital
  $ 2,271,141     $ 2,082,077  
 
           
(See Accompanying Notes)

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SUNOCO LOGISTICS PARTNERS L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
                 
    Six Months Ended  
    June 30,  
    2007     2006  
Cash Flows from Operating Activities:
               
Net Income
  $ 47,561     $ 44,744  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    18,311       18,157  
Restricted unit incentive plan expense
    3,389       2,572  
Changes in working capital pertaining to operating activities net of the effect of acquisitions:
               
Accounts receivable, affiliated companies
    23,026       (28,808 )
Accounts receivable, net
    (145,799 )     (223,617 )
Inventories
    (21,351 )     506  
Accounts payable and accrued liabilities
    124,153       233,554  
Accrued taxes other than income
    (2,916 )     2,867  
Other
    6,978       (3,762 )
 
           
Net cash provided by operating activities
    53,352       46,213  
 
           
 
               
Cash Flows from Investing Activities:
               
Capital expenditures
    (50,642 )     (53,759 )
Acquisitions
    (13,173 )     (108,900 )
 
           
Net cash used in investing activities
    (63,815 )     (162,659 )
 
           
 
               
Cash Flows from Financing Activities:
               
Distributions paid to Limited Partners and General Partner
    (57,271 )     (45,047 )
Payments of statutory withholding on net issuance of Limited Partner units under restricted unit incentive plan
    (1,479 )     (1,443 )
Net proceeds from issuance of Limited Partner units
          110,357  
Contributions from General Partner for Limited Partner unit transactions
    58       2,426  
Net proceeds from issuance of Senior Notes
          173,307  
Advances to affiliates, net
    (3,874 )     (13,504 )
Borrowings under credit facility
    91,900       109,500  
Repayments under credit facility
    (20,000 )     (216,100 )
Contributions from affiliate
    752       747  
 
           
Net cash provided by financing activities
    10,086       120,243  
 
           
Net change in cash and cash equivalents
    (377 )     3,797  
Cash and cash equivalents at beginning of year
    9,412       21,645  
 
           
Cash and cash equivalents at end of period
  $ 9,035     $ 25,442  
 
           
(See Accompanying Notes)

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SUNOCO LOGISTICS PARTNERS L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
     Sunoco Logistics Partners L.P. (the “Partnership”) is a publicly traded Delaware limited partnership which owns and operates a geographically diverse portfolio of complementary assets, consisting of refined product pipelines, terminalling and storage assets, crude oil pipelines, and crude oil acquisition and marketing assets located in the Northeast, Midwest and South Central United States. Sunoco, Inc. and its wholly—owned subsidiaries including Sunoco, Inc. (R&M) are collectively referred to as “Sunoco”.
     The consolidated financial statements reflect the results of Sunoco Logistics Partners L.P. and its wholly-owned partnerships, including Sunoco Logistics Partners Operations L.P. (the “Operating Partnership”). Equity ownership interests in corporate joint ventures, which are not consolidated, are accounted for under the equity method.
     The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and accounting principles generally accepted in the United States for interim financial reporting. They do not include all disclosures normally made in financial statements contained in Form 10-K. In 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, 2007 are not necessarily indicative of results for the full year 2007.
2. Acquisitions
Syracuse Terminal Acquisition
     On June 4, 2007, the Partnership purchased a 50% undivided interest in a refined products terminal located in Syracuse, New York from Mobil Pipe Line Company, an affiliate of Exxon Mobil Corporation for approximately $13.2 million. Total terminal storage capacity is approximately 550,000 barrels. The purchase price of the acquisition was funded with borrowings under the Partnership’s Credit Facility, and has been preliminarily allocated to property, plants and equipment based on the relative fair value of the assets acquired on the acquisition date. The results of the acquisition are included in the financial statements within the Terminal Facilities business segment from the date of acquisition.
Mid-Valley Pipeline Acquisition
     On August 18, 2006, the Partnership purchased from Sunoco a 100 percent interest in Sun Pipe Line Company of Delaware LLC, the owner of a 55.3 percent equity interest (50 percent voting rights) in Mid-Valley Pipeline Company (“Mid-Valley”) for approximately $65.0 million, subject to certain adjustments five years following the date of closing, based on the throughput of Sunoco. Mid-Valley owns a 994-mile pipeline, which originates in Longview, Texas and terminates in Samaria, Michigan, and has operating capacity of approximately 238,000 bpd and 4.2 million shell barrels of storage capacity. Mid-Valley provides crude oil to a number of refineries, primarily in the Midwest United States. The purchase price of the acquisition was funded with $46.0 million in borrowings under the Partnership’s Credit Facility and with cash on hand. Since the acquisition was from a related party, the interest in the entity was recorded by the Partnership at Sunoco’s historical cost of approximately $12.5 million and the $52.5 million difference between the purchase price and the cost basis of the assets was recorded by the Partnership as a capital distribution. The results of the acquisition are included in the financial statements within the Western Pipeline System business segment from the date of acquisition.
Millennium and Kilgore Pipeline Acquisition
     On March 1, 2006, the Partnership purchased a Texas crude oil pipeline system from affiliates of Black Hills Energy, Inc. for approximately $40.9 million. The system consists of (a) the Millennium Pipeline, a 200-mile, 12-inch crude oil pipeline with approximately 65,000 bpd operating capacity, originating near the Partnership’s Nederland Terminal, and terminating at Longview Texas; (b) the Kilgore Pipeline, a 190-mile, 10-inch crude oil pipeline with approximately 35,000 barrel per day capacity originating in Kilgore, Texas and terminating at refineries in the Houston, Texas region; (c) approximately 900,000 shell barrels of storage capacity at Kilgore, and Longview, Texas, approximately 550,000 of which are inactive; (d) a crude oil sales and marketing business; and (e) crude oil line fill and working inventory. The purchase price of the acquisition was funded with borrowings under the Partnership’s Credit Facility. The purchase price has

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been allocated to the assets acquired based on their relative fair values at the acquisition date. The following is a summary of the effects of the transaction on the Partnership’s consolidated financial position (in thousands of dollars):
         
Increase in:
       
Inventories
  $ 2,189  
Properties, plants and equipment, net
    38,711  
 
     
Cash paid for acquisition
  $ 40,900  
 
     
     The results of the acquisition are included in the financial statements within the Western Pipeline System business segment from the date of acquisition.
Amdel and White Oil Pipeline Acquisition
     On March 1, 2006, the Partnership acquired a Texas crude oil pipeline system from Alon USA Energy, Inc. for approximately $68.0 million. The system consists of (a) the Amdel Pipeline, a 503-mile, 10-inch common carrier crude oil pipeline with approximately 27,000 bpd operating capacity, originating at the Nederland Terminal, and terminating at Midland, Texas, and (b) the White Oil Pipeline, a 25-mile, 10-inch crude oil pipeline with approximately 40,000 bpd operating capacity, originating at the Amdel Pipeline and terminating at Alon’s Big Spring, Texas refinery. The pipelines were idle at the time of purchase, were re-commissioned by the Partnership during the second quarter 2006 and began making deliveries during the fourth quarter 2006. During the first quarter of 2007, the Partnership completed a project to expand the capacity on the Amdel Pipeline from approximately 27,000 to 40,000 bpd. Construction on new tankage at the Nederland Terminal to service these new volumes more efficiently is expected to be completed during 2007. The purchase price of the acquisition was funded with borrowings under the Partnership’s Credit Facility, and has been allocated to property, plant and equipment based on the relative fair value of the assets acquired on the acquisition date. The results of the acquisition are included in the financial statements within the Western Pipeline System business segment from the date of acquisition.
3. Related Party Transactions
     Advances To and From Affiliates
     The Partnership has a treasury services agreement with Sunoco pursuant to which it, among other things, participates in Sunoco’s centralized cash management program. Under this program, all of the Partnership’s cash receipts and cash disbursements are processed, together with those of Sunoco and its other subsidiaries, through Sunoco’s cash accounts with a corresponding credit or charge to an intercompany account. The intercompany balances are settled periodically, but no less frequently than monthly. Amounts due from Sunoco earn interest at a rate equal to the average rate of the Partnership’s third-party money market investments, while amounts due to Sunoco bear interest at a rate equal to the interest rate provided in the Partnership’s revolving credit facility (see Note 6).
     Selling, general and administrative expenses in the condensed consolidated statements of income include costs incurred by Sunoco for the provision of certain centralized corporate functions such as legal, accounting, treasury, engineering, information technology, insurance and other corporate services, including the administration of employee benefit plans. These are provided to the Partnership under an omnibus agreement (“Omnibus Agreement”) with Sunoco for an annual administrative fee. The fee for the annual period ended December 31, 2006 was $7.7 million. In January 2007, the parties extended the term of Section 4.1 of the Omnibus Agreement (which concerns the Partnership’s obligation to pay the annual fee for provision of certain general and administrative services) by one year. The annual administrative fee applicable to this one-year extension is $6.5 million, which reflects the Partnership directly incurring some of these general and administrative costs. These costs may be increased if the acquisition or construction of new assets or businesses requires an increase in the level of general and administrative services received by the Partnership. There can be no assurance that Section 4.1 of the Omnibus Agreement will be extended beyond 2007, or that, if extended, the administrative fee charged by Sunoco will be at or below the current administrative fee. In the event that the Partnership is unable to obtain such services from Sunoco or third parties at or below the current cost, the Partnership’s financial condition and results of operations may be adversely impacted.
     The annual administrative fee does not include the costs of shared insurance programs, which are allocated to the Partnership based upon its share of the cash premiums incurred. This fee also does not include salaries of pipeline and

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terminal personnel or other employees of the general partner, or the cost of their employee benefits. These employees are employees of the Partnership’s general partner or its affiliates, which are wholly-owned subsidiaries of Sunoco. The Partnership has no employees. Allocated Sunoco employee benefit plan expenses for employees who work in the pipeline, terminalling, storage and crude oil gathering operations, including senior executives, include non-contributory defined benefit retirement plans, defined contribution 401(k) plans, employee and retiree medical, dental and life insurance plans, incentive compensation plans, and other such benefits. The Partnership is reimbursing Sunoco for these costs and other direct expenses incurred on its behalf. These expenses are reflected in cost of products sold and operating expenses and selling, general and administrative expenses in the condensed consolidated statements of income.
     Accounts Receivable, Affiliated Companies
     Affiliated revenues in the condensed consolidated statements of income consist of sales of crude oil as well as the provision of crude oil and refined product pipeline transportation, terminalling and storage services to Sunoco. Sales of crude oil are priced using market based rates. Pipeline revenues are generally determined using posted tariffs. In 2002, the Partnership entered into the pipelines and terminals storage and throughput agreement and various other agreements with Sunoco under which the Partnership is charging Sunoco fees for services provided under these agreements that, in management’s opinion, are comparable to those charged in arm’s-length, third-party transactions. During the first quarter of 2007, the agreement to throughput at the Partnership’s refined product terminals and to receive and deliver refined product into the Partnership’s Marcus Hook Tank Farm expired. During the second quarter of 2007, the Partnership executed new five year agreements with Sunoco to provide these services.
     Under various other agreements, Sunoco is, among other things, purchasing from the Partnership, at market-based rates, particular grades of crude oil that the Partnership’s crude oil acquisition and marketing business purchases for delivery to certain pipelines. These agreements automatically renew on a monthly basis unless terminated by either party on 30 days’ written notice. Sunoco also leases the Partnership’s 58 miles of interrefinery pipelines between Sunoco’s Philadelphia and Marcus Hook refineries for a term of 20 years.
     Capital Contributions
     The Partnership has agreements with Sunoco which requires Sunoco to, among other things, reimburse the Partnership for certain expenditures. These agreements include:
    the Interrefinery Lease Agreement, which requires Sunoco to reimburse the Partnership for any non-routine maintenance expenditures incurred, as defined through February 2022; and
    the Eagle Point purchase agreement, which requires Sunoco to reimburse the Partnership for certain capital improvement projects incurred regarding the assets acquired, as defined, up to $5.0 million through March 2014. The Partnership has received $2.6 million to date under this agreement.
     During the six months ended June 30, 2007 and 2006, the Partnership was reimbursed $0.8 million and $0.7 million, respectively, associated with these agreements. The reimbursement of these amounts was recorded by the Partnership as capital contributions to Partners’ Capital within the condensed consolidated balance sheet at June 30, 2007.
     In May 2006, the Partnership sold 2.4 million common units in a public offering. In June 2006, the Partnership sold an additional 280,000 common units to cover over-allotments in connection with the May 2006 sale (see Note 9). As a result of this issuance of 2.680 million common units, the general partner contributed $2.4 million to the Partnership to maintain its 2.0 percent general partner interest. The Partnership recorded this amount as a capital contribution to Partners’ Capital within its condensed consolidated balance sheet.
     In February 2007 and 2006, the Partnership issued 0.1 million common units in each period to participants in the Sunoco Partners LLC Long-Term Incentive Plan (“LTIP”) upon completion of award vesting requirements. As a result of these issuances of common units, the general partner contributed $0.1 million in each period to the Partnership to maintain its 2.0 percent general partner interest. The Partnership recorded these amounts as capital contributions to Partners’ Capital within its condensed consolidated balance sheets.
     Asset Acquisition
     On August 18, 2006, the Partnership purchased from Sunoco a 100 percent interest in Sun Pipe Line Company of Delaware LLC, the owner of a 55.3 percent equity interest (50 percent voting rights) in Mid-Valley Pipeline Company (“Mid-Valley”) for approximately $65 million, subject to certain adjustments five years following the date of closing, based

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on throughput of Sunoco (see Note 2). Since the acquisition was from a related party, the interest in the entity was recorded by the Partnership at Sunoco’s historical cost of approximately $12.5 million, and the $52.5 million difference between the purchase price and the cost basis of the assets was recorded by the Partnership as a capital distribution.
     Conversion of Subordinated Units
     A total of 11,383,639 subordinated limited partner units, equal to all of the originally issued subordinated units held by the general partner, have been converted into common units on a one-for-one basis, 2,845,910 each on February 15, 2005 and February 15, 2006 and 5,691,819 on February 15, 2007 (see Note 10).
4. Net Income Per Unit Data
     Basic and diluted net income per limited partner unit is calculated by dividing net income, after deducting the amount allocated to the general partner’s interest, by the weighted-average number of limited partner common and subordinated units outstanding during the period.
     The general partner’s interest in net income consists of its 2.0 percent general partner interest and “incentive distributions”, which are increasing percentages, up to 50 percent of quarterly distributions in excess of $0.50 per limited partner unit (see Note 10). The general partner was allocated net income of $3.6 million (representing 14.1 percent of total net income for the period) and $4.1 million (representing 15.6 percent of total net income for the period) for the three months ended June 30, 2007 and 2006, respectively, and $5.6 million (representing 11.8 percent of total net income for the period) and $5.4 million (representing 12.2 percent of total net income for the period) for the six months ended June 30, 2007 and 2006, respectively. Diluted net income per limited partner unit is calculated by dividing net income applicable to limited partners’ by the sum of the weighted-average number of common and subordinated units outstanding and the dilutive effect of incentive unit awards, as calculated by the treasury stock method.
     The following table sets forth the reconciliation of the weighted average number of limited partner units used to compute basic net income per limited partner unit to those used to compute diluted net income per limited partner unit for the three and six months ended June 30, 2007 and 2006:
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2007   2006   2007   2006
Weighted average number of limited partner units outstanding — basic
    28,586,280       27,466,092       28,575,697       26,499,007  
Add effect of dilutive unit incentive awards
    137,604       123,552       137,668       124,547  
 
                               
Weighted average number of limited partner units — diluted
    28,723,884       27,589,644       28,713,365       26,623,554  
 
                               
5. Investment in Affiliates
     The Partnership’s ownership percentages in corporate joint ventures as of June 30, 2007 and December 31, 2006 are as follows:
         
    Partnership
    Ownership
    Percentage
Mid-Valley Pipeline Company (1)
    55.3 %
West Texas Gulf Pipe Line Company
    43.8 %
Wolverine Pipe Line Company
    31.5 %
Yellowstone Pipe Line Company
    14.0 %
West Shore Pipe Line Company
    12.3 %
Explorer Pipeline Company
    9.4 %
 
(1)   The Partnership’s interest in the Mid-Valley Pipeline Company includes 50 percent voting rights.
     The following table provides summarized combined statement of income data on a 100 percent basis for the Partnership’s corporate joint venture interests for the three and six months ended June 30, 2007 and 2006 (in thousands of dollars):

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    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2007   2006   2007   2006
 
                               
Income Statement Data:
                               
Total revenues
  $ 133,564     $ 96,497     $ 243,253     $ 179,583  
Net income
  $ 40,573     $ 24,162     $ 70,545     $ 44,900  
     The following table provides summarized combined balance sheet data on a 100 percent basis for the Partnership’s corporate joint venture interests as of June 30, 2007 and December 31, 2006 (in thousands of dollars):
                 
    June 30,   December 31,
    2007   2006
 
               
Balance Sheet Data:
               
Current assets
  $ 122,421     $ 104,276  
Non-current assets
  $ 485,357     $ 489,514  
Current liabilities
  $ 122,780     $ 111,476  
Non-current liabilities
  $ 394,119     $ 399,826  
Net equity
  $ 90,879     $ 83,028  
     The Partnership’s investments in Wolverine, West Shore, Yellowstone, and West Texas Gulf at June 30 2007 include an excess investment amount of approximately $54.6 million, net of accumulated amortization of $2.9 million. The excess investment is the difference between the investment balance and the Partnership’s proportionate share of the net assets of the entities. The excess investment was allocated to the underlying tangible and intangible assets. Other than land and indefinite-lived intangible assets, all amounts allocated, principally to pipeline and related assets, are amortized using the straight-line method over their estimated useful life of 40 years and included within depreciation and amortization in the condensed consolidated statements of income.
6. Long-Term Debt
     The components of long-term debt are as follows (in thousands of dollars):
                 
    June 30,   December 31,
    2007   2006
Credit Facility
  $ 139,900     $ 68,000  
Senior Notes — 7.25%, due February 15, 2012
    250,000       250,000  
Senior Notes — 6.125%, due May 15, 2016
    175,000       175,000  
Less unamortized bond discount
    (993 )     (1,090 )
 
               
 
  $ 563,907     $ 491,910  
 
               
     Sunoco Logistics Partners Operations L.P. (the “Operating Partnership”), a wholly-owned entity of the Partnership, has a $300 million Credit Facility available to fund the Operating Partnership’s working capital requirements, to finance future acquisitions and for general partnership purposes. It may also be used to fund the quarterly distribution to a maximum of $20.0 million. Borrowing under this distribution sublimit must be reduced to zero each year for a 15-day period. The Credit Facility matures in November 2010 and may be prepaid at any time. It bears interest at the Operating Partnership’s option, at either (i) LIBOR plus an applicable margin or (ii) the higher of the federal funds rate plus 0.50 percent or the Citibank prime rate (each plus the applicable margin). There were $139.9 million of outstanding borrowings under the Credit Facility at June 30, 2007. The Credit Facility contains various covenants limiting the Operating Partnership’s ability to incur indebtedness; grant certain liens; make certain loans, acquisitions and investments; make any material change to the nature of its business; acquire another company; or enter into a merger or sale of assets, including the sale or transfer of interests in the Operating Partnership’s subsidiaries. The Credit Facility also contains covenants (each as defined in the credit agreement) requiring the Operating Partnership to maintain, on a rolling four-quarter basis, a maximum total debt to EBITDA ratio of 4.75 to 1, which can generally be increased to 5.25 to 1 during an acquisition period; and an interest coverage ratio of at least 3.0 to 1. The Operating Partnership is in compliance with these covenants as of June 30, 2007. The Partnership’s ratio of total debt to EBITDA was 3.4 to 1 and the interest coverage ratio was 4.4 to 1 at June 30, 2007.
     On March 1, 2006, the Partnership completed its acquisition of two Texas crude oil pipeline systems for $108.9 million (see Note 2). The Partnership initially financed these transactions with $109.5 million of borrowings under the Credit Facility.

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     During May 2006, the Operating Partnership issued $175 million of 6.125 percent Senior Notes, due May 15, 2016 at 99.858 percent of the principal amount, for net proceeds of $173.3 million after the underwriter’s commission and legal, accounting and other transaction expenses. The Senior Notes are redeemable, at a make-whole premium, and are not subject to sinking fund provisions. The Senior Notes contain various covenants limiting the Operating Partnership’s ability to incur certain liens, engage in sale/leaseback transactions, or merge, consolidate or sell substantially all of its assets. The Operating Partnership is in compliance with these covenants as of March 31, 2007. The net proceeds from the Senior Notes, together with the $110.3 million in net proceeds from the concurrent offering of 2.68 million limited partner common units (see Note 9), were used to repay all of the $216.1 million in outstanding borrowings under the Partnership’s Credit Facility. The balance of the proceeds from the offerings were used to fund the Partnership’s organic growth program and for general Partnership purposes, including to finance pending and future acquisitions.
     On August 21, 2006, the Partnership purchased from Sunoco a 100 percent interest in Sun Pipe Line Company of Delaware LLC, the owner of a 55.3 percent equity interest in Mid-Valley Pipeline Company (“Mid-Valley”) for $65 million, subject to certain adjustments five years following the date of closing (see Note 2). The purchase price of the acquisition was funded with $46.0 million in borrowings under the Partnership’s Credit Facility and with cash on hand.
     On June 4, 2007, the Partnership purchased a 50% undivided interest in a refined products terminal located in Syracuse, New York from Mobil Pipe Line Company, an affiliate of Exxon Mobil Corporation for approximately $13.2 million. The purchase price of the acquisition was funded with $11.9 million in borrowings under the Partnership’s Credit Facility and with cash on hand.
     The Partnership and the operating partnerships of the Operating Partnership serve as joint and several guarantors of the Senior Notes and of any obligations under the Credit Facility. The guarantees are full and unconditional. See Note 13 for supplemental condensed consolidating financial information.
7. Commitments and Contingent Liabilities
     The Partnership is subject to numerous federal, state and local laws which regulate the discharge of materials into the environment or that otherwise relate to the protection of the environment. These laws and regulations result in liabilities and loss contingencies for remediation at the Partnership’s facilities and at third-party or formerly owned sites. The accrued liability for environmental remediation in the condensed consolidated balance sheets was $1.8 million and $0.5 million as of June 30, 2007 and December 31, 2006, respectively. There are no liabilities attributable to unasserted claims, nor have any recoveries from insurance been assumed.
     Total future costs for environmental remediation activities will depend upon, among other things, the identification of any additional sites, the determination of the extent of any contamination at each site, the timing and nature of required remedial actions, the technology available and needed to meet the various existing legal requirements, the nature and extent of future environmental laws, inflation rates and the determination of the 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. As discussed below, the Partnership’s future costs will also be impacted by an indemnification from Sunoco.
     Sunoco has indemnified the Partnership for 30 years from environmental and toxic tort liabilities related to the assets contributed to the Partnership that arise from the operation of such assets prior to the closing of the Partnership’s initial public offering (“IPO”) on February 8, 2002. Sunoco has indemnified the Partnership for 100 percent of all such losses asserted within the first 21 years of closing of the February 2002 IPO. Sunoco’s share of liability for claims asserted thereafter will decrease by 10 percent a year. For example, for a claim asserted during the twenty-third year after closing of the February 2002 IPO, Sunoco would be required to indemnify the Partnership for 80 percent of its loss. There is no monetary cap on the amount of indemnity coverage provided by Sunoco. The Partnership has agreed to indemnify Sunoco and its affiliates for events and conditions associated with the operation of the Partnership’s assets that occur on or after the closing of the February 2002 IPO and for environmental and toxic tort liabilities to the extent Sunoco is not required to indemnify the Partnership.
     Sunoco has also indemnified the Partnership for liabilities, other than environmental and toxic tort liabilities related to the assets contributed to the Partnership, that arise out of Sunoco’s ownership and operation of the assets prior to the closing of the February 2002 IPO and that are asserted within 10 years after closing of the February 2002 IPO. In addition, Sunoco has indemnified the Partnership from liabilities relating to certain defects in title to the assets contributed to the Partnership and associated with failure to obtain certain consents and permits necessary to conduct its business that arise within 10 years after closing of the February 2002 IPO as well as from liabilities relating to legal actions pending against Sunoco or its affiliates as of February 2, 2002, or events and conditions associated with any assets retained by Sunoco or its affiliates.

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     Management of the Partnership does not believe that any liabilities which may arise from claims indemnified by Sunoco would be material in relation to the consolidated financial position of the Partnership at June 30, 2007. There are certain other pending legal proceedings related to matters arising after the February 2002 IPO which are not indemnified by Sunoco. Management believes that any liabilities that may arise from these legal proceedings will not be material in relation to the consolidated financial position of the Partnership at June 30, 2007.
8. 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. 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 non-independent members of the general partners’ 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 aggregate of 1,250,000 common units. There have been no grants of unit options since the inception of the LTIP. Restricted unit awards under the Partnership’s LTIP generally vest upon completion of a three-year service period. For performance-based awards, adjustments for attainment of performance targets can range from 0—200 percent of the award grant, and are payable in common units. Restricted unit awards may also include tandem distribution equivalent rights (“DERs”) at the discretion of the Compensation Committee. Subject to applicable vesting criteria, a DER entitles the grantee to a cash payment equal to cash distributions paid on an outstanding common unit during the period the restricted unit is outstanding. DERs are recognized as a reduction of Partners’ Capital as they become vested.
     As of June 30, 2007, there were approximately 0.2 million unvested restricted units outstanding with a weighted average grant-date fair value of $46.59 per unit, and a contractual life of three years. As of June 30, 2007, total compensation cost related to non-vested awards not yet recognized was $3.2 million, and the weighted-average period over which this cost is expected to be recognized in expense is 1.6 years. The number of restricted stock units outstanding and the total compensation cost related to non-vested awards not yet recognized reflect the Partnership’s estimates of performance factors pertaining to performance-based restricted unit awards.
     Effective January 1, 2006, the Partnership adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), using the modified-prospective method. SFAS No. 123R revised the accounting for stock-based compensation required by Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Among other things, SFAS No. 123R requires a fair-value-based method of accounting for share-based payment transactions, which is similar to the method followed by the Partnership under the provisions of SFAS No. 123.
     SFAS No. 123R also requires the use of a non-substantive vesting period approach for new share-based payment awards that vest when an employee becomes retirement eligible, as is the case under the Partnership’s LTIP (i.e., the vesting period cannot exceed the date an employee becomes retirement eligible). The effect will be to accelerate expense recognition compared to the vesting period approach that the Partnership previously followed under SFAS No. 123.
     The Partnership recognized share-based compensation expense related to the LTIP of approximately $3.4 million in the first six months of 2007 and $2.6 million for the first six months of 2006. During the first quarter of 2007, the Partnership issued 50,410 new common units (after netting for taxes of approximately $1.5 million) and made DER-related payments of approximately $0.6 million in connection with the vesting.
9. Equity Offerings
     In May 2006, the Partnership sold 2.4 million common units in a public offering at a price of $43.00 per unit. In June 2006, the Partnership sold an additional 280,000 common units to cover over-allotments in connection with the May 2006 sale. The purchase price for the over allotment was equal to the offering price in the May 2006 sale. The total sale of units resulted in gross proceeds of $115.2 million, and net proceeds of $110.3 million, after the underwriters’ commission and legal, accounting and other transaction expenses. Net proceeds of the offering, together with the $173.3 million in net proceeds from the concurrent offering of Senior Notes (see Note 6), were used to repay $216.1 million of the debt incurred under the revolving credit facility, to fund the Partnership’s 2006 organic growth program, and for general partnership purposes. Also as a result of the issuance of these units, the general partner contributed $2.4 million to the Partnership to maintain its 2.0 percent general partner interest. At June 30, 2007, Sunoco’s ownership in the Partnership, including its 2.0 percent general partner interest, was 43.4 percent.

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10. 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 in its discretion. This is defined as “available cash” in the partnership agreement. The general partner has broad discretion to establish cash reserves that it determines are necessary or appropriate to properly conduct the Partnership’s business. The Partnership will make quarterly distributions to the extent there is sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to the general partner.
     The Partnership issued 11,383,639 subordinated units to its general partner in connection with the February 2002 IPO. The Partnership had 5,691,819 subordinated units outstanding as of December 31, 2006, all of which were held by the general partner, and for which there is no established public trading market. Any subordinated units that remain outstanding at the end of the subordination period convert to common units on a one-for-one basis if the Partnership meets certain required financial tests set forth in the Partnership Agreement. Upon conversion to common units, the subordinated units will no longer be subordinated to the rights of the holders of common units.
     The Partnership has met the minimum quarterly distribution requirements on all outstanding units for each of the four-quarter periods ended December 31, 2004, 2005 and 2006. As a result, the total of 11,383,639 subordinated units have been converted into common units on a one-for-one basis, 2,845,910 each on February 15, 2005 and February 15, 2006 and 5,691,819 on February 15, 2007.
     The Partnership will, in general, pay cash distributions each quarter in the following manner:
                 
    Percentage of Distributions
Quarterly Cash Distribution Amount per Unit   Unitholders   General Partner
Up to minimum quarterly distribution ($0.45 per Unit)
    98 %     2 %
Above $0.45 per Unit up to $0.50 per Unit
    98 %     2 %
Above $0.50 per Unit up to $0.575 per Unit
    85 %     15 %
Above $0.575 per Unit up to $0.70 per Unit
    75 %     25 %
Above $0.70 per Unit
    50 %     50 %
     If cash distributions exceed $0.50 per unit in a quarter, the general partner will receive increasing percentages, up to 50 percent, of the cash distributed in excess of that amount. These distributions are referred to as “incentive distributions”. The amounts shown in the table under “Percentage of Distributions” are the percentage interests of the general partner and the unitholders in any available cash from operating surplus that is distributed up to and including the corresponding amount in the column “Quarterly Cash Distribution Amount per Unit,” until the available cash that is distributed reaches the next target distribution level, if any. The percentage interests shown for the unitholders and the general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution.
     Distributions paid by the Partnership for the period from January 1, 2006 through June 30, 2007 were as follows:
                         
    Cash           Total Cash
    Distribution   Total Cash   Distribution to
    per Limited   Distribution to   the General
Date Cash Distribution Paid   Partner Unit   Limited Partners   Partner
            ($ in millions)   ($ in millions)
February 14, 2006
  $ 0.7125     $ 18.4     $ 2.0  
May 15, 2006
  $ 0.7500     $ 21.4     $ 3.3  
August 14, 2006
  $ 0.7750     $ 22.1     $ 4.0  
November 14, 2006
  $ 0.7875     $ 22.4     $ 4.4  
February 14, 2007
  $ 0.8125     $ 23.2     $ 5.1  
May 15, 2007
  $ 0.8250     $ 23.6     $ 5.4  
     On July 24, 2007, Sunoco Partners LLC, the general partner of Sunoco Logistics Partners L.P., declared a cash distribution of $0.8375 per common partnership unit ($3.35 annualized), representing the distribution for the second quarter 2007. The $29.7 million distribution, including $5.8 million to the general partner, will be paid on August 14, 2007 to unitholders of record at the close of business on August 7, 2007.

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11. Exit Costs Associated with Western Pipeline Headquarters Relocation
     On June 10, 2005, the Partnership announced its intention to relocate its Western area headquarters operations from Tulsa, Oklahoma to the Houston, Texas area. The Partnership offered to relocate all affected employees. The Partnership substantially completed the relocation during the first quarter 2006.
     The total non-recurring expenses incurred in connection with the relocation plan amounted to $5.0 million, including $2.9 million recognized during the first quarter 2006. These costs consist primarily of employee relocation costs, one-time termination benefits and new hire expenses. These costs are included in selling, general and administrative expenses in the condensed statement of income, and are included in the operating results for the Western Pipeline System segment. In addition, the total capital expenditures associated with the move amounted to $5.5 million, including $2.8 million in the first quarter 2006. These capital expenditures include furniture and equipment, communication infrastructure and a pipeline control center. The Partnership has not incurred any material costs related to the move since the first quarter of 2006, and does not expect the remaining costs related to the relocation to be material.

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12. Business Segment Information
     The following table sets forth condensed statement of income information concerning the Partnership’s business segments and reconciles total segment operating income to net income for the three months ended June 30, 2007 and 2006, respectively (in thousands of dollars):
                 
    Three Months Ended June 30,  
    2007     2006  
 
Segment Operating Income
               
 
               
Eastern Pipeline System:
               
Sales and other operating revenue:
               
Affiliates
  $ 19,455     $ 18,849  
Unaffiliated customers
    8,461       6,274  
Other income
    3,796       2,859  
 
           
Total Revenues
    31,712       28,082  
 
           
Operating expenses
    13,627       9,583  
Depreciation and amortization
    2,249       2,568  
Selling, general and administrative expenses
    5,021       4,604  
 
           
Total Costs and Expenses
    20,897       16,755  
 
           
Operating Income
  $ 10,815     $ 11,327  
 
           
 
               
Terminal Facilities:
               
Sales and other operating revenue:
               
Affiliates
  $ 3,045     $ 20,803  
Unaffiliated customers
    12,241       9,574  
Other income
    (7 )      
 
           
Total Revenues
    35,279       30,377  
 
           
Operating expenses
    12,797       12,739  
Depreciation and amortization
    3,815       3,880  
Selling, general and administrative expenses
    3,139       3,883  
 
           
Total Costs and Expenses
    19,751       20,502  
 
           
Operating Income
  $ 15,528     $ 9,875  
 
           
 
               
Western Pipeline System:
               
Sales and other operating revenue:
               
Affiliates
  $ 348,870     $ 478,687  
Unaffiliated customers
    1,218,208       957,209  
Other income
    3,909       1,013  
 
           
Total Revenues
    1,570,987       1,436,909  
 
           
Cost of products sold and operating expenses
    1,553,906       1,417,352  
Depreciation and amortization
    3,343       2,763  
Selling, general and administrative expenses
    5,327       5,035  
 
           
Total Costs and Expenses
    1,562,576       1,425,150  
 
           
Operating Income
  $ 8,411     $ 11,759  
 
           
 
               
Reconciliation of Segment Operating Income to Net Income:
               
Operating Income:
               
Eastern Pipeline System
  $ 10,815     $ 11,327  
Terminal Facilities
    15,528       9,875  
Western Pipeline System
    8,411       11,759  
 
           
Total segment operating income
    34,754       32,961  
Net interest expense
    9,500       6,641  
 
           
Net Income
  $ 25,254     $ 26,320  
 
           

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     The following table sets forth condensed statement of income information concerning the Partnership’s business segments and reconciles total segment operating income to net income for the six months ended June 30, 2007 and 2006, respectively (in thousands of dollars):
                 
    Six Months Ended June 30,  
    2007     2006  
 
Segment Operating Income
               
 
               
Eastern Pipeline System:
               
Sales and other operating revenue:
               
Affiliates
  $ 38,299     $ 37,387  
Unaffiliated customers
    16,591       13,112  
Other income
    6,332       4,831  
 
           
Total Revenues
    61,222       55,330  
 
           
Operating expenses
    25,583       20,232  
Depreciation and amortization
    4,556       5,218  
Selling, general and administrative expenses
    10,580       8,672  
 
           
Total Costs and Expenses
    40,719       34,122  
 
           
Operating Income
  $ 20,503     $ 21,208  
 
           
 
               
Terminal Facilities:
               
Sales and other operating revenue:
               
Affiliates
  $ 44,489     $ 39,959  
Unaffiliated customers
    23,685       19,531  
Other income
    (15 )     7  
 
           
Total Revenues
    68,159       59,497  
 
           
Operating expenses
    25,278       25,296  
Depreciation and amortization
    7,490       7,580  
Selling, general and administrative expenses
    7,608       7,356  
 
           
Total Costs and Expenses
    40,376       40,232  
 
           
Operating Income
  $ 27,783     $ 19,265  
 
           
 
               
Western Pipeline System:
               
Sales and other operating revenue:
               
Affiliates
  $ 760,651     $ 919,414  
Unaffiliated customers
    2,296,135       1,723,064  
Other income
    6,420       1,425  
 
           
Total Revenues
    3,063,206       2,643,903  
 
           
Cost of products sold and operating expenses
    3,028,727       2,608,932  
Depreciation and amortization
    6,265       5,359  
Selling, general and administrative expenses
    10,818       12,497  
 
           
Total Costs and Expenses
    3,045,810       2,626,788  
 
           
Operating Income
  $ 17,396     $ 17,115  
 
           
 
               
Reconciliation of Segment Operating Income to Net Income:
               
Operating Income:
               
Eastern Pipeline System
  $ 20,503     $ 21,208  
Terminal Facilities
    27,783       19,265  
Western Pipeline System
    17,396       17,115  
 
           
Total segment operating income
    65,682       57,588  
Net interest expense
    18,121       12,844  
 
           
Net Income
  $ 47,561     $ 44,744  
 
           

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     The following table provides the identifiable assets for each segment as of June 30, 2007 and December 31, 2006 (in thousands):
                 
    June 30, 2007     December 31, 2006  
Eastern Pipeline System
  $ 366,882     $ 367,718  
Terminal Facilities
    374,425       341,878  
Western Pipeline System
    1,498,661       1,346,232  
Corporate and other
    31,173       26,249  
 
           
Total identifiable assets
  $ 2,271,141     $ 2,082,077  
 
           
     Corporate and other assets consist primarily of cash and cash equivalents, advances to affiliates and deferred charges.
13. Supplemental Condensed Consolidating Financial Information
     The Partnership and the operating subsidiaries of the Operating Partnership serve as joint and several guarantors of the 6.125% and 7.25% Senior Notes and of any obligations under the Credit Facility. The guarantees are full and unconditional. Given that certain, but not all subsidiaries of the Partnership are guarantors, the Partnership is required to present the following supplemental condensed consolidating financial information. For purposes of the following footnote, Sunoco Logistics Partners, L.P. is referred to as “Parent” and Sunoco Logistics Partners Operations L.P. is referred to as “Subsidiary Issuer.” Sunoco Partners Marketing and Terminals L.P., Sunoco Pipeline L.P., Sun Pipeline Company of Delaware LLC and Sunoco Pipeline Acquisition LLC are collectively referred to as the “Subsidiary Guarantors”. Sunoco Logistics Partners GP LLC, Sunoco Logistics Partners Operations GP LLC and Sunoco Partners Lease Acquisition & Marketing LLC, are referred to as “Non-Guarantor Subsidiaries.”
     The following supplemental condensed consolidating financial information (in thousands) reflects the Parent’s separate accounts, the Subsidiary Issuer’s separate accounts, the combined accounts of the Subsidiary Guarantors, the combined accounts of the Non-Guarantor Subsidiaries, the combined consolidating adjustments and eliminations and the Parent’s consolidated accounts for the dates and periods indicated. For purposes of the following condensed consolidating information, the Parent’s investments in its subsidiaries and the Subsidiary Issuer’s investments in its subsidiaries are accounted for under the equity method of accounting.

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Condensed Consolidating Statement of Income
Three Months Ended June 30, 2007
(unaudited)
                                                 
                            Non-              
            Subsidiary     Subsidiary     Guarantor     Consolidating        
    Parent     Issuer     Guarantors     Subsidiaries     Adjustments     Total  
Revenues
                                               
Sales and other operating revenue:
                                               
Affiliates
  $     $     $ 391,370     $     $     $ 391,370  
Unaffiliated customers
                1,238,910                   1,238,910  
Equity in earnings of subsidiaries
    25,257       33,932             3       (59,192 )      
Other income
                7,698                   7,698  
 
                                   
Total Revenues
    25,257       33,932       1,637,978       3       (59,192 )     1,637,978  
 
                                   
Costs and Expenses
                                               
Cost of products sold and operating expenses
                1,580,324       6             1,580,330  
Depreciation and amortization
                9,407                   9,407  
Selling, general and administrative expenses
                13,487                   13,487  
 
                                   
Total Costs and Expenses
                1,603,218       6             1,603,224  
 
                                   
Operating Income
    25,257       33,932       34,760       (3 )     (59,192 )     34,754  
Net interest cost paid to affiliates
          234       825                   1,059  
Other interest cost and debt expenses, net
          9,386                         9,386  
Capitalized interest
          (945 )                       (945 )
 
                                   
Net Income (Loss)
  $ 25,257     $ 25,257     $ 33,935     $ (3 )   $ (59,192 )   $ 25,254  
 
                                   

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Condensed Consolidating Statement of Income
Three Months Ended June 30, 2006
(unaudited)
                                                 
                            Non-              
            Subsidiary     Subsidiary     Guarantor     Consolidating        
    Parent     Issuer     Guarantors     Subsidiaries     Adjustments     Total  
Revenues
                                               
Sales and other operating revenue:
                                               
Affiliates
  $     $     $ 518,439     $     $     $ 518,439  
Unaffiliated customers
                973,057                   973,057  
Equity in earnings of subsidiaries
    26,317       32,970             3       (59,290 )      
Other income
                3,872                   3,872  
 
                                   
Total Revenues
    26,317       32,970       1,494,368       3       (59,290 )     1,495,368  
 
                                   
Costs and Expenses
                                               
Cost of products sold and operating expenses
                1,439,674                   1,439,674  
Depreciation and amortization
                9,211                   9,211  
Selling, general and administrative expenses
                13,522                   13,522  
 
                                   
Total Costs and Expenses
                1,462,407                   1,462,407  
 
                                   
Operating Income
    26,317       32,970       32,961       3       (59,290 )     32,961  
Net interest cost paid to / (received from) affiliates
          426       (12 )                 414  
Other interest cost and debt expenses, net
          7,416                         7,416  
Capitalized interest
          (1,189 )                       (1,189 )
 
                                   
Net Income
  $ 26,317     $ 26,317     $ 32,973     $ 3     $ (59,290 )   $ 26,320  
 
                                   

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Condensed Consolidating Statement of Income
Six Months Ended June 30, 2007
(unaudited)
                                                 
                            Non-              
            Subsidiary     Subsidiary     Guarantor     Consolidating        
    Parent     Issuer     Guarantors     Subsidiaries     Adjustments     Total  
Revenues
                                               
Sales and other operating revenue:
                                               
Affiliates
  $     $     $ 843,439     $     $     $ 843,439  
Unaffiliated customers
                2,336,411                   2,336,411  
Equity in earnings of subsidiaries
    47,561       64,032             6       (111,599 )      
Other income
                12,737                   12,737  
 
                                   
Total Revenues
    47,561       64,032       3,192,587       6       (111,599 )     3,192,587  
 
                                   
Costs and Expenses
                                               
Cost of products sold and operating expenses
                3,079,582       6             3,079,588  
Depreciation and amortization
                18,311                   18,311  
Selling, general and administrative expenses
                29,006                   29,006  
 
                                   
Total Costs and Expenses
                3,126,899       6             3,126,905  
 
                                   
Operating Income
    47,561       64,032       65,688             (111,599 )     65,682  
Net interest cost paid to / (received from) affiliates
          (56 )     1,650                   1,594  
Other interest cost and debt expenses, net
          18,025                         18,025  
Capitalized interest
          (1,498 )                       (1,498 )
 
                                   
Net Income
  $ 47,561     $ 47,561     $ 64,038     $     $ (111,599 )   $ 47,561  
 
                                   

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Condensed Consolidating Statement of Income
Six Months Ended June 30, 2006
(unaudited)
                                                 
                            Non-              
            Subsidiary     Subsidiary     Guarantor     Consolidating        
    Parent     Issuer     Guarantors     Subsidiaries     Adjustments     Total  
Revenues
                                               
Sales and other operating revenue:
                                               
Affiliates
  $     $     $ 996,760     $     $     $ 996,760  
Unaffiliated customers
                1,755,707                   1,755,707  
Equity in earnings of subsidiaries
    44,738       58,084             6       (102,828 )      
Other income
                6,263                   6,263  
 
                                   
Total Revenues
    44,738       58,084       2,758,730       6       (102,828 )     2,758,730  
 
                                   
Costs and Expenses
                                               
Cost of products sold and operating expenses
                2,654,460                   2,654,460  
Depreciation and amortization
                18,157                   18,157  
Selling, general and administrative expenses
                28,525                   28,525  
 
                                   
Total Costs and Expenses
                2,701,142                   2,701,142  
 
                                   
Operating Income
    44,738       58,084       57,588       6       (102,828 )     57,588  
Net interest cost paid to / (received from) affiliates
          1,225       (502 )                 723  
Other interest cost and debt expenses, net
          13,866                         13,866  
Capitalized interest
          (1,745 )                       (1,745 )
 
                                   
Net Income
  $ 44,738     $ 44,738     $ 58,090     $ 6     $ (102,828 )   $ 44,744  
 
                                   

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Condensed Consolidating Balance Sheet
June 30, 2007
(unaudited)
                                                 
                            Non-              
            Subsidiary     Subsidiary     Guarantor     Consolidating        
    Parent     Issuer     Guarantors     Subsidiaries     Adjustments     Total  
Assets
                                               
Current Assets
                                               
Cash and cash equivalents
  $     $ 9,035     $     $     $     $ 9,035  
Advances to affiliates
    (3,424 )     57,516       (42,787 )                 11,305  
Accounts receivable, affiliated companies
                75,926                   75,926  
Accounts receivable, net
                922,304                   922,304  
Inventories
                                               
Crude oil
                90,911                   90,911  
Materials, supplies and other
                724                   724  
 
                                   
Total Current Assets
    (3,424 )     66,551       1,047,078                   1,110,205  
 
                                   
Properties, plants and equipment, net
                1,052,307                   1,052,307  
Investment in affiliates
    576,723       1,127,595       82,829       109       (1,704,427 )     82,829  
Deferred charges and other assets
          2,984       22,816                   25,800  
 
                                   
Total Assets
  $ 573,299     $ 1,197,130     $ 2,205,030     $ 109     $ (1,704,427 )   $ 2,271,141  
 
                                   
Liabilities and Partners’ Capital
                                               
Current Liabilities
                                               
Accounts payable
  $     $ 3     $ 1,044,549     $     $     $ 1,044,552  
Accrued liabilities
    1,062       5,352       31,013                   37,427  
Accrued taxes other than income
                19,982       (29 )           19,953  
 
                                   
Total Current Liabilities
    1,062       5,355       1,095,544       (29 )           1,101,932  
 
                                   
Long-term debt
          563,907                         563,907  
Other deferred credits and liabilities
                29,456                   29,456  
 
                                   
Total Liabilities
    1,062       569,262       1,125,000       (29 )           1,695,295  
 
                                   
Total Partners’ Capital
    572,237       627,868       1,080,030       138       (1,704,427 )     575,846  
 
                                   
Total Liabilities and Partners’ Capital
  $ 573,299     $ 1,197,130     $ 2,205,030     $ 109     $ (1,704,427 )   $ 2,271,141  
 
                                   

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Condensed Consolidating Balance Sheet
December 31, 2006
                                                 
                            Non-              
            Subsidiary     Subsidiary     Guarantor     Consolidating        
    Parent     Issuer     Guarantors     Subsidiaries     Adjustments     Total  
Assets
                                               
Current Assets
                                               
Cash and cash equivalents
  $     $ 9,412     $     $     $     $ 9,412  
Advances to affiliates
    3,549       48,000       (44,118 )                 7,431  
Accounts receivable, affiliated companies
                98,952                   98,952  
Accounts receivable, net
                776,505                   776,505  
Inventories
                                               
Crude oil
                69,552                   69,552  
Materials, supplies and other
                732                   732  
 
                                   
Total Current Assets
    3,549       57,412       901,623                   962,584  
 
                                   
Properties, plants and equipment, net
                1,006,668                   1,006,668  
Investment in affiliates
    576,601       1,063,942       81,934       99       (1,640,642 )     81,934  
Deferred charges and other assets
          3,331       27,560                   30,891  
 
                                   
Total Assets
  $ 580,150     $ 1,124,685     $ 2,017,785     $ 99     $ (1,640,642 )   $ 2,082,077  
 
                                   
Liabilities and Partners’ Capital
                                               
Current Liabilities
                                               
Accounts payable
  $     $     $ 922,495     $     $     $ 922,495  
Accrued liabilities
    1,109       6,970       26,764                   34,843  
Accrued taxes other than income
                22,898       (29 )           22,869  
 
                                   
Total Current Liabilities
    1,109       6,970       972,157       (29 )           980,207  
 
                                   
Long-term debt
          491,910                         491,910  
Other deferred credits and liabilities
                27,049                   27,049  
 
                                   
Total Liabilities
    1,109       498,880       999,206       (29 )           1,499,166  
 
                                   
Total Partners’ Capital
    579,041       625,805       1,018,579       128       (1,640,642 )     582,911  
 
                                   
Total Liabilities and Partners’ Capital
  $ 580,150     $ 1,124,685     $ 2,017,785     $ 99     $ (1,640,642 )   $ 2,082,077  
 
                                   

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Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2007
(unaudited)
                                                 
                            Non-              
            Subsidiary     Subsidiary     Guarantor     Consolidating        
    Parent     Issuer     Guarantors     Subsidiaries     Adjustments     Total  
Net Cash Flows from Operating Activities
  $ 47,514     $ 46,293     $ 71,144     $     $ (111,599 )   $ 53,352  
 
                                   
Cash Flows from Investing Activities:
                                               
Capital expenditures
                (50,642 )                 (50,642 )
Acquisitions
                (13,173 )                 (13,173 )
Intercompany
    2,726       (109,054 )     (5,271 )           111,599        
 
                                   
 
    2,726       (109,054 )     (69,086 )             111,599       (63,815 )
 
                                   
Cash Flows from Financing Activities:
                                               
Distribution paid to Limited Partners and General Partner
    (57,271 )                             (57,271 )
Payments of statutory withholding on net issuance of Limited Partner units under restricted unit incentive plan
                (1,479 )                 (1,479 )
Contribution from General Partner for Limited Partner unit transactions
    58                               58  
Repayments from (advances to) affiliates, net
    6,973       (9,516 )     (1,331 )                 (3,874 )
Borrowings under credit facility
          91,900                         91,900  
Repayments under credit facility
          (20,000 )                       (20,000 )
Contributions from (distributions to) affiliate
                752                   752  
 
                                   
 
    (50,240 )     62,384       (2,058 )                 10,086  
 
                                   
Net change in cash and cash equivalents
          (377 )                       (377 )
Cash and cash equivalents at beginning of year
          9,412                         9,412  
 
                                   
Cash and cash equivalents at end of period
  $     $ 9,035     $     $     $     $ 9,035  
 
                                   

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Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2006
(unaudited)
                                                 
                            Non-              
            Subsidiary     Subsidiary     Guarantor     Consolidating        
    Parent     Issuer     Guarantors     Subsidiaries     Adjustments     Total  
Net Cash Flows from Operating Activities
  $ 44,676     $ 44,999     $ 59,360     $ 6     $ (102,828 )   $ 46,213  
 
                                   
Cash Flows from Investing Activities:
                                               
Capital expenditures
                (53,759 )                 (53,759 )
Acquisitions
                (108,900 )                 (108,900 )
Intercompany
    (97,950 )     (107,909 )     103,037       (6 )     102,828        
 
                                   
 
    (97,950 )     (107,909 )     (59,622 )     (6 )     102,828       (162,659 )
 
                                   
Cash Flows from Financing Activities:
                                               
Distribution paid to Limited Partners and General Partner
    (45,047 )                             (45,047 )
Payments of statutory withholding on net issuance of Limited Partner units under restricted unit incentive plan
                (1,443 )                 (1,443 )
Net proceeds from issuance of Limited Partner Units
    110,357                               110,357  
Contributions from General Partner for Limited Partner unit transactions
    2,426                               2,426  
Net proceeds from issuance of Senior Notes
          173,307                         173,307  
Repayments from (advances to) affiliates, net
    (14,462 )           958                   (13,504 )
Borrowings under credit facility
          109,500                               109,500  
Repayments under credit facility
          (216,100 )                             (216,100 )
Contributions from affiliate
                747                   747  
 
                                   
 
    53,274       66,707       262                   120,243  
 
                                   
Net change in cash and cash equivalents
          3,797                         3,797  
Cash and cash equivalents at beginning of year
          21,645                         21,645  
 
                                   
Cash and cash equivalents at end of period
  $     $ 25,442     $     $     $     $ 25,442  
 
                                   

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations — Three Months Ended June 30, 2007 and 2006
Sunoco Logistics Partners L.P.
Operating Highlights
Three Months Ended June 30, 2007 and 2006
                 
    Three Months Ended
    June 30,
    2007   2006
Eastern Pipeline System:(1)
               
Total shipments (barrel miles per day)(2)
    63,253,888       58,451,104  
Revenue per barrel mile (cents)
    0.485       0.474  
Terminal Facilities:
               
Terminal throughput (bpd):
               
Refined product terminals(3)
    440,142       390,341  
Nederland terminal
    529,462       449,176  
Refinery terminals(4)
    715,462       713,407  
Western Pipeline System:(1)(5)
               
Crude oil pipeline throughput (bpd)
    535,715       519,808  
Crude oil purchases at wellhead (bpd)
    180,390       201,975  
Gross margin per barrel of pipeline throughput (cents)(6)
    20.2       33.4  
 
(1)   Excludes amounts attributable to equity ownership interests in corporate joint ventures.
 
(2)   Represents total average daily pipeline throughput multiplied by the number of miles of pipeline through which each barrel has been shipped.
 
(3)   Includes results from the Partnership’s purchase of a 50% undivided interest in a refined products terminal in Syracuse, New York.
 
(4)   Consists of the Partnership’s Fort Mifflin Terminal Complex, the Marcus Hook Tank Farm and the Eagle Point Dock.
 
(5)   Includes results from the Partnership’s purchases of an undivided joint interest in the Mesa Pipe Line system, the Corsicana to Wichita Falls, Texas pipeline system, the Millennium and Kilgore pipeline system and the Amdel pipeline system from the acquisition dates.
 
(6)   Represents total segment sales and other operating revenue minus cost of products sold and operating expenses and depreciation and amortization divided by crude oil pipeline throughput.
Analysis of Consolidated Net Income
     Net income was $25.3 million for the second quarter 2007 as compared with $26.3 million for the second quarter 2006, a decrease of $1.0 million. This decrease was due mainly to lower lease acquisition margins and higher interest expense. These decreases were partially offset by an increase in revenues at the Partnership’s Nederland Terminal, and refined product terminals associated with ethanol blending and product additives as well as increased other income associated primarily with the August 2006 acquisition of a 55.3 percent equity interest in the Mid-Valley Pipeline Company.
     Net interest expense increased $2.9 million to $9.5 million for the second quarter 2007 from $6.6 million for the prior year’s quarter due to increased borrowings related to the Partnership’s organic growth program, 2006 acquisitions, investments in inventory for the lease acquisition business and the 2007 acquisition of a 50% undivided interest in a refined products terminal in Syracuse, New York.

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Analysis of Segment Operating Income
Eastern Pipeline System
     Operating income for the Eastern Pipeline System decreased $0.5 million to $10.8 million for the second quarter 2007 from $11.3 million for the second quarter 2006. Sales and other operating revenue increased from $25.2 million for the prior year’s quarter to $27.9 million for the second quarter 2007 mainly due to an increase in total shipments on the Marysville, Michigan to Toledo, Ohio crude oil pipeline which was expanded in the fourth quarter of 2006 and, in the aggregate, higher revenues across our refined products pipelines. Other income increased $0.9 million compared to the prior year’s quarter due primarily to an increase in equity income associated with the Partnership’s joint venture interests. Operating expenses increased to $13.6 million in the second quarter 2007 from $9.6 million in the second quarter 2006 due mainly to the timing of maintenance activity, additional utility expense resulting from higher volumes, environmental charges related to third party pipeline contractor damage and a reduction in product operating gains. Selling, general and administrative expenses increased from $4.6 million during the second quarter of 2006 to $5.0 million in the second quarter of 2007 due mainly to decreased capitalization of certain engineering costs. Depreciation and amortization expense decreased $0.3 million in the second quarter of 2007 to $2.2 million as certain assets reached the end of their depreciable life during the third quarter 2006.
Terminal Facilities
     The Terminal Facilities segment had operating income of $15.5 million for the second quarter 2007, as compared to $9.9 million for the prior year’s second quarter. Total revenues increased $4.9 million from the prior year’s second quarter to $35.3 million for the second quarter 2007 due to increased revenues at the Partnership’s Nederland Terminal as well as increased revenue at the Partnership’s refined products terminals from higher ethanol blending, product additives and increased volumes. Selling, general and administrative expenses decreased $0.7 million for the second quarter of 2007 to $3.1 million primarily due to an insurance recovery related to the 2005 hurricane loss from proceeds received in 2007.
Western Pipeline System
     Operating income for the Western Pipeline System decreased $3.4 million to $8.4 million for the second quarter of 2007 from $11.8 million for the prior year quarter. The decrease was related to lower lease acquisition margins, partially offset by an increase in other income of $2.9 million associated with the August 2006 acquisition of an interest in the Mid-Valley Pipeline Company. Total revenues and cost of products sold and operating expenses increased compared with the prior year’s quarter due principally to an increase in volumes partially offset by a decrease in crude prices. The average price of West Texas Intermediate crude oil at Cushing, Oklahoma, decreased to $65.02 per barrel for the second quarter 2007 from $70.70 per barrel for the second quarter 2006. Depreciation and amortization expense increased $0.6 million to $3.3 million in the second quarter of 2007 as a result of 2006 acquisitions.
Results of Operations — Six Months Ended June 30, 2007 and 2006
Sunoco Logistics Partners L.P.
Operating Highlights
Six Months Ended June 30, 2007 and 2006
                 
    Six Months Ended
    June 30,
    2007   2006
Eastern Pipeline System:(1)
               
Total shipments (barrel miles per day)(2)
    63,372,001       59,713,014  
Revenue per barrel mile (cents)
    0.479       0.467  
Terminal Facilities:
               
Terminal throughput (bpd):
               
Refined product terminals(3)
    427,923       386,807  
Nederland terminal
    536,840       469,309  
Refinery terminals(4)
    664,768       703,597  
Western Pipeline System:(1)(5)
               
Crude oil pipeline throughput (bpd)
    534,816       502,503  
Crude oil purchases at wellhead (bpd)
    182,757       191,751  
Gross margin per barrel of pipeline throughput (cents)(6)
    22.5       31.0  

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(1)   Excludes amounts attributable to equity ownership interests in corporate joint ventures.
 
(2)   Represents total average daily pipeline throughput multiplied by the number of miles of pipeline through which each barrel has been shipped.
 
(3)   Includes results from the Partnership’s purchase of a 50% undivided interest in a refined products terminal in Syracuse, New York.
 
(4)   Consists of the Partnership’s Fort Mifflin Terminal Complex, the Marcus Hook Tank Farm and the Eagle Point Dock.
 
(5)   Includes results from the Partnership’s purchases of an undivided joint interest in the Mesa Pipe Line system, the Corsicana to Wichita Falls, Texas pipeline system, the Millennium and Kilgore pipeline system and the Amdel pipeline system from the acquisition dates.
 
(6)   Represents total segment sales and other operating revenue minus cost of products sold and operating expenses and depreciation and amortization divided by crude oil pipeline throughput.
Analysis of Consolidated Net Income
     Net income was $47.5 million for the six month period ended June 2007 as compared with $44.7 million for the comparable period in 2006, an increase of $2.8 million. This increase was due mainly to an increase in revenues at the Partnership’s Terminal segment, operating results from the March 2006 acquisitions of the Kilgore and Millennium Pipelines and increased other income associated with the August 2006 acquisition of a 55.3 percent equity interest (50 percent voting rights) in the Mid-Valley Pipeline Company. These increases were partially offset by lower margins in the lease acquisition business and higher interest expense.
     Net interest expense increased $5.3 million to $18.1 million for the first six months of 2007 from $12.8 million for the first six months of 2006 due to increased borrowings related to the Partnership’s organic growth program, 2006 acquisitions, investments in inventory for the lease acquisition business and the 2007 acquisition of a 50% undivided interest in a refined products terminal in Syracuse, New York.
Analysis of Segment Operating Income
Eastern Pipeline System
     Operating income for the Eastern Pipeline System decreased $0.7 million to $20.5 million for the first six months of 2007 from $21.2 million for the first six months of 2006. Sales and other operating revenue increased from $50.5 million for the prior year’s period to $54.9 million for the six months ended June 2007 mainly due to increased shipments on the expanded Marysville crude line, and in the aggregate, higher revenue across our refined products pipelines. Other income increased by $1.5 million to $6.3 million for the first six months of 2007 from $4.8 million for the prior year period due to equity income associated with the Partnership’s joint venture interests. Operating expenses increased by $5.4 million due to the timing of maintenance activity, additional utility expense related to higher throughput, environmental charges due to third party pipeline contractor damage, and a reduction in product operating gains. Selling, general and administrative expenses increased from $8.7 million in the first half of 2006 to $10.6 million in the first half of 2007 due mainly to decreased capitalization of certain engineering costs. Depreciation and amortization expense decreased $0.7 million in the first half of 2007 to $4.6 million as certain assets reached the end of their depreciable life during the third quarter 2006.
Terminal Facilities
     The Terminal Facilities segment had operating income of $27.8 million for the six months ended June 2007, as compared to $19.3 million for the prior year’s corresponding period. Total revenues increased $8.7 million to $68.2 million in the first half of 2007 due primarily to increased revenues at the Partnership’s Nederland Terminal and increased revenue at the Partnership’s refined products terminals from higher ethanol blending, product additives and increased volumes. These increases were partially offset by a decrease in volumes at the Partnership’s refinery terminals resulting from refinery maintenance turnarounds.

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Western Pipeline System
     Operating income for the Western Pipeline System increased $0.3 million to $17.4 million for the first six months of 2007 from $17.1 million for the first six months of 2006. The increase resulted from higher crude oil pipeline volumes associated with the March 2006 acquisition of the Millennium and Kilgore pipelines and an increase in other income of $5.0 million due largely to the acquired equity interest in the Mid-Valley Pipeline Company. These increases were partially offset by lower lease acquisition margins. Total revenues and cost of products sold and operating expenses increased compared with the first half of 2006 due principally to higher bulk purchase and sale activity. A decrease in crude prices partially offset the volume impact on revenue with the average price of West Texas Intermediate crude oil at Cushing, Oklahoma, decreasing to $61.64 per barrel for the first six months of 2007 from $67.13 per barrel for the first six months of 2006. Operating expenses were higher as a result of increased costs associated with operating the assets acquired in 2006. Selling, general and administrative expenses decreased $1.7 million due primarily to the Western Area office relocation which was completed during the first quarter 2006, partially offset by higher employee costs. Depreciation and amortization expense increased $0.9 million in the first six months of 2007 to $6.3 million as a result of 2006 acquisitions.
Liquidity and Capital Resources
Liquidity
     Cash generated from operations and borrowings under the Credit Facility are the Partnership’s primary sources of liquidity. At June 30, 2007, the Partnership had net working capital of $8.3 million and available borrowing capacity under the Credit Facility of $160.1 million. The Partnership’s working capital position also reflects crude oil inventories based on historical costs under the LIFO method of accounting. If the inventories had been valued at their current replacement cost, the Partnership would have had working capital of $132.1 million at June 30, 2007.
Capital Resources
     The Partnership periodically supplements its cash flows from operations with proceeds from debt and equity financing activities.
     Credit Facility
     Sunoco Logistics Partners Operations L.P., a wholly-owned subsidiary of the Partnership (the “Operating Partnership”), has a $300 million Credit Facility available to fund working capital requirements, to finance future acquisitions, and for general partnership purposes. The Credit Facility matures in November 2010. It also includes a $20.0 million distribution sublimit that is available for distributions, and may be used to fund the quarterly distributions, provided the total outstanding borrowings for distributions do not at any time exceed $20.0 million. The Partnership will be required to reduce to zero all borrowings under the distribution sublimit under the Credit Facility each year for 15 days.
     During the six months ended June 30, 2007, $71.9 million was drawn against the Credit Facility to fund the Partnership’s organic growth program, investments in inventory for the lease acquisition business and the acquisition of a 50% undivided interest in a refined products terminal in Syracuse, New York. As of June 30, 2007, there was $160.1 million available under the Credit Facility to fund the Partnership’s organic growth capital program, and for general Partnership purposes, including to finance pending and future acquisitions.
     Senior Notes and Equity Offerings
     During May 2006, the Operating Partnership issued $175 million of 6.125 percent Senior Notes, due May 15, 2016 at 99.858 percent of the principal amount, for net proceeds of $173.3 million after the underwriter’s commission and legal, accounting and other transaction expenses. The Senior Notes are redeemable, at a make-whole premium, and are not subject to sinking fund provisions. The Senior Notes contain various covenants limiting the Operating Partnership’s ability to incur certain liens, engage in sale/leaseback transactions, or merge, consolidate or sell substantially all of its assets. The Operating Partnership is in compliance with these covenants as of June 30, 2007. Concurrently with the issuance of the Senior Notes, the Partnership sold 2.4 million common units in a public offering. In June 2006, the Partnership sold an additional 280,000 common units to cover over-allotments in connection with the May 2006 sale. The total sale of units resulted in gross proceeds of $115.2 million, and net proceeds of $110.3 million, after the underwriters’ commission and legal, accounting and other transaction expenses. Net proceeds of the offering were used to repay a portion of the $216.1 million of the debt incurred under the revolving Credit Facility. As a result of this issuance of 2.68 million common units, the general partner contributed $2.4 million to the Partnership to maintain its 2.0 percent general partner interest. The Partnership recorded this amount as a capital contribution to Partners’ Capital within its condensed consolidated balance sheet. The net proceeds from

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the Senior Notes offering of limited partner common units, were used to repay the $216.1 million in outstanding borrowings under the Partnership’s Credit Facility. The balance of the proceeds from the offerings were used to fund the Partnership’s organic growth capital program and for general Partnership purposes.
     Shelf Registration Statement
     On April 7, 2006, the Partnership, the Operating Partnership, and the Operating Partnership’s wholly-owned subsidiaries, as co-registrants, filed a shelf registration statement with the Securities and Exchange Commission. This shelf registration permits the periodic offering and sale of up to $500 million of equity securities by the Partnership or debt securities of the Operating Partnership (guaranteed by the Partnership). At June 30, 2007, $209.8 million remains available for issuance under the shelf registration statement. The shelf registration also covers the resale of up to five million common units by the Partnership’s general partner. The amount, type and timing of any offerings will depend upon, among other things, the funding requirements of the Partnership, prevailing market conditions, and compliance with covenants in applicable debt obligations of the Operating Partnership (including the Credit Facility).
Cash Flows and Capital Expenditures
     Net cash provided by operating activities for the six months ended June 30, 2007 was $53.4 million compared with $46.2 million for the first six months of 2006. Net cash provided by operating activities for the first six months of 2007 was primarily the result of net income of $47.5 million and depreciation and amortization of $18.3 million, partially offset by a $22.9 million increase in working capital. The increase in working capital was primarily attributable to an increase in receivables associated with higher revenues along with an increase in inventory. Net cash provided by operating activities for the first six months of 2006 was principally the result of net income of $44.7 million and depreciation and amortization of $18.2 million, partially offset by a $15.5 million increase in working capital.
     Net cash used in investing activities for the six months ended June 30, 2007 was $63.8 million compared with $162.7 million for the first six months of 2006. The decrease between periods is due primarily to the acquisitions of the Millennium and Kilgore crude oil pipelines and the Amdel crude oil pipeline in March 2006.
     Net cash provided by financing activities for the first six months of 2007 was $10.1 million compared with $120.2 million for the first six months of 2006. Net cash provided by financing activities for the first six months of 2007 was the result of $71.9 million increase in net borrowings under the Partnership’s Credit Facility to fund the Partnership’s organic growth capital program, contango inventory positions, and to purchase a 50% undivided interest in a refined products terminal located in Syracuse, New York. This increase was partially offset by $57.3 million in distributions paid to limited partners and the general partner and $3.9 million in net advances to affiliates. Net cash provided by financing activities for the first six months of 2006 was the result of $110.4 million of net proceeds from the offering of 2.68 million limited partner common units and $173.3 million of net proceeds from the issuance of 6.125 percent Senior Notes in May 2006. This increase was partially offset by $45.0 million in distributions paid to limited partners and the general partner, and a net repayment of $106.6 million of outstanding borrowings under the Partnership’s Credit Facility.
     Under a treasury services agreement with Sunoco, the Partnership participates in Sunoco’s centralized cash management program. Advances to affiliates in the Partnership’s condensed consolidated balance sheets at June 30, 2007 and December 31, 2006 represent amounts due from Sunoco under this agreement.
Capital Requirements
     The pipeline, terminalling, and crude oil transport operations are capital intensive, requiring significant investment to maintain, upgrade or enhance existing operations and to meet environmental and operational regulations. The capital requirements have consisted, and are expected to continue to consist, primarily of:
    Maintenance capital expenditures, such as those required to maintain equipment reliability, tankage and pipeline integrity and safety, and to address environmental regulations; and
 
    Expansion capital expenditures to acquire assets to grow the business and to expand existing and construct new facilities, such as projects that increase storage or throughput volume.
     The following table summarizes maintenance and expansion capital expenditures, including net cash paid for acquisitions, for the periods presented (in thousands of dollars):

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    Six Months Ended  
    June 30,  
    2007     2006  
Maintenance
  $ 7,541     $ 10,297  
Expansion
    56,274       150,169  
 
           
 
  $ 63,815     $ 160,466  
 
           
     Maintenance capital expenditures for the six months ended June 30, 2007 were $7.5 million compared to $10.3 million for the six months ended June 30, 2006. The decrease in maintenance capital was attributable to the Western area office relocation completed in the first quarter of 2006. Management anticipates maintenance capital expenditures of approximately $25.0 million for the year ended December 31, 2007, which is in line with spending for 2006.
     Expansion capital expenditures decreased by $93.9 million to $56.3 million for the six months ended June 30, 2007 due primarily to the March 2006 acquisitions of the Millennium and Kilgore pipelines and the Amdel pipeline for $108.9 million. Expansion capital expenditures for the six months ended June 30, 2007 included construction in progress of three crude oil storage tanks and a crude oil pipeline from the Nederland Terminal to Motiva’s Port Arthur, Texas refinery, as well as continued construction at Nederland of six new crude oil storage tanks with a total capacity of approximately 3.6 million shell barrels, additional pipeline connections in the Western Pipeline System and the second quarter 2007 acquisition of a 50 percent undivided interest in the Syracuse, New York refined products terminal.
     The Partnership expects to fund capital expenditures, including pending and future acquisitions, from both cash provided by operations and, to the extent necessary, from the proceeds of borrowings under the Credit Facility, other borrowings and the issuance of additional common units.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
     The Partnership is exposed to various market risks, including volatility in crude oil commodity prices and interest rates. To manage such exposures, inventory levels and expectations of future commodity prices and interest rates are monitored when making decisions with respect to risk management. The Partnership has not entered into any derivative transactions.
     The $300 million Credit Facility generally exposes the Partnership to interest rate risk since it bears interest at a variable rate of 5.68 percent at June 30, 2007. A one percent change in interest rates changes annual interest expense by approximately $1.4 million based on outstanding borrowings under the Credit Facility of $139.9 million at June 30, 2007.
Forward-Looking Statements
     Some of the information included in this quarterly report on Form 10-Q contains “forward-looking” statements, as such term is defined in Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act, and information relating to the Partnership that is based on the beliefs of its management as well as assumptions made by and information currently available to management.
     Forward-looking statements discuss expected future results based on current and pending business operations, and may be identified by words such as “anticipates”, “believes”, “expects”, “planned”, “scheduled” or similar expressions. Although management of the Partnership believes these forward-looking statements are reasonable, they are based upon a number of assumptions, any or all of which may ultimately prove to be inaccurate. Statements made regarding future results are subject to numerous assumptions, uncertainties and risks that may cause future results to be materially different from the results stated or implied in this document.
     The following are among the important factors that could cause actual results to differ materially from any results projected, forecasted, estimated or budgeted:
    Our ability to successfully consummate announced acquisitions or expansions and integrate them into our existing business operations;
 
    Delays related to construction of, or work on, new or existing facilities and the issuance of applicable permits;
 
    Changes in demand for, or supply of, crude oil, refined petroleum products and natural gas liquids that impact demand for the Partnership’s pipeline, terminalling and storage services;
 
    Changes in the demand for crude oil we both buy and sell;

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    The loss of Sunoco as a customer or a significant reduction in its current level of throughput and storage with the Partnership;
 
    An increase in the competition encountered by the Partnership’s petroleum products terminals, pipelines and crude oil acquisition and marketing operations;
 
    Changes in the financial condition or operating results of joint ventures or other holdings in which the Partnership has an equity ownership interest;
 
    Changes in the general economic conditions in the United States;
 
    Changes in laws and regulations to which the Partnership is subject, including federal, state, and local tax, safety, environmental and employment laws;
 
    Changes in regulations concerning required composition of refined petroleum products, that result in changes in throughput volumes, pipeline tariffs and/or terminalling and storage fees;
 
    Improvements in energy efficiency and technology resulting in reduced demand for petroleum products;
 
    The Partnership’s ability to manage growth and/or control costs;
 
    The effect of changes in accounting principles and tax laws and interpretations of both;
 
    Global and domestic economic repercussions, including disruptions in the crude oil and petroleum products markets, from terrorist activities, international hostilities and other events, and the government’s response thereto;
 
    Changes in the level of operating expenses and hazards related to operating facilities (including equipment malfunction, explosions, fires, spills and the effects of severe weather conditions);
 
    The occurrence of operational hazards or unforeseen interruptions for which the Partnership may not be adequately insured;
 
    The age of, and changes in the reliability and efficiency of the Partnership’s operating facilities;
 
    Changes in the expected level of capital, operating, or remediation spending related to environmental matters;
 
    Changes in insurance markets resulting in increased costs and reductions in the level and types of coverage available;
 
    Risks related to labor relations and workplace safety;
 
    Non-performance by or disputes with major customers, suppliers or other business partners;
 
    Changes in the Partnership’s tariff rates implemented by federal and/or state government regulators;
 
    The amount of the Partnership’s indebtedness, which could make the Partnership vulnerable to adverse general economic and industry conditions, limit the Partnership’s ability to borrow additional funds, place it at competitive disadvantages compared to competitors that have less debt, or have other adverse consequences;
 
    Restrictive covenants in the Partnership’s or Sunoco’s credit agreements;
 
    Changes in the Partnership’s or Sunoco’s credit ratings, as assigned by ratings agencies;
 
    The condition of the debt capital markets and equity capital markets in the United States, and the Partnership’s ability to raise capital in a cost-effective way;
 
    Changes in interest rates on the Partnership’s outstanding debt, which could increase the costs of borrowing;
 
    Claims of the Partnership’s non-compliance with regulatory and statutory requirements; and
 
    The costs and effects of legal and administrative claims and proceedings against the Partnership or any entity in which it has an ownership interest, and changes in the status of, or the initiation of new litigation, claims or proceedings, to which the Partnership, or any entity in which it has an ownership interest, is a party.

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     These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of the Partnership’s forward-looking statements. Other factors could also have material adverse effects on future results. The Partnership undertakes no obligation to update publicly any forward-looking statement whether as a result of new information or future events.
Item 4. Controls and Procedures
     (a) As of the end of the fiscal quarter covered by this report, the Partnership carried out an evaluation, under the supervision and with the participation of the management of Sunoco Partners LLC, the Partnership’s general partner (including the President and Chief Executive Officer of Sunoco Partners LLC and the Vice President and Chief Financial Officer of Sunoco Partners LLC), of the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the President and Chief Executive Officer of Sunoco Partners LLC and the Vice President and Chief Financial Officer of Sunoco Partners LLC concluded that the Partnership’s disclosure controls and procedures are effective.
     (b) No change in the Partnership’s internal controls over financial reporting has occurred during the fiscal quarter covered by this report that has materially affected, or that is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
     (c) Disclosure controls and procedures are designed to ensure that information required to be disclosed in the Partnership reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Partnership reports under the Exchange Act is accumulated and communicated to management, including the President and Chief Executive Officer of Sunoco Partners LLC as appropriate, to allow timely decisions regarding required disclosure.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
     There are certain legal and administrative proceedings arising prior to the February 2002 IPO pending against the Partnership’s Sunoco-affiliated predecessors and the Partnership (as successor to certain liabilities of those predecessors). Although the ultimate outcome of these proceedings cannot be ascertained at this time, it is reasonably possible that some of them may be resolved unfavorably. Sunoco has agreed to indemnify the Partnership for 100 percent of all losses from environmental liabilities related to the transferred assets arising prior to, and asserted within 21 years of February 8, 2002. There is no monetary cap on this indemnification from Sunoco. Sunoco’s share of liability for claims asserted thereafter will decrease by 10 percent each year through the thirtieth year following the February 8, 2002 date. Any remediation liabilities not covered by this indemnity will be the Partnership’s responsibility.
     There are certain other pending legal proceedings related to matters arising after the February 2002 IPO that are not indemnified by Sunoco. Management believes that any liabilities that may arise from these legal proceedings will not be material to the Partnership’s financial position at June 30, 2007.
Item 1A. Risk Factors
     There have been no material changes from the risk factors described previously in Part I, Item 1A of the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2006, filed on February 23, 2007.
Item 2. Unregistered Sales of Equity Securities and Uses of Proceeds
     None.
Item 3. Defaults Upon Senior Securities
     None

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Item 4. Submission of Matters to a Vote of Security Holders
     None
Item 5. Other Information
     None

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Item 6. Exhibits
         
Exhibits  
 
       
10.1:
    Products Terminal Services Agreement
 
       
12.1:
    Statement of Computation of Ratio of Earnings to Fixed Charges
 
       
31.1:
    Chief Executive Officer Certification of Periodic Report Pursuant to Exchange Act Rule 13a-14(a)
 
       
31.2:
    Chief Financial Officer Certification of Periodic Report Pursuant to Exchange Act Rule 13a-14(a)
 
       
32:
    Chief Executive Officer and Chief Financial Officer Certification of Periodic Report Pursuant to Exchange Act Rule 13a-14(b) and U.S.C. §1350
 
We are pleased to furnish this Form 10-Q to unitholders who request it by writing to:
Sunoco Logistics Partners L.P.
Investor Relations
Mellon Bank Center
1735 Market Street
Philadelphia, PA 19103-7583
or through our website at www.sunocologistics.com.

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
Sunoco Logistics Partners L.P.
 
   
By:   /s/ Neal E. Murphy      
  Neal E. Murphy      
  Vice President and Chief Financial Officer     
Date: July 31, 2007

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