10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company




		Page Number
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and 2015 (unaudited)	2

	Condensed Consolidated Balance Sheets at March 31, 2016 and December 31, 2015 (unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 (unaudited)	4

	Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2016 and 2015 (unaudited)	5

	Notes to Condensed Consolidated Financial Statements (unaudited)	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	35

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	36

Item 4.	Mine Safety Disclosures	36

Item 5.	Other Information	36

Item 6.	Exhibits	37

SIGNATURE		38



	Three Months Ended March 31,
	2016			2015
Revenues
Sales and other operating revenue:
Unaffiliated customers	$	1,668		$	2,453
Affiliates (Note 4)	109			119
Total Revenues	1,777			2,572
Costs and Expenses
Cost of products sold	1,413			2,318
Operating expenses	23			40
Selling, general and administrative expenses	26			25
Depreciation and amortization expense	106			82
Impairment charge and other matters (Notes 6 and 16)	26			41
Total Costs and Expenses	1,594			2,506
Operating Income	183			66
Interest cost and debt expense, net	(65		)	(50		)
Capitalized interest	26			21
Other income	7			6
Income Before Provision for Income Taxes	151			43
Provision for income taxes (Note 8)	(5		)	(6		)
Net Income	146			37
Net income attributable to noncontrolling interests	(1		)	(1		)
Net Income Attributable to Sunoco Logistics Partners L.P.	145			36
Less: General Partner's interest	(90		)	(60		)
Limited Partners' interest	$	55		$	(24	)

Net Income (Loss) Attributable to Sunoco Logistics Partners L.P. per Limited Partner unit (Note 5):
Basic	$	0.18		$	(0.10	)
Diluted	$	0.18		$	(0.10	)

Weighted average Limited Partners' units outstanding (Note 5):
Basic	282.5			231.0
Diluted	283.1			231.0

Net Income	$	146		$	37
Adjustment to affiliate's pension funded status	1			(1		)
Other Comprehensive Income (Loss)	1			(1		)
Comprehensive Income	147			36
Less: Comprehensive income attributable to noncontrolling interests	(1		)	(1		)
Comprehensive Income Attributable to Sunoco Logistics Partners L.P.	$	146		$	35



	March 31, 2016			December 31, 2015
Assets
Cash and cash equivalents	$	43		$	37
Accounts receivable, affiliated companies (Note 4)	43			20
Accounts receivable, net	1,146			1,165
Inventories (Note 6)	683			607
Other current assets	15			19
Total Current Assets	1,930			1,848
Properties, plants and equipment	12,007			11,527
Less accumulated depreciation and amortization	(928		)	(835		)
Properties, plants and equipment, net	11,079			10,692
Investment in affiliates	911			802
Goodwill	1,358			1,358
Intangible assets, net (Note 7)	705			718
Other assets	71			71
Total Assets	$	16,054		$	15,489
Liabilities and Equity
Accounts payable	$	1,342		$	1,251
Accounts payable, affiliated companies (Note 4)	20			39
Accrued liabilities	216			329
Accrued taxes payable (Note 8)	33			44
Total Current Liabilities	1,611			1,663
Long-term debt (Note 9)	5,968			5,591
Other deferred credits and liabilities	126			125
Deferred income taxes (Note 8)	254			254
Total Liabilities	7,959			7,633
Commitments and contingent liabilities (Note 10)
Redeemable noncontrolling interests	15			15
Redeemable Limited Partners' interests (Note 11)	290			286
Total Equity	7,790			7,555
Total Liabilities and Equity	$	16,054		$	15,489



	Three Months Ended March 31,
	2016			2015
Cash Flows from Operating Activities:
Net Income	$	146		$	37
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization expense	106			82
Impairment charge and other matters	26			41
Deferred income tax benefit	—			(2		)
Amortization of bond premium	(3		)	(3		)
Non-cash compensation expense	5			4
Equity in earnings of unconsolidated affiliates	(8		)	(7		)
Distributions from unconsolidated affiliates	5			5
Changes in working capital pertaining to operating activities:
Accounts receivable, affiliated companies	(23		)	(34		)
Accounts receivable, net	(6		)	286
Inventories	(102		)	(180		)
Accounts payable, affiliated companies	(19		)	(4		)
Accounts payable and accrued liabilities	(16		)	(313		)
Accrued taxes payable	(11		)	(17		)
Unrealized losses on commodity risk management activities	13			15
Other	7			14
Net cash provided by (used in) operating activities	120			(76		)
Cash Flows from Investing Activities:
Capital expenditures	(580		)	(567		)
Acquisitions	—			(131		)
Change in long-term note receivable	(1		)	(6		)
Net cash used in investing activities	(581		)	(704		)
Cash Flows from Financing Activities:
Distributions paid to limited and general partners	(216		)	(146		)
Distributions paid to noncontrolling interests	(1		)	—
Net proceeds from issuance of limited partner units	301			689
Payments of statutory withholding on net issuance of limited partner units under LTIP	—			(8		)
Repayments under credit facilities	(813		)	(750		)
Borrowings under credit facilities	1,193			950
Contributions attributable to acquisition from affiliate	3			3
Other	—			(5		)
Net cash provided by financing activities	467			733
Net change in cash and cash equivalents	6			(47		)
Cash and cash equivalents at beginning of period	37			101
Cash and cash equivalents at end of period	$	43		$	54



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

Balance at January 1, 2015	$	5,752		$	925		$	1		$	60		$	6,738
Net Income (loss)	(24		)	60			—			1			37
Adjustment to affiliate's pension funded status	—			—			(1		)	—			(1		)
Total comprehensive income (loss)	(24		)	60			(1		)	1			36
Issuance of limited partner units to the public	689			—			—			—			689
Non-cash compensation expense	4			—			—			—			4
Payments of statutory withholding on issuance under LTIP	(8		)	—			—			—			(8		)
Distributions	(92		)	(54		)	—			—			(146		)
Contributions attributable to acquisition from affiliate	3			—			—			—			3
Acquisition of a noncontrolling interest in a consolidated subsidiary	(103		)	(2		)	—			(26		)	(131		)
Balance at March 31, 2015	$	6,221		$	929		$	—		$	35		$	7,185

Balance at January 1, 2016	$	6,577		$	944		$	—		$	34		$	7,555
Net Income	55			90			—			1			146
Adjustment to affiliate's pension funded status	—			—			1			—			1
Total comprehensive income	55			90			1			1			147
Issuance of limited partner units to the public	301			—			—			—			301
Non-cash compensation expense	5			—			—			—			5
Distribution equivalent rights	(1		)	—			—			—			(1		)
Payments of statutory withholding on issuance under LTIP	—			—			—			—			—
Distributions	(131		)	(85		)	—			(1		)	(217		)
Contributions attributable to acquisition from affiliate	3			—			—			—			3
Decrease attributable to Class B units	(4		)	—			—			—			(4		)
Other	—			1			—			—			1
Balance at March 31, 2016	$	6,805		$	950		$	1		$	34		$	7,790

Sunoco Logistics Partners L.P. (the "Partnership" or "SXL") is a publicly traded Delaware limited partnership that owns and operates a logistics business, consisting of geographically diverse portfolio of integrated pipeline, terminalling, and acquisition and marketing assets which are used to facilitate the purchase and sale of crude oil, natural gas liquids ("NGLs") and refined products. The Partnership conducts its business activities in 35 states located throughout the United States.

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

The consolidated financial statements reflect the results of the Partnership and its wholly-owned subsidiaries, including Sunoco Logistics Partners Operations L.P. (the "Operating Partnership"), the proportionate shares of the Partnership's undivided interests in assets, and the accounts of entities in which the Partnership has a controlling financial interest. A controlling financial interest is evidenced by either a voting interest greater than 50 percent or a risk and rewards model that identifies the Partnership or one of its subsidiaries as the primary beneficiary of a variable interest entity. At March 31, 2016, the Partnership held a controlling financial interest in Inland Corporation ("Inland"), Mid-Valley Pipeline Company ("Mid-Valley"), and Price River Terminal, LLC ("PRT"), and as such, these entities are reflected as consolidated subsidiaries of the Partnership. The Partnership is not the primary beneficiary of any variable-interest entities ("VIEs"). All significant intercompany accounts and transactions are eliminated in consolidation, and noncontrolling interests in net income and equity are shown separately in the condensed consolidated statements of comprehensive income and equity. Equity ownership interests in corporate joint ventures in which the Partnership does not have a controlling financial interest, but over which the Partnership can exercise significant influence, are accounted for under the equity method of accounting.

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, which created Topic 842, Leases, and superseded the leases requirements in Topic 840. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Partnership is currently evaluating the impact that it will have on its consolidated financial statements and related disclosures.

In May 2014, the FASB codified guidance in ASU 2014-09 related to the recognition of revenue from contracts with customers. The new guidance outlines the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods, with early adoption permitted. The Partnership is currently assessing the impact, if any, that adoption of new guidance will have on its consolidated financial position and results of operations.

In the fourth quarter 2015, the Partnership adjusted its presentation of costs associated with issuances of debt in response to the early adoption of ASU 2015-03. This guidance requires costs incurred to issue certain debt instruments to be reflected as a reduction of the reported long-term debt liability within the consolidated balance sheet, as opposed to being reported as an asset. All prior periods are reported presenting the impact of ASU 2015-03. The adoption did not impact the Partnership's overall financial position or results of operations.

The Partnership also adjusted its balance sheet presentation of deferred tax assets and liabilities in response to the early adoption of ASU 2015-17. This guidance requires all deferred tax assets and liabilities to be presented as noncurrent within the consolidated balance sheet, and is retrospectively applied to all prior reporting periods presented. This change did not impact the Partnership's financial position or results of operations.

The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and accounting principles generally accepted in the United States for interim financial reporting. They do not include all disclosures normally made in annual financial statements contained in Form 10-K. The accompanying condensed consolidated balance sheet at December 31, 2015 has been derived from the Partnership's audited financial statements for the year ended December 31, 2015. In management's opinion, all adjustments necessary for a fair presentation of the results of operations, financial position and cash flows for the periods shown have been made. All such adjustments are of a normal, recurring nature. Results for the three months ended March 31, 2016 are not necessarily indicative of results for the full year 2016.

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

In exchange for its 30 percent economic interest in the project, the Partnership issued 9.4 million Class B units to ETP, representing limited partner interests in the Partnership, and paid $382 million in cash to cover the Partnership's proportionate share of contributions at the time of closing. Since the interest in the project was acquired from a related party, the Partnership's initial investment was recorded at ETP's historical carrying value. Subsequent contributions will be made by the joint partners in proportion to their respective economic ownership interests. The Partnership's investment in the Bakken Pipeline project is reflected as an equity method investment within the Crude Oil segment. See Note 11 for additional information on the issuance of the Class B units.

In July 2015, the Partnership entered into an agreement with ETP and Phillips 66 to participate in the Bayou Bridge Pipeline project. The Partnership obtained a 30 percent economic interest in the project which, combined with ETP's 30 percent interest, will be a consolidated subsidiary of ETP. The project consists of a newly constructed pipeline that will deliver crude oil from Nederland, Texas to refinery markets in Louisiana. Commercial operations from Nederland, Texas to Lake Charles, Louisiana commenced in the second quarter 2016, with continued progress on construction of the pipeline segment to St. James, Louisiana. The Partnership is the operator of the pipeline and will continue to fund its proportionate share of the cost of the project, which is accounted for as an equity method investment within the Partnership's Crude Oil segment.

In connection with the formation of Bayview Refining Company, LLC ("Bayview") in the second quarter 2014, the joint owners agreed to guarantee the obligations of the entity with respect to certain third-party operating agreements over a ten-year term. The fair value of the liability recognized in connection with the guarantee was not material in relation to the Partnership’s financial position at March 31, 2016. The Partnership's note receivable from the joint owner of Bayview is reflected in other assets in the condensed consolidated balance sheet.

The Partnership is a consolidated subsidiary of ETP. ETP and one of its affiliates own Sunoco Partners LLC, the Partnership's general partner, and a 26 percent limited partner interest in the Partnership, including the Class B units issued in October 2015. The Partnership has various operating and administrative agreements with ETP and its affiliates, which include the agreements described below.

The Partnership has no employees. The operations of the Partnership are carried out by employees of the general partner. The Partnership reimburses the general partner and its affiliates for certain costs and direct expenses incurred on the Partnership's behalf. These costs may be increased if the acquisition or construction of new businesses or assets requires an increase in the level of services received by the Partnership.

The Partnership pays ETP and its affiliates an annual administrative fee for expenses incurred by ETP and its affiliates to perform certain centralized corporate functions, such as legal, accounting, information technology, insurance, office space rental, and other corporate services, including the administration of employee benefit plans. This fee does not include the salaries or wages of employees of the general partner, or the cost of employee benefits or shared insurance.

The Partnership's share of allocated ETP employee benefit plan expenses, including defined contribution 401(k) plans, employee and retiree medical, dental and life insurance plans, incentive compensation plans and other such benefits are reflected in operating expenses and selling, general and administrative expenses in the condensed consolidated statements of comprehensive income.

The general partner's interest in net income attributable to SXL consists of its general partner interest and "incentive distributions," which are increasing percentages of up to 50 percent of quarterly distributions in excess of $0.0833 per common unit (Note 12). The general partner was allocated net income attributable to SXL of $90 and $60 million (representing 62 and 167 percent of total net income attributable to SXL) for the three months ended March 31, 2016 and 2015, respectively. Diluted net income attributable to SXL per limited partner unit is calculated by dividing the limited partners' interest in net income attributable to SXL by the sum of the weighted average number of common and Class B units outstanding and the dilutive effect of unvested incentive unit awards (Note 13).

The following table sets forth the reconciliation of the weighted average number of limited partner and Class B units used to compute basic net income attributable to SXL per limited partner unit to those used to compute diluted net income attributable to SXL per limited partner unit for the three months ended March 31, 2016 and 2015:



	Three Months Ended March 31,
	2016	2015
	(in millions)
Weighted average number of units outstanding, basic	282.5	231.0
Add effect of dilutive incentive awards ⁽¹⁾	0.6	—
Weighted average number of units, diluted	283.1	231.0

The components of intangible assets are as follows:



	Weighted Average Amortization Period	March 31, 2016			December 31, 2015
	(in years)	(in millions)
Gross
Customer relationships	18	$	836		$	836
Technology	10	47			47
Total gross		883			883
Accumulated amortization
Customer relationships		(161		)	(149		)
Technology		(17		)	(16		)
Total accumulated amortization		(178		)	(165		)
Total Net		$	705		$	718

Goodwill, which represents the excess of the purchase price in a business combination over the fair value of net assets acquired, is tested for impairment annually in the fourth quarter, or more often if events or changes in circumstances indicate that the carrying value of goodwill may exceed its estimated fair value. The Partnership's goodwill balance was $1,358 million at March 31, 2016 and December 31, 2015. The Partnership will continue to monitor the volatility in the energy markets and the impact it could have on the estimated fair value of its reporting segments. It is possible that continued negative volatility within these markets could change the Partnership's conclusion regarding whether goodwill is impaired.

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

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



	March 31, 2016			December 31, 2015

Credit Facilities	(in millions)
$2.50 billion Credit Facility, due March 2020	$	942		$	562

Senior Notes
Senior Notes - 6.125%, due May 2016 ⁽¹⁾	175			175
Senior Notes - 5.50%, due February 2020	250			250
Senior Notes - 4.40%, due April 2021	600			600
Senior Notes - 4.65%, due February 2022	300			300
Senior Notes - 3.45%, due January 2023	350			350
Senior Notes - 4.25% due April 2024	500			500
Senior Notes - 5.95%, due December 2025	400			400
Senior Notes - 6.85%, due February 2040	250			250
Senior Notes - 6.10%, due February 2042	300			300
Senior Notes - 4.95%, due January 2043	350			350
Senior Notes - 5.30% due April 2044	700			700
Senior Notes - 5.35% due May 2045	800			800
Unamortized fair value adjustments ⁽²⁾	90			93
Total debt	6,007			5,630
Less:
Unamortized bond discount and debt issuance costs ⁽³⁾	(39		)	(39		)
Long-term debt	$	5,968		$	5,591

In March 2015, the Operating Partnership amended and restated its $1.50 billion Credit Facility, which was scheduled to mature in November 2018. The amended and restated credit facility is a $2.50 billion unsecured revolving credit agreement (the "$2.50 billion Credit Facility"), which matures in March 2020, that will continue to fund the Partnership's working capital requirements, finance acquisitions and capital projects, and be used for general partnership purposes. The $2.50 billion Credit Facility contains an "accordion" feature, under which the total aggregate commitment may be extended to $3.25 billion under certain conditions. In June 2015, the $2.50 billion Credit Facility was amended to create a segregated tranche of borrowings that will be guaranteed by ETP. The amendment did not modify the outstanding borrowings, total capacity or terms of the facility. In September 2015, the Operating Partnership initiated a commercial paper program under the borrowing limits established by its $2.50 billion Credit Facility. The $2.50 billion Credit Facility bears interest at LIBOR or the Base Rate (as defined in the facility), each plus an applicable margin. The credit facility may be repaid at any time.

The $2.50 billion Credit Facility contains various covenants, including limitations on the creation of indebtedness and liens, and related to the operation and conduct of the business of the Partnership and its subsidiaries. The credit facility also limits the Partnership, on a rolling four quarter basis, to a maximum total consolidated debt to consolidated Adjusted EBITDA ratio, as defined in the underlying credit agreement, of 5.0 to 1, which can generally be increased to 5.5 to 1 during an acquisition period. The Partnership's ratio of total consolidated debt, excluding net unamortized fair value adjustments, to consolidated Adjusted EBITDA was 3.5 to 1 at March 31, 2016, as calculated in accordance with the credit agreement.

The Partnership is subject to numerous federal, state and local laws which regulate the discharge of materials into the environment or otherwise relate to the protection of the environment. These laws and regulations can result in liabilities and loss contingencies for remediation at the Partnership's facilities and at third-party or formerly owned sites. At March 31, 2016 and December 31, 2015, there were accrued liabilities for environmental remediation in the condensed consolidated balance sheets of $5 and $6 million, respectively. The accrued liabilities for environmental remediation do not include any amounts attributable to unasserted claims, since there are no unasserted claims that are probable of settlement or are reasonably estimable, nor have any recoveries from insurance been assumed. Charges against income for environmental remediation totaled $2 and $3 million for the three months ended March 31, 2016 and 2015, respectively. The Partnership maintains insurance programs that cover certain of its existing or potential environmental liabilities. Claims for recovery of environmental liabilities and previous expenditures that are probable of realization were not material in relation to the Partnership's consolidated financial position at March 31, 2016.

Total future costs for environmental remediation activities will depend upon, among other things, the identification of any additional sites; the determination of the extent of the contamination at each site; the timing and nature of required remedial actions; the technology available and needed to meet the various existing legal requirements; the nature and extent of future environmental laws, inflation rates and the determination of the Partnership's liability at multi-party sites, if any, in light of uncertainties with respect to joint and several liability; and the number, participation levels and financial viability of other parties. Management believes it is reasonably possible that additional environmental remediation losses will be incurred. At March 31, 2016, the aggregate of the estimated maximum additional reasonably possible losses, which relate to numerous individual sites, totaled $8 million.

The Partnership is a party to certain pending and threatened claims. Although the ultimate outcome of these claims cannot be ascertained at this time, nor can a range of reasonably possible losses be determined, it is reasonably possible that some portion of them could be resolved unfavorably for the Partnership. Management does not believe that any liabilities which may arise from such claims or the environmental matters discussed above would be material in relation to the Partnership's financial position, results of operations or cash flows at March 31, 2016. Furthermore, management does not believe that the overall costs for such matters will have a material impact, over an extended period of time, on the Partnership's financial position, results of operations or cash flows.

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

Management of the Partnership does not believe that any liabilities which may arise from claims indemnified by Sunoco would be material in relation to the Partnership's financial position, results of operations or cash flows at March 31, 2016. There are certain other pending legal proceedings related to matters arising after the IPO that are not indemnified by Sunoco. Management believes that any liabilities that may arise from these legal proceedings will not be material in relation to the Partnership's financial position, results of operations or cash flows at March 31, 2016.

The changes in the number of common units outstanding from January 1, 2015 through March 31, 2016 are as follows:



		Common Units
		(in millions)
Balance at January 1, 2015		226.1
Units issued in public offering		15.5
Units issued under ATM program		26.8
Units issued under incentive plans		0.4
Balance at December 31, 2015		268.8
Units issued in public offering		—
Units issued under ATM program		12.1
Units issued under incentive plans		—
Balance at March 31, 2016		280.9

The Partnership maintains an at-the-market equity offering program ("ATM" program) which allows it to issue common units directly to the public and raise capital in a timely and efficient manner to finance its growth capital program, while supporting the Partnership's investment grade credit ratings. For the three months ended March 31, 2016 and 2015, the Partnership issued 12.1 and 3.4 million common units under this program, for proceeds of $301 and $142 million, net of $3 and $2 million in fees and commissions to managers, respectively.

In March 2015, the Partnership completed an overnight public offering of 13.5 million common units for net proceeds of $547 million. The net proceeds from this offering were used to repay outstanding borrowings under the Partnership's revolving credit facility and for general partnership purposes. In April 2015, an additional 2.0 million common units were issued for net proceeds of $82 million related to the exercise of an option in connection with the March 2015 offering.

In October 2015, the Partnership issued 9.4 million Class B units to ETP in conjunction with the purchase of a 30 percent ownership interest in the Bakken pipeline. The Class B units represent a new class of limited partner interests in the Partnership which are not entitled to receive quarterly distributions that are made on the Partnership's common units, but are otherwise entitled to share in earnings pro-rata with common units. The Class B units will automatically convert to common units on a one-for-one basis in the third quarter 2017. However, the Partnership can exercise an option to call the Class B units for $300 million. If not exercised, ETP can exercise a put right during the third quarter 2017, effective prior to the one-for-one conversion date, for the greater of $313.5 million or the fair market value of the units, as defined in the unitholder agreement. As a result of the available put option, the amount attributable to the Class B units is excluded from total equity and instead reflected as redeemable interests in the Partnership's condensed consolidated balance sheet.

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

If cash distributions exceed $0.0833 per unit in a quarter, the general partner will receive increasing percentages, up to 50 percent, of the cash distributed in excess of that amount. These distributions are referred to as "incentive distributions." The percentage interests for the unitholders and the general partner for the minimum quarterly distribution are also applicable to the quarterly distribution amounts that are less than the minimum quarterly distribution.



			Marginal Percentage Interest in Distributions
	Total Quarterly Distribution Target Amount		General Partner			Unitholders
Minimum Quarterly Distribution		$0.0750	2	%		98	%
First Target Distribution	up to	$0.0833	2	%		98	%
Second Target Distribution	above	$0.0833	15	%	⁽¹⁾	85	%
Second Target Distribution	up to	$0.0958	15	%	⁽¹⁾	85	%
Third Target Distribution	above	$0.0958	37	%	⁽¹⁾	63	%
Third Target Distribution	up to	$0.2638	37	%	⁽¹⁾	63	%
Thereafter	above	$0.2638	50	%	⁽¹⁾	50	%



Cash Distribution Payment Date	Cash Distribution per Limited Partner Unit		Total Cash Distribution to the Limited Partners		Total Cash Distribution to the General Partner
			(in millions)		(in millions)
February 12, 2016	$	0.4790	$	131	$	85
November 13, 2015	$	0.4580	$	119	$	76
August 14, 2015	$	0.4380	$	111	$	69
May 15, 2015	$	0.4190	$	103	$	62
February 13, 2015	$	0.4000	$	92	$	54

On April 28, 2016, the Partnership's general partner announced a cash distribution of $0.489 per common unit ($1.96 annualized), representing the distribution for the first quarter 2016. The $232 million distribution, including $92 million to the general partner for its interests and incentive distribution rights, will be paid on May 13, 2016 to unitholders of record on May 9, 2016.

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

The Restated LTIP benefits eligible employees and directors of the general partner and its affiliates who perform services for the Partnership. The Restated LTIP is administered by the independent directors of the Compensation Committee of the general partner's board of directors with respect to employee awards, and by the general partner's board of directors with respect to awards granted to the independent directors. The Restated LTIP currently permits the grant of restricted units and unit options covering an additional 9.6 million common units.

The Partnership issued less than 0.1 and 0.3 million common units under its long-term incentive plan, and recognized share-based compensation expense of $5 and $4 million for the three months ended March 31, 2016 and 2015, respectively. Each of the outstanding restricted unit grants have tandem distribution equivalent rights which are recognized as a reduction to equity when earned.

The Partnership is exposed to risks associated with changes in the market price of crude oil, NGLs and refined products. These risks are primarily associated with price volatility related to pre-existing or anticipated purchases, sales and storage. Price changes are often caused by shifts in the supply and demand for these commodities, as well as their locations. In order to manage such exposure, the Partnership's policy is (i) to only purchase crude oil, NGLs and refined products for which sales contracts have been executed or for which ready markets exist, (ii) to structure sales contracts so that price fluctuations do not materially impact the margins earned, and (iii) to not acquire and hold physical inventory, futures contracts or other derivative instruments for the purpose of speculating on commodity price changes. Although the Partnership seeks to maintain a balanced inventory position within its commodity inventories, net unbalances may occur for short periods of time due to production, transportation and delivery variances. When physical inventory builds or draws do occur, the Partnership continuously manages the variance to a balanced position over a period of time.

The physical contracts related to the Partnership's commodity purchase and sale activities that qualify as derivatives have been designated as normal purchases and sales and are accounted for using accrual accounting under United States' generally accepted accounting principles. The Partnership accounts for derivatives that do not qualify as normal purchases or sales at fair value. The Partnership currently does not utilize derivative instruments to manage its exposure to prices related to crude oil purchase and sale activities. All derivative balances are presented on a gross basis.

Pursuant to the Partnership's approved risk management policy, derivative contracts, such as swaps, futures and other derivative instruments, may be used to hedge or reduce exposure to price risk associated with acquired inventory or forecasted physical transactions. The Partnership utilizes derivative instruments to mitigate the risk associated with market movements in the price of NGLs, refined products, and other commodities as necessary. These derivative contracts act as a hedging mechanism against the volatility of prices by allowing the Partnership to transfer this price risk to counterparties who are able and willing to bear it. The Partnership has not designated any of its derivative contracts as hedges for accounting purposes, therefore, all realized and unrealized gains and losses from these derivative contracts are recognized in the consolidated statement of comprehensive income in the period in which they occur. All realized gains and losses associated with the Partnership's derivative contracts are recorded in earnings in the same line item associated with the forecasted transaction (either sales and other operating revenue or cost of products sold).

The Partnership had open derivative positions on approximately 6.5 and 9.2 million barrels of refined products and NGLs at March 31, 2016 and December 31, 2015, respectively. The derivatives outstanding as of March 31, 2016 vary in duration but do not extend beyond one year. The Partnership records its derivatives at fair value based on observable market prices (levels 1 and 2). As of March 31, 2016, the fair value of the Partnership's derivative assets and liabilities were approximately $5 and $6 million, respectively, compared to $30 and $18 million at December 31, 2015. Derivative asset and liability balances are recorded in accounts receivable and accrued liabilities, respectively, in the condensed consolidated balance sheets.

The Partnership maintains credit policies with regard to its counterparties that management believes minimize the overall credit risk through credit analysis, credit approvals, credit limits and monitoring procedures. The credit positions of the Partnership's customers are analyzed prior to the extension of credit and periodically after credit has been extended. The Partnership's counterparties consist primarily of financial institutions and major integrated oil companies. This concentration of counterparties may impact the Partnership's overall exposure to credit risk, either positively or negatively, as the counterparties may be similarly affected by changes in economic, regulatory or other conditions.

The Partnership has interest rate risk exposure for changes in interest rates related to its outstanding borrowings. The Partnership manages its exposure to changes in interest rates through the use of a combination of fixed-rate and variable-rate debt. At March 31, 2016, the Partnership had $942 million of consolidated variable-rate borrowings under its revolving credit facility.

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

The estimated fair value of the Partnership's financial instruments has been determined based on management's assessment of available market information and appropriate valuation methodologies. The Partnership's current assets (other than derivatives and inventories) and current liabilities (other than derivatives) are financial instruments and most of these items are recorded at cost in the condensed consolidated balance sheets. The estimated fair value of these financial instruments approximates their carrying value due to their short-term nature. The Partnership's derivatives are measured and recorded at fair value based on observable market prices (Note 14). The estimated fair values of the Partnership's senior notes are determined using observable market prices, as these notes are actively traded (level 1). The estimated aggregate fair value of the senior notes at March 31, 2016 was $4.5 billion, compared to the carrying amount of $5.1 billion. The estimated aggregate fair value of the senior notes at December 31, 2015 was $4.2 billion, compared to the carrying amount of $5.1 billion.

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



	Three Months Ended March 31,
	2016			2015
	(in millions)
Sales and other operating revenue ⁽¹⁾
Crude Oil	$	1,380		$	2,326
Natural Gas Liquids	233			186
Refined Products	164			60
Total sales and other operating revenue	$	1,777		$	2,572

Depreciation and amortization
Crude Oil	$	59		$	48
Natural Gas Liquids	21			16
Refined Products	26			18
Total depreciation and amortization	$	106		$	82

Impairment charge and other matters
Crude Oil	$	24		$	68
Natural Gas Liquids	4			(27		)
Refined Products	(2		)	—
Total impairment charge and other matters	$	26		$	41

Adjusted EBITDA
Crude Oil	$	224		$	160
Natural Gas Liquids	74			28
Refined Products	51			33
Total Adjusted EBITDA	349			221
Interest expense, net	(39		)	(29		)
Depreciation and amortization expense	(106		)	(82		)
Impairment charge and other matters	(26		)	(41		)
Provision for income taxes	(5		)	(6		)
Non-cash compensation expense	(5		)	(4		)
Unrealized losses on commodity risk management activities	(13		)	(15		)
Amortization of excess equity method investment	(1		)	(1		)
Proportionate share of unconsolidated affiliates' interest, depreciation and provision for income taxes	(8		)	(6		)
Net Income	146			37
Less: Net income attributable to noncontrolling interests	(1		)	(1		)
Net Income attributable to Sunoco Logistics Partners L.P.	$	145		$	36

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

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



	Parent Guarantor		Subsidiary Issuer				Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues
Sales and other operating revenue:
Unaffiliated customers	$	—	$	—			$	1,668		$	—		$	1,668
Affiliates	—		—				109			—			109
Total Revenues	—		—				1,777			—			1,777
Costs and Expenses
Cost of products sold	—		—				1,413			—			1,413
Operating expenses	—		—				23			—			23
Selling, general and administrative expenses	—		—				26			—			26
Depreciation and amortization expense	—		—				106			—			106
Impairment charge and other matters	—		—				26			—			26
Total Costs and Expenses	—		—				1,594			—			1,594
Operating Income	—		—				183			—			183
Interest cost and debt expense, net	—		(64		)		(1		)	—			(65		)
Capitalized interest	—		26				—			—			26
Other income	—		—				7			—			7
Equity in earnings of subsidiaries	145		183				—			(328		)	—
Income (Loss) Before Provision for Income Taxes	145		145				189			(328		)	151
Provision for income taxes	—		—				(5		)	—			(5		)
Net Income (Loss)	145		145				184			(328		)	146
Net income attributable to noncontrolling interests	—		—				(1		)	—			(1		)
Net Income (Loss) Attributable to Sunoco Logistics Partners L.P.	$	145	$	145			$	183		$	(328	)	$	145

Comprehensive Income (Loss)	$	145	$	145		—	$	185		$	(328	)	$	147
Less: Comprehensive income attributable to noncontrolling interests	—		—				(1		)	—			(1		)
Comprehensive Income (Loss) Attributable to Sunoco Logistics Partners L.P.	$	145	$	145			$	184		$	(328	)	$	146



	Parent Guarantor		Subsidiary Issuer			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues
Sales and other operating revenue:
Unaffiliated customers	$	—	$	—		$	2,453		$	—		$	2,453
Affiliates	—		—			119			—			119
Total Revenues	—		—			2,572			—			2,572
Costs and Expenses
Cost of products sold	—		—			2,318			—			2,318
Operating expenses	—		—			40			—			40
Selling, general and administrative expenses	—		—			25			—			25
Depreciation and amortization expense	—		—			82			—			82
Impairment charge and other matters	—		—			41			—			41
Total Costs and Expenses	—		—			2,506			—			2,506
Operating Income	—		—			66			—			66
Interest cost and debt expense, net	—		(49		)	(1		)	—			(50		)
Capitalized interest	—		21			—			—			21
Other income	—		—			6			—			6
Equity in earnings of subsidiaries	36		64			—			(100		)	—
Income (Loss) Before Provision for Income Taxes	36		36			71			(100		)	43
Provision for income taxes	—		—			(6		)	—			(6		)
Net Income (Loss)	36		36			65			(100		)	37
Less: Net income attributable to noncontrolling interests	—		—			(1		)	—			(1		)
Net Income (Loss) Attributable to Sunoco Logistics Partners L.P.	$	36	$	36		$	64		$	(100	)	$	36

Comprehensive Income (Loss)	$	36	$	36		$	64		$	(100	)	$	36
Less: Comprehensive income attributable to noncontrolling interests	—		—			(1		)	—			(1		)
Comprehensive Income (Loss) Attributable to Sunoco Logistics Partners L.P.	$	36	$	36		$	63		$	(100	)	$	35



	Parent Guarantor			Subsidiary Issuer			Non-Guarantor Subsidiaries		Consolidating Adjustments			Total
Assets
Cash and cash equivalents	$	—		$	43		$	—	$	—		$	43
Accounts receivable, affiliated companies	—			8			35		—			43
Accounts receivable, net	—			—			1,146		—			1,146
Inventories	—			—			683		—			683
Other current assets	—			—			15		—			15
Total Current Assets	—			51			1,879		—			1,930
Properties, plants and equipment, net	—			—			11,079		—			11,079
Investment in affiliates	6,637			9,883			911		(16,520		)	911
Goodwill	—			—			1,358		—			1,358
Intangible assets, net	—			—			705		—			705
Other assets	—			5			66		—			71
Total Assets	$	6,637		$	9,939		$	15,998	$	(16,520	)	$	16,054
Liabilities and Equity
Accounts payable	$	—		$	2		$	1,340	$	—		$	1,342
Accounts payable, affiliated companies	—			—			20		—			20
Accrued liabilities	—			54			162		—			216
Accrued taxes payable	—			—			33		—			33
Intercompany	(1,409		)	(2,722		)	4,131		—			—
Total Current Liabilities	(1,409		)	(2,666		)	5,686		—			1,611
Long-term debt	—			5,968			—		—			5,968
Other deferred credits and liabilities	—			—			126		—			126
Deferred income taxes	—			—			254		—			254
Total Liabilities	(1,409		)	3,302			6,066		—			7,959
Redeemable noncontrolling interests	—			—			15		—			15
Redeemable Limited Partners' interests	290			—			—		—			290
Total Equity	7,756			6,637			9,917		(16,520		)	7,790
Total Liabilities and Equity	$	6,637		$	9,939		$	15,998	$	(16,520	)	$	16,054



	Parent Guarantor			Subsidiary Issuer			Non-Guarantor Subsidiaries		Consolidating Adjustments			Total
Assets
Cash and cash equivalents	$	—		$	37		$	—	$	—		$	37
Accounts receivable, affiliated companies	—			3			17		—			20
Accounts receivable, net	—			—			1,165		—			1,165
Inventories	—			—			607		—			607
Other current assets	—			—			19		—			19
Total Current Assets	—			40			1,808		—			1,848
Properties, plants and equipment, net	—			—			10,692		—			10,692
Investment in affiliates	6,488			9,692			802		(16,180		)	802
Goodwill	—			—			1,358		—			1,358
Intangible assets, net	—			—			718		—			718
Other assets	—			6			65		—			71
Total Assets	$	6,488		$	9,738		$	15,443	$	(16,180	)	$	15,489
Liabilities and Equity
Accounts payable	$	—		$	1		$	1,250	$	—		$	1,251
Accounts payable, affiliated companies	—			—			39		—			39
Accrued liabilities	1			66			262		—			329
Accrued taxes payable	—			—			44		—			44
Intercompany	(1,320		)	(2,408		)	3,728		—			—
Total Current Liabilities	(1,319		)	(2,341		)	5,323		—			1,663
Long-term debt	—			5,591			—		—			5,591
Other deferred credits and liabilities	—			—			125		—			125
Deferred income taxes	—			—			254		—			254
Total Liabilities	(1,319		)	3,250			5,702		—			7,633
Redeemable noncontrolling interests	—			—			15		—			15
Redeemable Limited Partners' interests	286			—			—		—			286
Total Equity	7,521			6,488			9,726		(16,180		)	7,555
Total Liabilities and Equity	$	6,488		$	9,738		$	15,443	$	(16,180	)	$	15,489



	Parent Guarantor			Subsidiary Issuer			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Net Cash Flows from Operating Activities	$	145		$	127		$	176		$	(328	)	$	120
Cash Flows from Investing Activities:
Capital expenditures	—			—			(580		)	—			(580		)
Change in long-term note receivable	—			—			(1		)	—			(1		)
Intercompany	(229		)	(501		)	402			328			—
Net cash provided by (used in) investing activities	(229		)	(501		)	(179		)	328			(581		)
Cash Flows from Financing Activities:
Distributions paid to limited and general partners	(216		)	—			—			—			(216		)
Distributions paid to noncontrolling interests	(1		)	—			—			—			(1		)
Net proceeds from issuance of limited partner units	301			—			—			—			301
Repayments under credit facilities	—			(813		)	—			—			(813		)
Borrowings under credit facilities	—			1,193			—			—			1,193
Contributions attributable to acquisition from affiliate	—			—			3			—			3
Net cash provided by financing activities	84			380			3			—			467
Net change in cash and cash equivalents	—			6			—			—			6
Cash and cash equivalents at beginning of period	—			37			—			—			37
Cash and cash equivalents at end of period	$	—		$	43		$	—		$	—		$	43



	Parent Guarantor			Subsidiary Issuer			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Net Cash Flows from Operating Activities	$	36		$	38		$	(50	)	$	(100	)	$	(76	)
Cash Flows from Investing Activities:
Capital expenditures	—			—			(567		)	—			(567		)
Acquisitions	—			—			(131		)	—			(131		)
Change in long-term note receivable	—			—			(6		)	—			(6		)
Intercompany	(579		)	(280		)	759			100			—
Net cash provided by (used in) investing activities	(579		)	(280		)	55			100			(704		)
Cash Flows from Financing Activities:
Distributions paid to limited and general partners	(146		)	—			—			—			(146		)
Net proceeds from issuance of limited partner units	689			—			—			—			689
Payments of statutory withholding on net issuance of limited partner units under LTIP	—			—			(8		)	—			(8		)
Repayments under credit facilities	—			(750		)	—			—			(750		)
Borrowings under credit facilities	—			950			—			—			950
Contributions attributable to acquisition from affiliate	—			—			3			—			3
Other	—			(5		)	—			—			(5		)
Net cash provided by (used in) financing activities	543			195			(5		)	—			733
Net change in cash and cash equivalents	—			(47		)	—			—			(47		)
Cash and cash equivalents at beginning of period	—			101			—			—			101
Cash and cash equivalents at end of period	$	—		$	54		$	—		$	—		$	54

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



	Three Months Ended March 31,
	2016			2015
	(in millions, except per unit data)
Revenues
Sales and other operating revenue:
Unaffiliated customers	$	1,668		$	2,453
Affiliates	109			119
Total Revenues	1,777			2,572
Costs and Expenses
Cost of products sold ⁽¹⁾	1,413			2,318
Operating expenses ⁽¹⁾	23			40
Selling, general and administrative expenses	26			25
Depreciation and amortization expense	106			82
Impairment charge and other matters	26			41
Total Costs and Expenses	1,594			2,506
Operating Income	183			66
Interest cost and debt expense, net	(65		)	(50		)
Capitalized interest	26			21
Other income	7			6
Income Before Provision for Income Taxes	151			43
Provision for income taxes	(5		)	(6		)
Net Income	146			37
Less: Net income attributable to noncontrolling interests	(1		)	(1		)
Net Income Attributable to Sunoco Logistics Partners L.P.	$	145		$	36
Net Income Attributable to Sunoco Logistics Partners L.P. per Limited Partner unit:
Basic	$	0.18		$	(0.10	)
Diluted	$	0.18		$	(0.10	)

Our management believes that Adjusted EBITDA and DCF information enhances an investor's understanding of a business's ability to generate cash for payment of distributions and other purposes. Adjusted EBITDA calculations are also defined and used as a measure in determining our compliance with certain revolving credit facility covenants. However, despite compliance with our credit facility covenants, there may be contractual, legal, economic or other factors which may prevent us from satisfying principal and interest obligations with respect to indebtedness and may require us to allocate funds for other purposes.

The following table reconciles the differences between net income, as determined under GAAP, and Adjusted EBITDA and DCF.



	Three Months Ended March 31,
	2016			2015
	(in millions)
Net Income	$	146		$	37
Interest expense, net	39			29
Depreciation and amortization expense	106			82
Impairment charge and other matters	26			41
Provision for income taxes	5			6
Non-cash compensation expense	5			4
Unrealized losses on commodity risk management activities	13			15
Amortization of excess investment in joint venture interests	1			1
Proportionate share of unconsolidated affiliates' interest, depreciation and provision for income taxes	8			6
Adjusted EBITDA	349			221
Interest expense, net	(39		)	(29		)
Provision for current income taxes	(5		)	(8		)
Amortization of fair value adjustments on long-term debt	(3		)	(3		)
Proportionate share of unconsolidated affiliates' interest, provision for current income taxes and maintenance capital expenditures ⁽¹⁾	(8		)	(10		)
Maintenance capital expenditures	(13		)	(15		)
Distributable cash flow attributable to noncontrolling interests	(1		)	(1		)
Contributions attributable to acquisition from affiliate	3			3
Distributable Cash Flow ⁽¹⁾	$	283		$	158

Net income attributable to Sunoco Logistics Partners L.P. ("net income attributable to SXL") was $145 and $36 million for the three months ended March 31, 2016 and 2015, respectively. Results for the three months ended March 31, 2016 and 2015 included non-cash inventory adjustments of $26 and $41 million, respectively, related to fluctuations in commodity prices during both periods. Excluding these non-cash items, net income attributable to SXL increased $94 million compared to the prior year period. This increase was attributable to higher operating results from all of our reporting segments, which included approximately $52 million related to favorable LIFO inventory accounting. These positive impacts were partially offset by higher depreciation and amortization expense related to expansion capital projects placed into service in 2015 and higher net interest expense largely attributable to the $1.0 billion senior notes offering in November 2015.

Our Crude Oil segment utilizes an integrated set of pipeline, terminalling, and acquisition and marketing assets that facilitate the movement of crude oil from producers to end-user markets. The segment includes crude oil trunk and gathering pipelines in the southwest and midwest United States, including those owned by our joint venture interests, terminalling assets in key crude oil markets, and a crude oil trucking fleet that supports the sale of gathered and bulk purchased crude oil. Revenues are generated from tariffs and the associated fees paid by shippers utilizing our pipeline assets with rates for shipments on the crude oil pipelines regulated by the Federal Energy Commission ("FERC") and other state regulatory agencies, as applicable. The Crude Oil segment also generates revenues from fees for terminalling services provided and the marketing of crude oil.

The crude oil acquisition and marketing activities generate substantial revenue and cost of products sold as a result of the significant volumes bought and sold. The absolute price levels of crude oil normally do not bear a relationship to gross profit, although the price levels significantly impact revenue and costs of products sold. As a result, period-to-period variations in revenue and cost of products sold are not generally meaningful in analyzing the variation in gross profit for the segment. The operating results of the Crude Oil segment are affected by overall levels of supply and demand for crude oil and relative fluctuations in market related indices. To the extent there are periods of sustained crude oil price declines, drilling activity could decline impacting the volume of crude oil we transport, store, or buy and sell. Generally, we expect a base level of earnings from our Crude Oil segment that may be optimized and enhanced when there is a high level of market volatility, favorable basis differentials and/or a steep contango or backwardated structure. Our management believes gross profit, which is equal to sales and other operating revenue less cost of products sold and operating expenses, is a key measure of financial performance. Although we implement risk management activities to provide general stability in our margins, these margins are not fixed and will vary from period to period.



	Three Months Ended March 31,
	2016		2015
	(in millions, except for barrel amounts)
Sales and other operating revenue:
Unaffiliated customers	$	1,376	$	2,265
Affiliates	4		61
Total sales and other operating revenue	$	1,380	$	2,326
Depreciation and amortization expense	$	59	$	48
Impairment charges and other matters ⁽¹⁾	$	24	$	68
Adjusted EBITDA	$	224	$	160
Pipeline throughput (thousands of barrels per day ("bpd")) ⁽²⁾	2,223		2,124
Terminal throughput (thousands of bpd)	1,517		1,297
Gross profit ⁽³⁾	$	235	$	172

Adjusted EBITDA for the Crude Oil segment increased $64 million to $224 million for the three months ended March 31, 2016, as compared to $160 million for the prior year period. During the quarter, we continued to utilize our storage capabilities to capture the contango market structure. The impact of LIFO inventory accounting in an environment where commodity prices are falling resulted in approximately $60 million of positive earnings in the quarter. This favorable LIFO timing is expected to be reversed in future periods as commodity prices rise or those inventory positions are liquidated. Excluding this favorable inventory timing, the Crude Oil segment increased $4 million compared to the first quarter 2015. The increase was due to improved results from our crude oil pipelines ($45 million) which benefited from the Permian Express 2 pipeline that commenced operations in July 2015, and higher results from our crude oil terminals ($8 million) largely related to our Nederland facility. These increases were largely offset by a decrease in operating results from our crude oil acquisition and marketing activities ($50 million) resulting from narrowing crude oil differentials. These results are inclusive of transportation and storage fees related to our crude oil pipelines and terminal facilities.

Our Natural Gas Liquids segment transports, stores, and executes acquisition and marketing activities utilizing an integrated network of pipeline assets in the northeast and southwest United States, storage and blending facilities, and strategic off-take locations that provide access to multiple natural gas liquid ("NGL") markets. Revenues are generated from tariffs and the associated fees paid by shippers utilizing our pipeline assets, fees for terminalling services provided, and the marketing of NGLs. Rates for shipments on the NGLs pipelines are regulated by the FERC and other state and Canadian regulatory agencies, as applicable.

The following table summarizes the operating results and key operating measures for our Natural Gas Liquids segment for the periods presented:



	Three Months Ended March 31,
	2016		2015
	(in millions, except for barrel amounts)
Sales and other operating revenue:
Unaffiliated customers	$	184	$	150
Affiliates	49		36
Total sales and other operating revenue	$	233	$	186
Depreciation and amortization expense	$	21	$	16
Impairment charge and other matters ⁽¹⁾	$	4	$	(27	)
Adjusted EBITDA	$	74	$	28
Pipeline throughput (thousands of bpd)	269		148
Terminal throughput (thousands of bpd)	220		124
Gross profit ⁽²⁾	$	79	$	19

Adjusted EBITDA for the Natural Gas Liquids segment increased $46 million to $74 million for the three months ended March 31, 2016, as compared to $28 million for the prior year period. The increase was largely attributable to increased volumes and fees from our Mariner NGLs projects ($38 million), which includes our Nederland and Marcus Hook facilities. Higher volumes related to our NGLs acquisition and marketing activities ($7 million) and the absence of unfavorable LIFO inventory accounting also contributed to the increase.

Our Refined Products segment provides transportation and terminalling services through the use of refined products pipelines and approximately 40 active refined products marketing terminals. The segment includes our controlling financial interest in Inland Corporation ("Inland"), as well as equity ownership interest in four refined products pipelines. The Refined Products segment utilizes our integrated pipeline and terminalling assets, as well as acquisition and marketing activities, to service refined products markets in the northeast and midwest United States. Revenues are generated from tariffs and the associated fees paid by shippers utilizing our pipeline assets, fees for terminalling services provided, and the marketing of refined products. Rates for shipments on the refined products pipelines are regulated by the FERC and other associated state entities.

The following table summarizes the operating results and key operating measures for our Refined Products segment for the periods presented:



	Three Months Ended March 31,
	2016			2015
	(in millions, except for barrel amounts)
Sales and other operating revenue:
Unaffiliated customers	$	108		$	38
Affiliates	56			22
Total sales and other operating revenue	$	164		$	60
Depreciation and amortization expense	$	26		$	18
Impairment charge and other matters ⁽¹⁾	$	(2	)	$	—
Adjusted EBITDA	$	51		$	33
Pipeline throughput (thousands of bpd) ⁽²⁾	522			436
Terminal throughput (thousands of bpd)	532			483
Gross profit ⁽³⁾	$	27		$	23

Adjusted EBITDA for the Refined Products segment increased $18 million to $51 million for the three months ended March 31, 2016, as compared to $33 million for the prior year period. The increase was driven primarily by increased operating results from our refined products pipelines ($9 million), which was largely attributable to the commencement of operations on our Allegheny Access project in 2015. Improved earnings from our refined products acquisition and marketing activities ($8 million) and increased contributions from our refined products joint ventures ($1 million) also contributed to the improvement.

Cash generated from operations and borrowings under our $2.50 billion Credit Facility are our primary sources of liquidity. At March 31, 2016, we had a net working capital surplus of $319 million and available borrowing capacity of $1.56 billion under our revolving credit facility. We supplement our cash flows from operations with proceeds from our at-the-market equity offering program ("ATM" program) and periodically with debt and equity financing activities.

We maintain a $2.50 billion unsecured revolving credit agreement (the "$2.50 billion Credit Facility"), which matures in March 2020, to fund our working capital requirements, finance acquisitions and capital projects, and for general partnership purposes. The $2.50 billion Credit Facility contains an "accordion" feature, under which the total aggregate commitment may be extended to $3.25 billion under certain conditions. In September 2015, we initiated a commercial paper program under the borrowing limits established by our $2.50 billion Credit Facility. In June 2015, the $2.50 billion Credit Facility was amended to create a segregated tranche of borrowings that will be guaranteed by ETP. The amendment did not modify the outstanding borrowings, total capacity or terms of the facility. Outstanding borrowings amounted to $942 and $562 million at March 31, 2016 and December 31, 2015, respectively.

The $2.50 billion Credit Facility contains various covenants including limitations on the creation of indebtedness and liens, and related to the operation and conduct of our business. The credit facility also limits us, on a rolling four quarter basis, to a maximum total consolidated debt to consolidated Adjusted EBITDA ratio, as defined in the underlying credit agreement, of 5.0 to 1, which can generally be increased to 5.5 to 1 during an acquisition period. Our ratio of total consolidated debt, excluding net unamortized fair value adjustments, to consolidated Adjusted EBITDA was 3.5 to 1 at March 31, 2016, as calculated in accordance with the credit agreement.

We maintain an ATM program which allows us to issue common units directly to the public and raise capital in a timely and efficient manner to finance our growth capital program, while supporting our investment grade credit ratings. For the three months ended March 31, 2016 and 2015, the Partnership issued 12.1 and 3.4 million common units under this program, for net proceeds of $301 and $142 million, respectively.

In March 2015, we completed an overnight public offering of 13.5 million common units for net proceeds of $547 million. The net proceeds from this offering were used to repay outstanding borrowings under the $2.50 billion Credit Facility and for general partnership purposes. In April 2015, an additional 2.0 million common units were issued for net proceeds of $82 million related to the exercise of an option in connection with the March 2015 offering.

Cash flows from operating activities are primarily driven by earnings, excluding the impact of non-cash items, the timing of cash receipts and disbursements related to accounts receivable and payable, and the timing of inventory transactions and changes in other working capital amounts. Non-cash items include depreciation, amortization, and impairment charges and related matters. See the Analysis of Consolidated Operating Results, above, for more information on changes in our consolidated earnings.

Net cash provided by operating activities for the three months ended March 31, 2016 of $120 million was primarily related to net income of $146 million, adjusted for non-cash charges for depreciation and amortization totaling $106 million and a $26 million non-cash inventory adjustment related to changes in commodity prices. These sources of cash were partially offset by a $164 million increase in working capital largely attributable to an increase in inventories.

Net cash used in operating activities for the three months ended March 31, 2015 of $76 million was primarily related to a $247 million increase in working capital, largely attributable to a decrease in net payables and an increase in inventory volumes. These uses of cash were partially offset by net income of $37 million, adjusted for non-cash charges totaling $123 million for depreciation and amortization and for the net write down of commodity inventories.

Net cash provided by financing activities for the three months ended March 31, 2015 of $733 million resulted primarily from $689 million of net proceeds from the overnight public offering and our ATM program and the $200 million of net borrowings under our $2.50 billion Credit Facility. These sources of cash were partially offset by $146 million in distributions paid to limited partners and the general partner.

Expansion capital expenditures for the three months ended March 31, 2016 and 2015 included spending to: invest in the announced Mariner NGLs projects; invest in our crude oil infrastructure by increasing our pipeline capabilities through announced expansion capital and joint projects; expand the service capabilities of our crude oil, NGLs and refined products acquisition and marketing activities; and upgrade the service capabilities at our bulk marine terminals.

Maintenance capital expenditures for both periods presented primarily included recurring expenditures such as pipeline integrity costs; pipeline relocations; repair and upgrade of field instrumentation, including measurement devices; repair and replacement of tank floors and roofs; upgrades of cathodic protection systems, crude trucks and related equipment; and the upgrade of pump stations.

We have interest rate risk exposure for changes in interest rates relating to our outstanding borrowings. We manage our exposure to changing interest rates through the use of a combination of fixed-rate and variable-rate debt. At March 31, 2016, we had $942 million of variable-rate borrowings under our revolving credit facility. Outstanding borrowings bear interest cost at LIBOR plus an applicable margin. An increase in short-term interest rates will have a negative impact on funds borrowed under variable-rate debt arrangements. Our weighted average interest rate on our variable-rate borrowings was approximately 2 percent at March 31, 2016. A one-percent movement in the weighted average rate would have impacted interest expense by approximately $2 million for the three months ended March 31, 2016.

At March 31, 2016, we had $5.0 billion of fixed-rate borrowings which was comprised of our outstanding senior notes. This amount excludes the $90 million of unamortized fair value adjustments resulting from the application of push-down accounting in connection with the acquisition of our general partner by ETP. The estimated fair value of our senior notes was $4.5 billion at March 31, 2016. A hypothetical one-percent movement in interest rates would have impacted the fair value of our fixed-rate borrowings by approximately $412 million.

We are exposed to volatility in the prices of the products we market. To manage such exposures, inventory levels and expectations regarding future commodity prices are monitored when making decisions with respect to risk management and inventory carried. Our policy is to purchase only commodity products for which we have a market, and to structure our sales contracts so that price fluctuations for those products do not materially affect the margins we receive. We also seek to maintain a position that is substantially balanced within our various commodity purchase and sale activities. We may experience net unbalanced positions for short periods of time as a result of production, transportation and delivery variances, as well as logistical issues associated with inclement weather conditions. When unscheduled physical inventory builds or draws occur, they are monitored and managed to a balanced position over a reasonable period of time.

We do not use futures or other derivative instruments to speculate on crude oil, natural gas liquids ("NGLs") or refined products prices, as these activities could expose us to significant losses. We do use derivative contracts as economic hedges against price changes related to our forecasted refined products and NGLs purchase and sale activities. These derivatives are intended to have equal and opposite effects of the related physical purchase and sale activities. At March 31, 2016, the fair market value of our open derivative positions resulted in a net liability of $1 million on 6.5 million barrels of refined products and NGLs. These derivative positions vary in length but do not extend beyond one year.

Words such as "may," "anticipates," "believes," "expects," "estimates," "planned," "scheduled" or similar phrases or expressions identify forward-looking statements. Although we believe 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. These statements are subject to numerous assumptions, uncertainties and risks that may cause future results to be materially different from the results projected, forecasted, estimated or budgeted, including, but not limited to the following:

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. We undertake no obligation to update publicly any forward-looking statement, whether as a result of new information or future events.

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the Partnership's 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's reports under the Exchange Act is accumulated and communicated to management, including the President and Chief Executive Officer and Chief Financial Officer and Treasurer of Sunoco Partners LLC (the Partnership's general partner), as appropriate, to allow timely decisions regarding required disclosure.

As of March 31, 2016, the Partnership carried out an evaluation, under the supervision and with the participation of management of the general partner (including the President and Chief Executive Officer and the Chief Financial Officer and Treasurer), 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 general partner's President and Chief Executive Officer and its Chief Financial Officer and Treasurer concluded that the Partnership's disclosure controls and procedures were effective.

There are certain proceedings arising prior to the February 2002 initial public offering ("IPO") pending against Sunoco, Inc. ("Sunoco") and us (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 our responsibility. In addition, Sunoco is obligated to indemnify us under certain other agreements executed after the IPO.

In April 2016, the Pipeline and Hazardous Materials Safety Administration ("PHMSA") issued a Notice of Probable Violation ("NOPV"), Proposed Civil Penalty and Proposed Compliance Order related to certain procedures carried out during construction of the Partnership's Permian Express 2 pipeline system in Texas. The correspondence proposes penalties in excess of $0.1 million, and the Partnership is currently in discussions with PHMSA to resolve these matters. The timing or outcome of these matters cannot be reasonably determined at this time, however, the Partnership does not expect there to be a material impact to its results of operations, cash flows, or financial position.

In April 2015, the PHMSA issued two separate NOPVs related to the Partnership's West Texas Gulf pipeline in connection with repairs being carried out on the pipeline. The NOPVs propose penalties in excess of $0.1 million, and the Partnership is currently in discussions with PHMSA to resolve these matters. The timing or outcome of these matters cannot be reasonable determined at this time, however, the Partnership does not expect there to be a material impact to its results of operations, cash flows or financial position.



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)

32.1		Chief Executive Officer Certification of Periodic Report Pursuant to Exchange Act Rule 13a-14(b) and U.S.C. § 1350

32.2		Chief Financial Officer Certification of Periodic Report Pursuant to Exchange Act Rule 13a-14(b) and U.S.C. § 1350

101.1		The following financial information from Sunoco Logistics Partners L.P.'s Quarterly Report on Form 10-Q for the three months ended March 31, 2016 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Comprehensive Income; (ii) the Condensed Consolidated Balance Sheets; (iii) the Condensed Consolidated Statements of Cash Flows; (iv) the Condensed Consolidated Statements of Equity; and (v) the Notes to Condensed Consolidated Financial Statements



Delaware		23-3096839
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3807 West Chester Pike, Newtown Square, PA		19073
(Address of principal executive offices)		(Zip Code)



Sunoco Logistics Partners L.P.

By:	/s/ PETER J. GVAZDAUSKAS
	Peter J. Gvazdauskas
	Chief Financial Officer and Treasurer Sunoco Partners LLC



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



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


⁽¹⁾	Unvested incentive unit awards are not included within the calculation of the dilutive weighted average number of units for the three months ended March 31, 2015 since the effect on the net loss attributable to SXL per limited partner unit would have been antidilutive.


⁽¹⁾	The 6.125 percent Senior Notes were classified as long-term debt at March 31, 2016 as the Partnership has the ability and intent to refinance such borrowings on a long-term basis.


⁽²⁾	Represents fair value adjustments on senior notes resulting from the application of push-down accounting in connection with the acquisition of the Partnership's general partner by ETP on October 5, 2012.


⁽³⁾	In the fourth quarter 2015, the Partnership adopted accounting guidance which requires certain debt issuance costs to be reflected as a reduction in the total long-term debt liability for all periods presented. The net long-term debt balance now includes $31 and $32 million of debt issuance costs at March 31, 2016 and December 31, 2015, respectively. Refer to Note 1 for additional information.


⁽¹⁾	Sales and other operating revenue includes the following amounts from ETP and its affiliates for the three months ended March 31, 2016 and 2015:


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


⁽¹⁾	In connection with the change in our reportable segments in the fourth quarter 2015, we adjusted the elimination of certain intercompany transactions to conform to the new segment presentation, which included recasting prior period amounts to conform to the current presentation. These changes did not impact our total expenses or net income.


⁽¹⁾	During the first quarter 2016, we changed our definition of distributable cash flow to conform to the presentation utilized by our general partner. The change did not have a material impact on our distributable cash flow. Prior period amounts have been recast to conform to current presentation.


⁽¹⁾	Represents non-cash inventory adjustments related to changes in commodity prices.


⁽²⁾	Excludes amounts attributable to equity interests which are not consolidated.


⁽³⁾	Represents total segment sales and other operating revenue less costs of products sold and operating expenses.


•	Expansion capital expenditures to acquire and integrate complementary assets to improve operational efficiencies or reduce costs and to expand existing and construct new facilities, such as projects that increase storage or throughput volume, and joint projects which complement our existing asset base,


•	Maintenance capital expenditures that extend the usefulness of existing assets, such as those required to maintain equipment reliability, tankage and pipeline integrity and safety, and to address environmental regulations, and


•	Acquisitions to acquire and integrate complementary assets to grow the business, to improve operational efficiencies or reduce costs.


•	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 the supply of, or demand for crude oil, NGLs and refined products that impact demand for our pipeline, terminalling and storage services;


•	Changes in the short-term and long-term demand for crude oil, NGLs and refined products we buy and sell;


•	An increase in the competition encountered by our terminals, pipelines and acquisition and marketing operations;


•	Changes in the financial condition or operating results of joint ventures or other holdings in which we have an equity ownership interest;


•	Changes in the general economic conditions in the United States;


•	Changes in laws and regulations to which we are subject, including federal, state, and local tax, safety, environmental and employment laws;


•	Changes in regulations governing the composition of the products that we transport, terminal and store;


•	Improvements in energy efficiency and development of technology resulting in reduced demand for refined petroleum products;


•	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, NGLs and refined 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 our facilities (including equipment malfunction, explosions, fires, spills and the effects of severe weather conditions);


•	The occurrence of operational hazards or unforeseen interruptions for which we may not be adequately insured;