Exhibit 99.1
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT
To the Board of Directors of
Sunoco Partners LLC
We have audited the accompanying parent-company-only balance sheet of Sunoco Partners LLC as of December 31, 2007. The parent-company-only balance sheet is the responsibility of Sunoco Partners LLC’s management. Our responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. We were not engaged to perform an audit of Sunoco Partners LLC’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Sunoco Partners LLC’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in all material respects, the financial position of Sunoco Partners LLC at December 31, 2007, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 to the financial statement, Sunoco Partners LLC changed its method of accounting for uncertain tax positions in 2007.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 25, 2008
SUNOCO PARTNERS LLC
BALANCE SHEET
| | | |
| | | December 31,
2007 |
Assets | | | |
Current Assets | | | |
Advances to affiliate | | $ | 360,647,088 |
| | | |
Total Current Assets | | | 360,647,088 |
| |
Notes receivable from affiliates | | | 329,777,725 |
Investment in Sunoco Logistics Partners L.P. | | | 226,732,051 |
| | | |
Total Assets | | $ | 917,156,864 |
| | | |
Liabilities and Owners’ Equity | | | |
Current Liabilities | | | |
Accrued liabilities | | $ | 10,719,992 |
| | | |
Total Current Liabilities | | | 10,719,992 |
Owners’ equity | | | 906,436,872 |
| | | |
Total Liabilities and Owner’s Equity | | $ | 917,156,864 |
| | | |
(See Accompanying Notes)
SUNOCO PARTNERS LLC
NOTES TO BALANCE SHEET
1. Nature of Operations and Basis of Presentation
Sunoco Partners LLC (the “Company”) is a Pennsylvania limited liability company formed on October 12, 2001 to become the general partner of Sunoco Logistics Partners L.P. (the “Partnership”). The Company is wholly-owned by subsidiaries of Sunoco, Inc.
The Partnership is a Delaware limited partnership formed by Sunoco, Inc. on October 15, 2001 to acquire, own and operate a substantial portion of Sunoco Inc.’s logistics business, 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 Southwest Unites States (the “Predecessor”).
On February 8, 2002, Sunoco, Inc., through the Company, contributed the Predecessor to the Partnership in exchange for: (i) a 2 percent general partner interest in the Partnership; (ii) incentive distribution rights (as defined in the partnership agreement); (iii) 5,633,639 common units; (iv) 11,383,639 subordinated units; and (v) a special interest representing the right to receive from the Partnership on the closing of the initial public offering (“IPO”) the net proceeds from the issuance of $250 million aggregate principal amount of ten-year senior notes by Sunoco Logistics Partners Operations L.P., a subsidiary of the Partnership. The Partnership guarantees these notes. The net proceeds distributed to the Company were $244.8 million. The Partnership concurrently issued 5.75 million common units (including 750,000 units issued pursuant to the underwriters’ over-allotment option), representing a 24.8 percent limited partnership interest in the Partnership, in an IPO at a price of $20.25 per unit. Proceeds from the IPO, which totaled $96.5 million net of underwriting discounts and offering expenses, were used by the Partnership to establish working capital that was not contributed to the Partnership by Sunoco, Inc.
The Company, as general partner, manages the operations and activities of the Partnership and owes a fiduciary duty to the Partnership’s unitholders. Most of the Partnership’s operations personnel are employees of the Company. The Company is liable, as general partner, for all of the Partnership’s debts (to the extent not paid from the Partnership’s assets), except for indebtedness or other obligations that are made specifically nonrecourse to the general partners.
The Company does not receive any management fee or other compensation for its management of the Partnership. The Company and its affiliates are reimbursed for expenses incurred on the Partnership’s behalf. These expenses include the costs of employee, officer, and director compensation and benefits properly allocable to the Partnership, and all other expenses necessary or appropriate to conduct the business of, and allocable to, the Partnership. The partnership agreement provides that the Company, as general partner, will determine the expenses that are allocable to the Partnership in any reasonable manner determined by the Company in its sole discretion.
The accompanying balance sheet of Sunoco Partners LLC is of the parent company only and does not include the accounts of Sunoco Logistics Partners L.P. or any of its subsidiaries. Sunoco Partners LLC’s investment in the Partnership in the balance sheet is stated at cost plus equity in undistributed earnings of the Partnership since February 8, 2002, the date of the IPO. The parent-company-only balance sheet should be read in conjunction with the financial statements and accompanying notes of Sunoco Logistics Partners L.P. as of and for the year ended December 31, 2007, filed in this form 10-K.
Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes— an interpretation of FASB Statement No. 109” (“FASB Interpretation No. 48”). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” by prescribing the minimum recognition threshold and measurement attribute a tax position taken or expected to be taken on a tax return is required to meet before being recognized in the financial statements. As a result of the implementation of FASB Interpretation No. 48, the Company recorded a $2.3 million reduction in retained earnings at January 1, 2007 to recognize the cumulative effect of the adoption of this standard. The Company has $2.4 million unrecognized state and local tax benefits and accruals for interest of $0.3 million at December 31, 2007.
The statute of limitation for examination of the Company’s federal income tax returns by the Internal Revenue Service is open for the years 2004 through 2007. State and local income tax returns are generally subject to examination for a period of three to five years after the filing of the respective returns. The state impact of any amended federal returns remains subject to examination by various states for a period of up to one year after formal notification of such amendments to the states. The Company has one local income tax return in the process of examination.
2. Related Party Transactions
Advances to Affiliates
Advances to affiliate reflects the Company’s participation in Sunoco, Inc.’s central cash management program, wherein all of the Company’s cash receipts are remitted to Sunoco, Inc. and all cash disbursements are funded by Sunoco, Inc. There are no terms of settlement or interest charges attributable to this balance.
Notes receivable from Affiliates
Effective February 8, 2002, the Company loaned $246.7 million to another subsidiary of Sunoco, Inc. The loan, which is evidenced by a note due February 8, 2008, earns interest at an annual rate based on 115 percent of the short-term applicable federal rate established by the Internal Revenue Service. The interest rate on this note at December 31, 2007 was 5.75 percent. There are no restrictions on the Company’s ability to distribute this note receivable to its owners. It is management’s intent to renew and extend this note, therefore it has been classified as a non-current asset on the Company’s balance sheet.
On April 7, 2004, the Company loaned $83.1 million to another subsidiary of Sunoco, Inc. The loan earned interest at an annual rate of 1.47 percent. Effective February 1, 2008, the loan was amended and its maturity date was set for February 1, 2013 with an annual interest rate of 5.75 percent. There are no restrictions on the Company’s ability to distribute this note receivable to its owners.
License Agreement
The Partnership entered into a license agreement at the closing of the IPO with Sunoco and certain of its affiliates, including the Company, pursuant to which the Partnership granted to the Company a license to the Partnership’s intellectual property so that the Company can manage the Partnership’s operations and create intellectual property using the Partnership’s intellectual property. The Company will assign to the Partnership the new intellectual property it creates in operating the Partnership’s business. The Company has also licensed to the Partnership certain of its own intellectual property for use in the conduct of the Partnership’s business and the Partnership licensed to the Company certain of the Partnership’s intellectual property for use in the conduct of its business. The license agreement also grants to the Partnership a license to use the trademarks, trade names, and service marks of Sunoco in the conduct of the Partnership’s business.
