sun-20230331

SEC Form 10-Q filed by Sunoco LP

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended: March 31, 2023


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

Commission File Number: 001-35653

SUNOCO LP

(Exact name of registrant as specified in its charter)


Delaware						30-0740483
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

8111 Westchester Drive, Suite 400, Dallas, Texas 75225

(Address of principal executive offices, including zip code)

(214) 981-0700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Units Representing Limited Partner Interests	SUN	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging Growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ý

The registrant had 84,060,659 common units representing limited partner interests and 16,410,780 Class C units representing limited partner interests outstanding at April 28, 2023.

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SUNOCO LP

FORM 10-Q

TABLE OF CONTENTS


						Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements						3




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						14
Item 3. Quantitative and Qualitative Disclosures about Market Risk						21
Item 4. Controls and Procedures						22

PART II – OTHER INFORMATION
Item 1. Legal Proceedings						23
Item 1A. Risk Factors						23
Item 6. Exhibits						23

SIGNATURE						25

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SUNOCO LP

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(unaudited)


	March 31, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	189	$	82

Accounts receivable, net	573		890
Accounts receivable from affiliates	17		15
Inventories, net	768		821
Other current assets	185		175

Total current assets	1,732		1,983

Property and equipment	2,795		2,796
Accumulated depreciation	(1,069)		(1,036)
Property and equipment, net	1,726		1,760
Other assets:
Finance lease right-of-use assets, net	9		9
Operating lease right-of-use assets, net	524		524
Goodwill	1,601		1,601



Intangible assets, net	576		588
Other non-current assets	258		236
Investment in unconsolidated affiliates	128		129

Total assets	$	6,554	$	6,830

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	730	$	966
Accounts payable to affiliates	125		109

Accrued expenses and other current liabilities	291		310
Operating lease current liabilities	21		21


Total current liabilities	1,167		1,406

Operating lease non-current liabilities	528		528
Revolving line of credit	800		900
Long-term debt, net	2,672		2,671
Advances from affiliates	115		116
Deferred tax liability	159		156
Other non-current liabilities	113		111
Total liabilities	5,554		5,888

Commitments and contingencies (Note 10)

Equity:
Limited partners:
Common unitholders (84,060,659 units issued and outstanding as of March 31, 2023 and 84,054,765 units issued and outstanding as of December 31, 2022)	1,000		942
Class C unitholders - held by subsidiaries (16,410,780 units issued and outstanding as of March 31, 2023 and December 31, 2022)	—		—
Total equity	1,000		942
Total liabilities and equity	$	6,554	$	6,830

The accompanying notes are an integral part of these consolidated financial statements.

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SUNOCO LP

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Dollars in millions, except per unit data)

(unaudited)


	Three Months Ended March 31,
	2023		2022
REVENUES:
Motor fuel sales	$	5,239	$	5,277
Non-motor fuel sales	86		90
Lease income	37		35
Total revenues	5,362		5,402
COST OF SALES AND OPERATING EXPENSES:
Cost of sales	4,987		4,972
General and administrative	29		27
Other operating	82		81
Lease expense	16		16
Loss on disposal of assets	1		—
Depreciation, amortization and accretion	48		47
Total cost of sales and operating expenses	5,163		5,143
OPERATING INCOME	199		259
OTHER INCOME (EXPENSE):
Interest expense, net	(53)		(41)

Equity in earnings of unconsolidated affiliates	2		1

INCOME BEFORE INCOME TAXES	148		219
Income tax expense	7		3
NET INCOME AND COMPREHENSIVE INCOME	$	141	$	216

NET INCOME PER COMMON UNIT:
Basic	$	1.43	$	2.35
Diluted	$	1.41	$	2.32

WEIGHTED AVERAGE COMMON UNITS OUTSTANDING:
Basic	84,058,716		83,682,902
Diluted	84,970,826		84,729,202

CASH DISTRIBUTIONS PER UNIT	$	0.842	$	0.8255

The accompanying notes are an integral part of these consolidated financial statements.

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SUNOCO LP

CONSOLIDATED STATEMENTS OF EQUITY

(Dollars in millions)

(unaudited)



Balance, December 31, 2022	$	942
Cash distributions to unitholders	(88)
Unit-based compensation	5

Net income	141
Balance, March 31, 2023	$	1,000

Balance, December 31, 2021	$	811
Cash distributions to unitholders	(88)
Unit-based compensation	5

Net income	216
Balance, March 31, 2022	$	944

The accompanying notes are an integral part of these consolidated financial statements.

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SUNOCO LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(unaudited)


	Three Months Ended March 31,
	2023		2022
OPERATING ACTIVITIES:
Net income	$	141	$	216
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	48		47
Amortization of deferred financing fees	2		2
Loss on disposal of assets	1		—


Non-cash unit-based compensation expense	5		5
Deferred income tax	4		41
Inventory valuation adjustment	(29)		(120)
Equity in earnings of unconsolidated affiliates	(2)		(1)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net	317		(199)
Receivables from affiliates	(2)		(1)
Inventories, net	82		(50)
Other assets	(13)		(134)
Accounts payable	(225)		215
Accounts payable to affiliates	16		18
Accrued expenses and other current liabilities	(19)		(16)

Net cash provided by operating activities	326		23
INVESTING ACTIVITIES:
Capital expenditures	(37)		(26)

Deposit for acquisition	—		(264)
Distributions from unconsolidated affiliates in excess of cumulative earnings	3		1

Proceeds from disposal of property and equipment	3		4
Net cash used in investing activities	(31)		(285)
FINANCING ACTIVITIES:

Payments on long-term debt	—		(2)

Credit Facility borrowings	759		1,445
Credit Facility repayments	(859)		(1,014)


Distributions to unitholders	(88)		(88)
Net cash provided by (used in) financing activities	(188)		341
Net increase in cash and cash equivalents	107		79
Cash and cash equivalents, beginning of period	82		25
Cash and cash equivalents, end of period	$	189	$	104

Supplemental disclosure of non-cash investing activities:
Change in note payable to affiliate	$	—	$	(4)

The accompanying notes are an integral part of these consolidated financial statements.

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SUNOCO LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular dollar amounts, except units and per unit data, are in millions)

(unaudited)

1.Organization and Principles of Consolidation

As used in this document, the terms “Partnership,” “SUN,” “we,” “us,” and “our” should be understood to refer to Sunoco LP and our consolidated subsidiaries, unless the context clearly indicates otherwise.

We are a Delaware master limited partnership. We are managed by our general partner, Sunoco GP LLC (our “General Partner”), which is owned by Energy Transfer LP (“Energy Transfer”). As of March 31, 2023, Energy Transfer owned 100% of the limited liability company interests in our General Partner, 28,463,967 of our common units, which constitutes a 28.3% limited partner interest in us, and all of our incentive distribution rights ("IDRs").

The consolidated financial statements are composed of Sunoco LP, a publicly traded Delaware limited partnership, and its wholly‑owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Certain items have been reclassified for presentation purposes to conform to the accounting policies of the consolidated entity. These reclassifications had no material impact on operating income, net income and comprehensive income, the consolidated balance sheets or consolidated statements of cash flows.

2.Summary of Significant Accounting Policies

Interim Financial Statements

The accompanying interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Pursuant to Regulation S-X, certain information and disclosures normally included in the annual consolidated financial statements have been condensed or omitted. The interim consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission ("SEC") on February 17, 2023.

Significant Accounting Policies

As of March 31, 2023, there have been no changes in the Partnership's significant accounting policies from those described in the Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 17, 2023.

Motor Fuel and Sales Taxes

Certain motor fuel and sales taxes are collected from customers and remitted to governmental agencies either directly by the Partnership or through suppliers. The Partnership’s accounting policy for wholesale direct sales to dealers, distributors and commercial customers is to exclude the collected motor fuel tax from sales and cost of sales.

For retail locations where the Partnership holds inventory, including commission agent locations, motor fuel sales and motor fuel cost of sales include motor fuel taxes. Such amounts were $65 million and $71 million for the three months ended March 31, 2023 and 2022, respectively. Merchandise sales and cost of merchandise sales are reported net of sales tax in the consolidated statements of operations and comprehensive income.

3.Accounts Receivable, net

Accounts receivable, net, consisted of the following:


	March 31, 2023		December 31, 2022

Accounts receivable, trade	$	488	$	755
Credit card receivables	41		81

Other receivables	45		56
Allowance for expected credit losses	(1)		(2)
Accounts receivable, net	$	573	$	890

4.Inventories, net

Fuel inventories are stated at the lower of cost or market using the last-in-first-out (“LIFO”) method. As of March 31, 2023 and December 31, 2022, the Partnership’s fuel inventory balance included lower of cost or market reserves of $87 million and $116 million, respectively. For the three months ended March 31, 2023 and 2022, the Partnership’s consolidated statements of operations

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and comprehensive income did not include any material amounts of income from the liquidation of LIFO fuel inventory. For the three months ended March 31, 2023 and 2022, the Partnership's cost of sales included favorable inventory adjustments of $29 million and $120 million, respectively.

Inventories, net, consisted of the following:


	March 31, 2023		December 31, 2022

Fuel	$	756	$	809
Other	12		12
Inventories, net	$	768	$	821

5.Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:


	March 31, 2023		December 31, 2022

Wage and other employee-related accrued expenses	$	17	$	35
Accrued tax expense	150		164
Accrued insurance	30		32
Accrued interest expense	52		31
Dealer deposits	21		21
Accrued environmental expense	6		6
Other	15		21
Total	$	291	$	310

6.Long-Term Debt

Long-term debt consisted of the following:


	March 31, 2023		December 31, 2022


Credit Facility	$	800	$	900
6.000% Senior Notes due 2027	600		600
5.875% Senior Notes due 2028	400		400
4.500% Senior Notes due 2029	800		800
4.500% Senior Notes due 2030	800		800
Lease-related financing obligations	94		94
Total debt	3,494		3,594

Less: debt issuance costs	22		23
Long-term debt, net	$	3,472	$	3,571

Credit Facility

As of March 31, 2023, the balance on our revolving credit facility (the "Credit Facility") was $800 million, and $7 million standby letters of credit were outstanding. The unused availability on the Credit Facility at March 31, 2023 was $693 million. The weighted average interest rate on the total amount outstanding at March 31, 2023 was 6.61%. The Partnership was in compliance with all financial covenants at March 31, 2023.

Fair Value of Debt

The estimated fair value of debt is calculated using Level 2 inputs. The fair value of debt as of March 31, 2023 is estimated to be approximately $3.3 billion, based on outstanding balances as of the end of the period using current interest rates for similar securities.

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7.Other Non-Current Liabilities

Other non-current liabilities consisted of the following:


	March 31, 2023		December 31, 2022

Asset retirement obligations	$	82	$	81
Accrued environmental expense, long-term	12		12
Other	19		18
Total	$	113	$	111

8.Related Party Transactions

We are party to fee-based commercial agreements with various affiliates of Energy Transfer for pipeline, terminalling and storage services. We also have agreements with subsidiaries of Energy Transfer for the purchase and sale of fuel.

Our investment in the J.C. Nolan joint venture was $128 million and $129 million as of March 31, 2023 and December 31, 2022, respectively. In addition, we recorded income on the unconsolidated joint venture of $2 million and $1 million for the three months ended March 31, 2023 and 2022, respectively.

Summary of Transactions

Related party transactions with affiliates for the three months ended March 31, 2023 and 2022 were as follows:


	Three Months Ended March 31,
	2023		2022
Motor fuel sales to affiliates	$	13	$	5
Bulk fuel purchases from affiliates	411		540

Significant affiliate balances included on the consolidated balance sheets were as follows:

•Advances from affiliates were $115 million and $116 million as of March 31, 2023 and December 31, 2022, respectively, which were related to treasury services agreements with Energy Transfer.

•Accounts receivable from affiliates were $17 million and $15 million as of March 31, 2023 and December 31, 2022, respectively, which were primarily related to motor fuel sales to affiliates.

•Accounts payable to affiliates were $125 million and $109 million as of March 31, 2023 and December 31, 2022, respectively, which were attributable to operational expenses and bulk fuel purchases.

9.Revenue

Disaggregation of Revenue

We operate our business in two primary segments: Fuel Distribution and Marketing and All Other. We disaggregate revenue within the segments by channels.

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The following table depicts the disaggregation of revenue by channel within each segment:


	Three Months Ended March 31,
	2023		2022

Fuel Distribution and Marketing Segment
Distributor	$	2,303	$	2,407
Dealer	919		1,054
Unbranded wholesale	1,540		1,263
Commission agent	341		403
Non-motor fuel sales	29		41
Lease income	34		32
Total	5,166		5,200
All Other Segment
Motor fuel	136		150
Non-motor fuel sales	57		49
Lease income	3		3
Total	196		202
Total revenue	$	5,362	$	5,402

Contract Balances with Customers

The balances of the Partnership’s contract assets and contract liabilities as of March 31, 2023 and December 31, 2022 were as follows:


	March 31, 2023		December 31, 2022

Contract balances
Contract assets	$	222	$	200
Accounts receivable from contracts with customers	528		834
Contract liabilities	—		—

Costs to Obtain or Fulfill a Contract

For the three months ended March 31, 2023 and 2022, the Partnership recognized $6 million and $7 million, respectively, of amortization on capitalized costs incurred to obtain contracts.

10.Commitments and Contingencies

Litigation

We have at various points and may in the future become involved in various legal proceedings arising out of our operations in the normal course of business. These proceedings would be subject to the uncertainties inherent in any litigation, and we regularly assess the need for accounting recognition or disclosure of these contingencies. We would expect to defend ourselves vigorously in all such matters. Based on currently available information, we believe it is unlikely that the outcome of known matters would have a material adverse impact on our financial condition, results of operations or cash flows.

Lessee Accounting

The details of the Partnership's operating and finance lease liabilities were as follows:


	March 31,
Lease term and discount rate	2023		2022
Weighted average remaining lease term (years)
Operating leases	22		22
Finance leases	28		29
Weighted average discount rate (%)
Operating leases	5	%	6	%
Finance leases	4	%	4	%

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	Three Months Ended March 31,
Other information	2023		2022


Cash paid for amount included in the measurement of lease liabilities
Operating cash flows from operating leases	$	(12)	$	(12)
Operating cash flows from finance leases	—		—
Financing cash flows from finance leases	—		—
Leased assets obtained in exchange for new finance lease liabilities	—		—
Leased assets obtained in exchange for new operating lease liabilities	1		8


Maturity of lease liabilities (as of March 31, 2023)	Operating leases		Finance leases		Total

2023 (remainder)	$	39	$	—	$	39
2024	48		—		48
2025	48		—		48
2026	47		—		47
2027	46		—		46
Thereafter	760		15		775
Total lease payment	988		15		1,003
Less: interest	439		6		445
Present value of lease liabilities	$	549	$	9	$	558

11.Income Tax Expense

As a partnership, we are generally not subject to federal income tax and most state income taxes. However, the Partnership conducts certain activities through corporate subsidiaries which are subject to federal and state income taxes.

Our effective tax rate differs from the statutory rate primarily due to Partnership earnings that are not subject to U.S. federal and most state income taxes at the Partnership level. A reconciliation of income tax expense from continuing operations at the U.S. federal statutory rate of 21% to net income tax expense is as follows:


	Three Months Ended March 31,
	2023		2022

Income tax expense at statutory federal rate	$	31	$	46
Partnership earnings not subject to tax	(26)		(44)

State and local tax, net of federal benefit	2		1

Net income tax expense	$	7	$	3

12.Equity

As of March 31, 2023, Energy Transfer and its subsidiaries owned 28,463,967 of our common units and the public owned 55,596,692 of our common units. As of March 31, 2023, our wholly-owned consolidated subsidiaries owned all of the 16,410,780 Class C units representing limited partner interests in the Partnership.

Common Units

The change in our outstanding common units for the three months ended March 31, 2023 was as follows:


			Number of Units
Number of common units at December 31, 2022			84,054,765

Vested phantom units exercised			5,894

Number of common units at March 31, 2023			84,060,659

Cash Distributions

Our Partnership Agreement sets forth the calculation used to determine the amount and priority of cash distributions that the common unitholders receive.

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Cash distributions paid or declared during 2023 were as follows:

13.Segment Reporting

We report Adjusted EBITDA by segment as a measure of segment performance. We define Adjusted EBITDA as earnings before net interest expense, income tax expense and depreciation, amortization and accretion expense, non-cash unit-based compensation expense, gains and losses on disposal of assets and non-cash impairment charges, unrealized gains and losses on commodity derivatives, inventory adjustments, and certain other operating expenses reflected in net income that we do not believe are indicative of ongoing core operations. Inventory adjustments that are excluded from the calculation of Adjusted EBITDA represent changes in lower of cost or market reserves on the Partnership's inventory. These amounts are unrealized valuation adjustments applied to fuel volumes remaining in inventory at the end of the period.

The following table presents financial information by segment for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023							2022
	Fuel Distribution and Marketing		All Other		Intercompany Eliminations	Totals		Fuel Distribution and Marketing		All Other		Intercompany Eliminations	Totals

Revenue
Motor fuel sales	$	5,103	$	136		$	5,239	$	5,127	$	150		$	5,277
Non-motor fuel sales	29		57			86		41		49			90
Lease income	34		3			37		32		3			35
Intersegment sales	98				(98)	—		116		—		(116)	—
Total revenue	$

Limited Partners

Payment Date

Per Unit Distribution

Total Cash Distribution

Distribution to IDR Holders

May 22, 2023

February 21, 2023