sun-20230630

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: June 30, 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 84,065,099 common units representing limited partner interests and 16,410,780 Class C units representing limited partner interests outstanding at July 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						15
Item 3. Quantitative and Qualitative Disclosures about Market Risk						24
Item 4. Controls and Procedures						25

PART II – OTHER INFORMATION
Item 1. Legal Proceedings						26
Item 1A. Risk Factors						26

Item 6. Exhibits						26

SIGNATURE						28

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SUNOCO LP

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(unaudited)


	June 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	239	$	82

Accounts receivable, net	543		890
Accounts receivable from affiliates	11		15
Inventories, net	931		821
Other current assets	144		175

Total current assets	1,868		1,983

Property and equipment	2,919		2,796
Accumulated depreciation	(1,097)		(1,036)
Property and equipment, net	1,822		1,760
Other assets:
Finance lease right-of-use assets, net	9		9
Operating lease right-of-use assets, net	522		524
Goodwill	1,599		1,601



Intangible assets, net	564		588
Other non-current assets	271		236
Investment in unconsolidated affiliates	127		129

Total assets	$	6,782	$	6,830

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	783	$	966
Accounts payable to affiliates	69		109

Accrued expenses and other current liabilities	343		310
Operating lease current liabilities	22		21


Total current liabilities	1,217		1,406

Operating lease non-current liabilities	527		528
Credit Facility	990		900
Long-term debt, net	2,673		2,671
Advances from affiliates	105		116
Deferred tax liability	158		156
Other non-current liabilities	113		111
Total liabilities	5,783		5,888

Commitments and contingencies (Note 11)

Equity:
Limited partners:
Common unitholders (84,061,008 units issued and outstanding as of June 30, 2023 and 84,054,765 units issued and outstanding as of December 31, 2022)	999		942
Class C unitholders - held by subsidiaries (16,410,780 units issued and outstanding as of June 30, 2023 and December 31, 2022)	—		—
Total equity	999		942
Total liabilities and equity	$	6,782	$	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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
REVENUES:
Motor fuel sales	$	5,607	$	7,678	$	10,846	$	12,955
Non-motor fuel sales	100		102		186		192
Lease income	38		35		75		70
Total revenues	5,745		7,815		11,107		13,217
COST OF SALES AND OPERATING EXPENSES:
Cost of sales	5,431		7,470		10,418		12,442
General and administrative	33		30		62		57
Other operating	87		83		169		164
Lease expense	17		15		33		31
Gain on disposal of assets	(13)		(5)		(12)		(5)
Depreciation, amortization and accretion	49		49		97		96
Total cost of sales and operating expenses	5,604		7,642		10,767		12,785
OPERATING INCOME	141		173		340		432
OTHER INCOME (EXPENSE):
Interest expense, net	(53)		(45)		(106)		(86)
Other income, net	7		—		7		—
Equity in earnings of unconsolidated affiliates	1		1		3		2

INCOME BEFORE INCOME TAXES	96		129		244		348
Income tax expense	9		8		16		11
NET INCOME AND COMPREHENSIVE INCOME	$	87	$	121	$	228	$	337

NET INCOME PER COMMON UNIT:
Basic	$	0.79	$	1.22	$	2.21	$	3.56
Diluted	$	0.78	$	1.20	$	2.19	$	3.52

WEIGHTED AVERAGE COMMON UNITS OUTSTANDING:
Basic	84,060,866		83,737,613		84,059,797		83,710,409
Diluted	85,034,268		84,767,972		84,998,777		84,749,895

CASH DISTRIBUTIONS PER UNIT	$	0.842	$	0.8255	$	1.684	$	1.6510

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
Cash distributions to unitholders	(92)
Unit-based compensation	4

Net income	87
Balance, June 30, 2023	$	999



Balance, December 31, 2021	$	811
Cash distributions to unitholders	(88)
Unit-based compensation	5
Net income	216
Balance, March 31, 2022	944
Cash distributions to unitholders	(88)
Unit-based compensation	3

Net income	121
Balance, June 30, 2022	$	980

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)


	Six Months Ended June 30,
	2023		2022
OPERATING ACTIVITIES:
Net income	$	228	$	337
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	97		96
Amortization of deferred financing fees	4		2
Gain on disposal of assets	(12)		(5)


Non-cash unit-based compensation expense	9		8
Deferred income tax	5		42
Inventory valuation adjustment	28		(121)
Equity in earnings of unconsolidated affiliates	(3)		(2)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net	347		(341)
Receivables from affiliates	4		(1)
Inventories, net	(138)		6
Other assets	14		(217)
Accounts payable	(156)		414
Accounts payable to affiliates	(40)		112
Accrued expenses and other current liabilities	33		8
Other non-current liabilities	(3)		(1)
Net cash provided by operating activities	417		337
INVESTING ACTIVITIES:
Capital expenditures	(87)		(55)

Cash paid for acquisitions	(111)		(264)
Distributions from unconsolidated affiliates in excess of cumulative earnings	5		3
Proceeds from disposal of property and equipment	21		11
Other	2		—
Net cash used in investing activities	(170)		(305)
FINANCING ACTIVITIES:

Payments on long-term debt	—		(1)

Credit Facility borrowings	1,555		2,335
Credit Facility repayments	(1,465)		(2,047)


Distributions to unitholders	(180)		(176)
Net cash provided by (used in) financing activities	(90)		111
Net increase in cash and cash equivalents	157		143
Cash and cash equivalents, beginning of period	82		25
Cash and cash equivalents, end of period	$	239	$	168

Supplemental disclosure of non-cash investing activities:
Change in note payable to affiliate	$	—	$	(6)

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,” “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 June 30, 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 include 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 June 30, 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 $71 million and $72 million for the three months ended June 30, 2023 and 2022, respectively, and $136 million and $143 million for the six months ended June 30, 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.Acquisition

On May 1, 2023, the Partnership completed the acquisition of 16 refined product terminals located across the East Coast and Midwest from Zenith Energy for $111 million, including working capital. The purchase price was primarily allocated to property and equipment.

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4.Accounts Receivable, net

Accounts receivable, net, consisted of the following:


	June 30, 2023		December 31, 2022

Accounts receivable, trade	$	431	$	755
Credit card receivables	46		81

Other receivables	67		56
Allowance for expected credit losses	(1)		(2)
Accounts receivable, net	$	543	$	890

5.Inventories, net

Fuel inventories are stated at the lower of cost or market using the last-in-first-out (“LIFO”) method. As of June 30, 2023 and December 31, 2022, the Partnership’s fuel inventory balance included lower of cost or market reserves of $144 million and $116 million, respectively. For the three and six months ended June 30, 2023 and 2022, the Partnership’s consolidated statements of operations and comprehensive income did not include any material amounts of income from the liquidation of LIFO fuel inventory. For the three months ended June 30, 2023 and 2022, the Partnership's cost of sales included unfavorable inventory adjustments of $57 million and favorable inventory adjustments of $1 million, respectively. For the six months ended June 30, 2023 and 2022, the Partnership's cost of sales included unfavorable inventory adjustments of $28 million and favorable inventory adjustments of $121 million, respectively.

Inventories, net, consisted of the following:


	June 30, 2023		December 31, 2022

Fuel	$	919	$	809
Other	12		12
Inventories, net	$	931	$	821

6.Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:


	June 30, 2023		December 31, 2022

Wage and other employee-related accrued expenses	$	18	$	35
Accrued tax expense	201		164
Accrued insurance	30		32
Accrued interest expense	31		31
Dealer deposits	22		21
Accrued environmental expense	6		6
Other	35		21
Total	$	343	$	310

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7.Long-Term Debt

Long-term debt consisted of the following:


	June 30, 2023		December 31, 2022


Credit Facility	$	990	$	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	3,684		3,594

Less: debt issuance costs	21		23
Long-term debt, net	$	3,663	$	3,571

Credit Facility

As of June 30, 2023, the balance on our revolving credit facility (the "Credit Facility") was $990 million, and $7 million standby letters of credit were outstanding. The unused availability on the Credit Facility at June 30, 2023 was $503 million. The weighted average interest rate on the total amount outstanding at June 30, 2023 was 7.00%. The Partnership was in compliance with all financial covenants at June 30, 2023.

Fair Value of Debt

The fair value of debt as of June 30, 2023 was approximately $3.5 billion. The estimated fair value of debt is a Level 2 valuation using current interest rates for similar securities.

8.Other Non-Current Liabilities

Other non-current liabilities consisted of the following:


	June 30, 2023		December 31, 2022

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

9.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 $127 million and $129 million as of June 30, 2023 and December 31, 2022, respectively. In addition, we recorded income on the unconsolidated joint venture of $1 million and $1 million for the three months ended June 30, 2023 and 2022, respectively, and $3 million and $2 million for the six months ended June 30, 2023 and 2022, respectively.

Summary of Transactions

Related party transactions for the three months ended June 30, 2023 and 2022 were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Motor fuel sales to affiliates	$	15	$	23	$	28	$	28
Bulk fuel purchases from affiliates	471		703		882		1,243

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

•Advances from affiliates were $105 million and $116 million as of June 30, 2023 and December 31, 2022, respectively, which were related to treasury services agreements with Energy Transfer.

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•Accounts receivable from affiliates were $11 million and $15 million as of June 30, 2023 and December 31, 2022, respectively, which were primarily related to motor fuel sales to affiliates.

•Accounts payable to affiliates were $69 million and $109 million as of June 30, 2023 and December 31, 2022, respectively, which were attributable to operational expenses and bulk fuel purchases.

10.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.

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

Fuel Distribution and Marketing Segment
Distributor	$	2,464	$	3,346	$	4,767	$	5,753
Dealer	1,038		1,427		1,957		2,481
Unbranded wholesale	1,587		2,193		3,127		3,456
Commission agent	362		515		703		918
Non-motor fuel sales	35		41		64		82
Lease income	35		32		69		64
Total	5,521		7,554		10,687		12,754
All Other Segment
Motor fuel	156		197		292		347
Non-motor fuel sales	65		61		122		110
Lease income	3		3		6		6
Total	224		261		420		463
Total revenue	$	5,745	$	7,815	$	11,107	$	13,217

Contract Balances with Customers

The balances of the Partnership’s contract assets and contract liabilities as of June 30, 2023 and December 31, 2022 were as follows:


	June 30, 2023		December 31, 2022

Contract balances
Contract assets	$	239	$	200
Accounts receivable from contracts with customers	476		834
Contract liabilities	—		—

Costs to Obtain or Fulfill a Contract

The Partnership recognized amortization on capitalized costs incurred to obtain contracts of $7 million and $3 million for the three months ended June 30, 2023 and 2022, respectively, and $13 million and $10 million for the six months ended June 30, 2023 and 2022, respectively.

11.Commitments and Contingencies

Litigation

From time to time, the Partnership is involved in various legal proceedings and claims arising out of our operations in the normal course of business. Such proceedings are subject to the uncertainties inherent in any litigation, and we regularly assess the need for accounting recognition or disclosure of any related contingencies. We maintain liability insurance with insurers with coverage and deductibles management believes are reasonable and prudent; however, there can be no assurance that the levels of insurance protection currently in effect will continue to be available at reasonable prices or that such levels will be adequate to protect us from material expenses related to product liability, personal injury or property damage in the future. 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.

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Lessee Accounting

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


	June 30,
Lease term and discount rate	2023		2022
Weighted average remaining lease term (years)
Operating leases	22		23
Finance leases	27		28
Weighted average discount rate (%)
Operating leases	5	%	6	%
Finance leases	4	%	4	%


	Six Months Ended June 30,
Other information	2023		2022


Cash paid for amount included in the measurement of lease liabilities
Operating cash flows from operating leases	$	(23)	$	(24)
Operating cash flows from finance leases	(2)		—
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		11


Maturity of lease liabilities (as of June 30, 2023)	Operating leases		Finance leases		Total

2023 (remainder)	$	27	$	—	$	27
2024	48		—		48
2025	48		—		48
2026	47		—		47
2027	46		—		46
Thereafter	764		15		779
Total lease payment

SEC Form 10-Q filed by Sunoco LP