sun-20230930

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: September 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 October 27, 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)


	September 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	256	$	82

Accounts receivable, net	1,145		890
Accounts receivable from affiliates	10		15
Inventories, net	909		821
Other current assets	162		175

Total current assets	2,482		1,983

Property and equipment	2,924		2,796
Accumulated depreciation	(1,103)		(1,036)
Property and equipment, net	1,821		1,760
Other assets:
Finance lease right-of-use assets, net	9		9
Operating lease right-of-use assets, net	509		524
Goodwill	1,599		1,601



Intangible assets, net	554		588
Other non-current assets	267		236
Investment in unconsolidated affiliates	126		129

Total assets	$	7,367	$	6,830

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	991	$	966
Accounts payable to affiliates	114		109

Accrued expenses and other current liabilities	350		310
Operating lease current liabilities	21		21


Total current liabilities	1,476		1,406

Operating lease non-current liabilities	514		528
Revolving credit facility	647		900
Long-term debt, net	3,169		2,671
Advances from affiliates	104		116
Deferred tax liability	162		156
Other non-current liabilities	115		111
Total liabilities	6,187		5,888

Commitments and contingencies (Note 11)

Equity:
Limited partners:
Common unitholders (84,065,099 units issued and outstanding as of September 30, 2023 and 84,054,765 units issued and outstanding as of December 31, 2022)	1,180		942
Class C unitholders - held by subsidiaries (16,410,780 units issued and outstanding as of September 30, 2023 and December 31, 2022)	—		—
Total equity	1,180		942
Total liabilities and equity	$	7,367	$	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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
REVENUES:
Motor fuel sales	$	6,173	$	6,468	$	17,019	$	19,423
Non-motor fuel sales	109		90		295		282
Lease income	38		36		113		106
Total revenues	6,320		6,594		17,427		19,811
COST OF SALES AND OPERATING EXPENSES:
Cost of sales	5,793		6,261		16,211		18,703
General and administrative	30		29		92		86
Other operating	93		86		262		250
Lease expense	18		16		51		47
(Gain) loss on disposal of assets	4		(3)		(8)		(8)
Depreciation, amortization and accretion	44		55		141		151
Total cost of sales and operating expenses	5,982		6,444		16,749		19,229
OPERATING INCOME	338		150		678		582
OTHER INCOME (EXPENSE):
Interest expense, net	(56)		(49)		(162)		(135)
Other income, net	—		—		7		—
Equity in earnings of unconsolidated affiliates	1		1		4		3

INCOME BEFORE INCOME TAXES	283		102		527		450
Income tax expense	11		19		27		30
NET INCOME AND COMPREHENSIVE INCOME	$	272	$	83	$	500	$	420

NET INCOME PER COMMON UNIT:
Basic	$	2.99	$	0.76	$	5.20	$	4.32
Diluted	$	2.95	$	0.75	$	5.14	$	4.27

WEIGHTED AVERAGE COMMON UNITS OUTSTANDING:
Basic	84,064,445		83,763,064		84,061,363		83,728,153
Diluted	85,132,733		84,831,037		85,037,289		84,769,526

CASH DISTRIBUTIONS PER UNIT	$	0.8420	$	0.8255	$	2.5260	$	2.4765

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
Cash distributions to unitholders	(91)
Unit-based compensation	4
Other	(4)
Net income	272
Balance, September 30, 2023	$	1,180



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
Cash distributions to unitholders	(89)
Unit-based compensation	4
Net income	83
Balance, September 30, 2022	$	978

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)


	Nine Months Ended September 30,
	2023		2022
OPERATING ACTIVITIES:
Net income	$	500	$	420
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	141		151
Amortization of deferred financing fees	6		3
Gain on disposal of assets	(8)		(8)


Non-cash unit-based compensation expense	13		12
Deferred income tax	8		38
Inventory valuation adjustment	(113)		(81)
Equity in earnings of unconsolidated affiliates	(4)		(3)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net	(255)		(165)
Receivables from affiliates	5		2
Inventories, net	25		(53)
Other assets	4		(36)
Accounts payable	64		292
Accounts payable to affiliates	5		51
Accrued expenses and other current liabilities	40		20
Other non-current liabilities	(15)		(3)
Net cash provided by operating activities	416		640
INVESTING ACTIVITIES:
Capital expenditures	(132)		(97)

Cash paid for acquisitions	(111)		(252)
Distributions from unconsolidated affiliates in excess of cumulative earnings	7		5
Proceeds from disposal of property and equipment	25		18
Other	(2)		—
Net cash used in investing activities	(213)		(326)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt	500		—
Payments on long-term debt	—		(1)

Revolving credit facility borrowings	2,625		2,995
Revolving credit facility repayments	(2,878)		(2,872)
Loan origination costs	(5)		—

Distributions to unitholders	(271)		(265)
Net cash used in financing activities	(29)		(143)
Net increase in cash and cash equivalents	174		171
Cash and cash equivalents, beginning of period	82		25
Cash and cash equivalents, end of period	$	256	$	196

Supplemental disclosure of non-cash investing activities:
Change in note payable to affiliate	$	2	$	(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 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 September 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. In the opinion of the Partnership’s management, such financial information reflects all adjustments necessary for a fair presentation of the financial position and the results of operations for such interim periods in accordance with GAAP. 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 September 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 $73 million and $76 million for the three months ended September 30, 2023 and 2022, respectively, and $209 million and $219 million for the nine months ended September 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:


	September 30, 2023		December 31, 2022

Accounts receivable, trade	$	984	$	755
Credit card receivables	99		81

Other receivables	66		56
Allowance for expected credit losses	(4)		(2)
Accounts receivable, net	$	1,145	$	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 September 30, 2023 and December 31, 2022, the Partnership’s fuel inventory balance included lower of cost or market reserves of $3 million and $116 million, respectively. For the three and nine months ended September 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 September 30, 2023 and 2022, the Partnership's cost of sales included favorable inventory adjustments of $141 million and unfavorable inventory adjustments of $40 million, respectively. For the nine months ended September 30, 2023 and 2022, the Partnership's cost of sales included favorable inventory adjustments of $113 million and favorable inventory adjustments of $81 million, respectively.

Inventories, net, consisted of the following:


	September 30, 2023		December 31, 2022

Fuel	$	896	$	809
Other	13		12
Inventories, net	$	909	$	821

6.Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:


	September 30, 2023		December 31, 2022

Wage and other employee-related accrued expenses	$	30	$	35
Accrued tax expense	177		164
Accrued insurance	28		32
Accrued interest expense	53		31
Dealer deposits	23		21
Accrued environmental expense	6		6
Other	33		21
Total	$	350	$	310

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7.Long-Term Debt

Long-term debt consisted of the following:


	September 30, 2023		December 31, 2022


Revolving credit facility	$	647	$	900
6.000% Senior Notes due 2027	600		600
5.875% Senior Notes due 2028	400		400
7.000% Senior Notes due 2028	500		—
4.500% Senior Notes due 2029	800		800
4.500% Senior Notes due 2030	800		800
Lease-related financing obligations	94		94
Total debt	3,841		3,594

Less: debt issuance costs	25		23
Long-term debt, net	$	3,816	$	3,571

2023 Private Offering of Senior Notes

On September 20, 2023, we and Sunoco Finance Corp. (together, the “2028 Notes Issuers”) completed a private offering of $500 million in aggregate principal amount of 7.000% senior notes due 2028 (the “2028 Notes”).

The terms of the 2028 Notes are governed by an indenture dated September 20, 2023, among the 2028 Notes Issuers, certain subsidiaries of the Partnership (the“2028 Notes Guarantors”) and U.S. Bank Trust Company, National Association, as trustee. The 2028 Notes will mature on September 15, 2028 and interest on the 2028 Notes is payable semi-annually on March 15 and September 15 of each year, commencing March 15, 2024. The 2028 Notes are senior unsecured obligations of the 2028 Notes Issuers and are guaranteed on a senior unsecured basis by all of the Partnership’s current subsidiaries (other than Sunoco Finance Corp.) that guarantee its obligations under the revolving credit facility and certain of its future subsidiaries. The 2028 Notes and related guarantees are unsecured and rank equally with all of the 2028 Notes Issuers’ and each 2028 Notes Guarantor’s existing and future senior obligations. The 2028 Notes and related guarantees are effectively subordinated to the 2028 Notes Issuers’ and each 2028 Notes Guarantor’s secured obligations, including obligations under the revolving credit facility, to the extent of the value of the collateral securing such obligations, and structurally subordinated to all indebtedness and obligations, including trade payables, of the Partnership’s subsidiaries that do not guarantee the 2028 Notes.

The Partnership used the proceeds from the private offering to repay a portion of the outstanding borrowings under our revolving credit facility.

Revolving Credit Facility

As of September 30, 2023, the balance on our revolving credit facility was $647 million, and $6 million standby letters of credit were outstanding. The unused availability on the revolving credit facility at September 30, 2023 was $847 million. The weighted average interest rate on the total amount outstanding at September 30, 2023 was 7.34%. The Partnership was in compliance with all financial covenants at September 30, 2023.

Fair Value of Debt

The aggregate estimated fair value and carrying amount of our consolidated debt obligations as of September 30, 2023 were $3.6 billion and $3.8 billion, respectively. As of December 31, 2022, the aggregate fair value and carrying amount of our consolidated debt obligations were $3.4 billion and $3.6 billion, respectively. The fair value of our consolidated debt obligations is a Level 2 valuation based on the respective debt obligations' observable inputs for similar liabilities.

8.Other Non-Current Liabilities

Other non-current liabilities consisted of the following:


	September 30, 2023		December 31, 2022

Asset retirement obligations	$	83	$	81
Accrued environmental expense, long-term	13		12
Other	19		18
Total	$	115	$	111

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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 $126 million and $129 million as of September 30, 2023 and December 31, 2022, respectively. In addition, we recorded income on the unconsolidated joint venture of $1 million for each of the three months ended September 30, 2023 and 2022, and $4 million and $3 million for the nine months ended September 30, 2023 and 2022, respectively.

Summary of Transactions

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Motor fuel sales to affiliates	$	6	$	16	$	34	$	44
Bulk fuel purchases from affiliates	415		458		1,297		1,701

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

•Accounts receivable from affiliates were $10 million and $15 million as of September 30, 2023 and December 31, 2022, respectively, which were primarily related to motor fuel sales to affiliates.

•Accounts payable to affiliates were $114 million and $109 million as of September 30, 2023 and December 31, 2022, respectively, which were attributable to operational expenses and bulk fuel purchases.

•Advances from affiliates were $104 million and $116 million as of September 30, 2023 and December 31, 2022, respectively, which were related to treasury services agreements with Energy Transfer.

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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Fuel Distribution and Marketing Segment
Distributor	$	2,704	$	2,757	$	7,471	$	8,510
Dealer	1,121		1,211		3,078		3,692
Unbranded wholesale	1,793		1,859		4,920		5,315
Commission agent	382		443		1,085		1,361
Non-motor fuel sales	45		29		109		111
Lease income	35		35		104		99
Total	6,080		6,334		16,767		19,088
All Other Segment
Motor fuel	173		198