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What changed in Sunoco LP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Sunoco LP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+316 added−271 removedSource: 10-K (2024-02-16) vs 10-K (2023-02-17)

Top changes in Sunoco LP's 2023 10-K

316 paragraphs added · 271 removed · 234 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

47 edited+30 added−8 removed81 unchanged
Biggest changeWe are required to comply with federal and state financial responsibility requirements to demonstrate that we have the ability to pay for remediation or to compensate third parties for damages incurred as a result of a release of regulated materials from our underground storage tank systems.
Biggest changeWe may also be subject to third-party claims alleging property damage and/or personal injury in connection with releases of or exposure to hazardous substances at, from or in the vicinity of, our current properties or off-site waste disposal sites. 10 Table of Contents In dex to Financial Statements We are required to comply with federal and state financial responsibility requirements to demonstrate that we have the ability to pay for remediation or to compensate third parties for damages incurred as a result of a release of regulated materials from our underground storage tank systems.
We believe the vendor relationships we have established through our retail operations and our ability to develop programs provide us with an advantage over other distributors when recruiting new dealers into our network, as well as retaining current dealers.
We believe the vendor relationships we have established through our retail operations and our ability to develop programs provide us with an advantage over other distributors when recruiting new dealers into our network as well as with retaining current dealers.
Significant competitive factors include the availability of major brands, customer service, price, range of services offered and quality of service, among others. We rely on our ability to provide value-added and reliable service and control our operating costs in order to maintain our margins and competitive position.
Significant competitive factors include the availability of major brands, customer service, price, range of services offered and quality of service, among others. We rely on our ability to provide value-added, reliable service and control our operating costs in order to maintain our margins and competitive position.
We meet these requirements primarily by maintaining insurance, which we purchase from private insurers. 7 Environmental Reserves We are currently involved in the investigation and remediation of contamination at motor fuel storage and gasoline store sites where releases of regulated substances have been detected. We accrue for anticipated future costs and the related probable state reimbursement amounts for remediation activities.
We meet these requirements primarily by maintaining insurance, which we purchase from private insurers. Environmental Reserves We are currently involved in the investigation and remediation of contamination at motor fuel storage and gasoline store sites where releases of regulated substances have been detected. We accrue for anticipated future costs and the related probable state reimbursement amounts for remediation activities.
We compete by pricing gasoline competitively, combining our retail gasoline business with convenience stores that provide a wide variety of products, and using advertising and promotional campaigns. 6 Seasonality Our business exhibits some seasonality due to our customers’ increased demand for motor fuel during the late spring and summer months, as compared to the fall and winter months.
We compete by pricing gasoline competitively, combining our retail gasoline business with convenience stores that provide a wide variety of products, and using advertising and promotional campaigns. Seasonality Our business exhibits some seasonality due to our customers’ increased demand for motor fuel during the late spring and summer months, as compared to the fall and winter months.
Additionally, at the 2021 United Nations Climate Change Conference (“COP26”) in Glasgow in November 2021, the United States and the European Union jointly announced the launch of a Global Methane Pledge, an initiative committing to a collective goal of reducing global methane emissions by at least 30 percent from 2020 levels by 2030, including “all feasible reductions” in the energy sector.
Additionally, at the 2021 United Nations Climate Change Conference (“COP26”) in Glasgow in November 2021, the United States and the European Union jointly announced the launch of a Global Methane Pledge, an initiative committing to a collective goal of reducing global methane emissions by at least 30% from 2020 levels by 2030, including “all feasible reductions” in the energy sector.
In addition, the OPA 90 requires that most fuel transport and storage companies maintain and update various oil spill prevention and oil spill contingency plans. Facilities that are 9 adjacent to water require the engagement of Federally Certified Oil Spill Response Organizations to be available to respond to a spill on water from above ground storage tanks or pipelines.
In addition, the OPA 90 requires that most fuel transport and storage companies maintain and update various oil spill prevention and oil spill contingency plans. Facilities that are adjacent to water require the engagement of Federally Certified Oil Spill Response Organizations to be available to respond to a spill on water from above ground storage tanks or pipelines.
Every employee acting on behalf of the Partnership must adhere to these policies. Please refer to “Item 10. Directors, Executive Officers and Corporate Governance” for additional information on our Code of Business Conduct and Ethics. 10 Commitment to Safety . Sunoco’s goal is operational excellence, which means an injury and incident-free workplace.
Every employee acting on behalf of the Partnership must adhere to these policies. Please refer to “Item 10. Directors, Executive Officers and Corporate Governance” for additional information on our Code of Business Conduct and Ethics. Commitment to Safety . Our goal is operational excellence, which means an injury and incident-free workplace.
In particular, we believe it will be in the best interest of Energy Transfer to facilitate organic growth opportunities and accretive acquisitions from third parties, although Energy Transfer is not under any obligation to do so. Energy Transfer is one of the largest and most diversified midstream energy companies in North America.
In particular, we believe it will be in the best interest of Energy Transfer to facilitate organic growth opportunities and accretive acquisitions of third parties, although Energy Transfer is not under any obligation to do so. Energy Transfer is one of the largest and most diversified midstream energy companies in North America.
For more information, see “Our operations are subject to federal, state and local laws and regulations pertaining to environmental protection and operational safety that may require significant expenditures or result in liabilities that could have a material adverse effect on our business” in "Item 1A. Risk Factors” in this Annual Report on Form 10-K.
For more information, see “Our operations are subject to federal, state and local laws and regulations pertaining to environmental protection and operational safety that may require significant expenditures or result in liabilities that could have a material adverse effect on our business” in “Item 1A. Risk Factors” in this Annual Report on Form 10-K.
We arrange for motor fuel to be delivered from the storage terminals to the appropriate sites in our distribution network at prices consistent with those historically charged to third parties for the delivery of fuel. We also deliver motor fuel, propane, and lubricating oils to commercial customers involved in petroleum exploration and production.
We arrange for motor fuel to be delivered from the storage terminals to the appropriate sites in our distribution network at prices consistent with those historically charged to third parties for the delivery of fuel. We also deliver motor fuel, propane and lubricating oils to commercial customers involved in petroleum exploration and production. J.C.
Item 1. Business General As used in this report, the terms “Partnership,” “SUN,” “we,” “us,” or “our” should be understood to refer to Sunoco LP and our consolidated subsidiaries as applicable and appropriate. Overview We are a Delaware master limited partnership.
Item 1. Business General As used in this report, the terms “Partnership,” “SUN,” “we,” “us” or “our” should be understood to refer to Sunoco LP and our consolidated subsidiaries as applicable and appropriate. Overview We are a Delaware master limited partnership.
We are primarily engaged in the distribution of motor fuels to independent dealers, distributors, and other commercial customers and the distribution of motor fuels to end customers at retail sites operated by commission agents. Additionally, we receive lease income through the leasing or subleasing of real estate used in the retail distribution of motor fuels.
We are primarily engaged in the distribution of motor fuels to independent dealers, distributors and other commercial customers as well as the distribution of motor fuels to end-use customers at retail sites operated by commission agents. Additionally, we receive lease income through the leasing or subleasing of real estate used in the retail distribution of motor fuels.
Any future change in regulatory requirements could cause us to incur significant costs. We incorporate by reference into this section our disclosures included in Note 13 of the Notes to Consolidated Financial Statements included in “Item 8.
Any future change in regulatory requirements could cause us to incur significant costs. We incorporate by reference into this section our disclosures included in Note 13 to our consolidated financial statements included in “Item 8.
In January 2023, the Federal Reserve issued instructions for a pilot climate analysis scenario being undertaken by six of the United States’ largest banks, which is expected to conclude in 2023. These efforts may adversely affect the market for our securities and our ability to access capital and financial markets in the future.
In January 2023, the Federal Reserve issued instructions for a pilot climate analysis scenario being undertaken by six of the United States’ largest banks, which concluded in 2023. These efforts may adversely affect the market for our securities and our ability to access capital and financial markets in the future.
During 2022, our Fuel Distribution and Marketing business distributed fuel to 504 commission agent locations. Under these arrangements, we generally provide and control motor fuel inventory and price at the site and receive actual retail selling price for each gallon sold, less a commission paid to the independent commission agents.
During 2023, our Fuel Distribution and Marketing business distributed fuel to 476 commission agent locations. Under these arrangements, we generally provide and control motor fuel inventory and price at the site and receive actual retail selling price for each gallon sold, less a commission paid to the independent commission agents.
Terminals and Transmix We operate four transmix processing facilities and twenty-seven refined product terminals (one in Puerto Rico, six in Hawaii and twenty in the continental United States). Transmix is the mixture of various refined products (primarily gasoline and diesel) created in the supply chain (primarily in pipelines and terminals) when various products interface with each other.
Terminals and Transmix We operate four transmix processing facilities and 42 refined product terminals ( one in Puerto Rico, six in Hawaii and 35 in the continental United States). Transmix is the mixture of various refined products (primarily gasoline and diesel) created in the supply chain (primarily in pipelines and terminals) when various products interface with each other.
Our dealer incentives give our dealers access to discounted rates on products and services that they would likely not be able to obtain on their own. 4 Sales to Contracted Third Parties We distribute fuel under long-term contracts to branded distributors, branded and unbranded convenience stores, and branded and unbranded retail fuel outlets operated by third parties. 7-Eleven is the only third-party dealer or distributor which is individually over 10% of our Fuel Distribution and Marketing segment or individually over 10%, in terms of revenue, of our aggregate business.
Our dealer incentives give our dealers access to discounted rates on products and services that they would likely not be able to obtain on their own. 7 Table of Contents In dex to Financial Statements Sales to Contracted Third Parties We distribute fuel under long-term contracts to branded distributors, branded and unbranded convenience stores, and branded and unbranded retail fuel outlets operated by third parties. 7-Eleven, Inc. is the only third-party dealer or distributor which is individually over 10% of our Fuel Distribution and Marketing segment or individually over 10%, in terms of revenue, of our aggregate business.
We are managed by our general partner, Sunoco GP LLC (our “General Partner”), which is owned by Energy Transfer LP ("Energy Transfer").
We are managed by our general partner, Sunoco GP LLC (our “General Partner”), which is owned by Energy Transfer LP (“Energy Transfer”).
Accordingly, we have recorded estimated undiscounted liabilities for these sites totaling $18 million as of December 31, 2022. As of December 31, 2022, we have additional reserves of $81 million that represent our estimate for future asset retirement obligations for underground storage tanks.
Accordingly, we have recorded estimated undiscounted liabilities for these sites totaling $18 million as of December 31, 2023. As of December 31, 2023, we have additional reserves of $84 million that represent our estimate for future asset retirement obligations for underground storage tanks.
All Other Segment Our All Other segment includes the Partnership’s retail operations in Hawaii and New Jersey, credit card services, and franchise royalties. For further detail of our segment results refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8.
All Other Segment Our All Other segment includes the Partnership’s retail operations in Hawaii and New Jersey, credit card services and franchise royalties. For further detail of our segment results refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 19 to our consolidated financial statements included in “Item 8.
Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 19-Segment Reporting.” Sale of Regulated Products In certain areas where our convenience stores are located, state or local laws limit the hours of operation for the sale of alcoholic beverages and restrict the sale of alcoholic beverages and tobacco products to persons younger than a certain age.
Financial Statements and Supplementary Data.” Sale of Regulated Products In certain areas where our convenience stores are located, state or local laws limit the hours of operation for the sale of alcoholic beverages and restrict the sale of alcoholic beverages and tobacco products to persons younger than a certain age.
Human Capital Management As of December 31, 2022, we employed an aggregate of 2,302 employees, 325 of which are represented by labor unions. We and our subsidiaries believe that our relations with our employees are good. In order to accomplish our objectives, we must continue to attract and retain top talent.
Human Capital Management As of December 31, 2023, we employed an aggregate of 2,389 employees, 328 of which are represented by labor unions. We and our subsidiaries believe that our relations with our employees are good. In order to accomplish our objectives, we must continue to attract and retain top talent.
Transmix processing plants separate this mixture and return it to salable products of gasoline and diesel. Our refined product terminals provide 5 storage and distribution services used to supply our own retail stations as well as third-party customers. In addition, we provide services at our terminals to various third-party throughput customers.
Transmix processing plants separate this mixture and return it to salable products of gasoline and diesel. Our refined product terminals provide storage and distribution services 8 Table of Contents In dex to Financial Statements used to supply our own retail stations as well as third-party customers. In addition, we provide services at our terminals to various third-party throughput customers.
We distributed approximately 7.7 billion gallons of motor fuel during 2022 through our independent dealers, distributors, other commercial customers, retail sites operated by commission agents and retail sites owned and operated by us.
We distributed approximately 8.3 billion gallons of motor fuel during 2023 through our independent dealers, distributors, other commercial customers, retail sites operated by commission agents and retail sites owned and operated by us.
The full impact of these actions is uncertain at this time. However, any efforts to control and/or reduce GHG emissions by the United States or other countries, or concerted conservation efforts that result in reduced consumption, could adversely impact demand for our products and, in turn, our financial position and results of operations.
However, any efforts to control and/or reduce GHG emissions by the United States or other countries, or concerted conservation efforts that result in reduced consumption, could adversely impact demand for our products and, in turn, our financial position and results of operations.
As of February 10, 2023, Energy Transfer owned 100% of the membership interest in our General Partner, all of our incentive distribution rights and 28,463,967 of our common units, which constituted a 28.3% limited partner interest in us. Given the significant ownership, we believe Energy Transfer will be motivated to promote and support the successful execution of our business strategies.
As of February 9, 2024, Energy Transfer owned 100% of the membership interest in our General Partner, all of our IDRs and 28,463,967 of our common units, which constituted a 28.2% limited partner interest in us. Given the significant ownership, we believe Energy Transfer will be motivated to promote and support the successful execution of our business strategies.
The initial term of these contracts range from three to twenty years, with most contracts for ten years.
The initial term of these contracts range from three to 20 years, with most contracts for 10 years.
For example, in April 2010, the EPA set a new emissions standard for motor vehicles to reduce GHG emissions. This vehicle emission standard has become increasingly stringent overtime; for example, in December 2021, the Biden Administration announced revised GHG emissions standards for light-duty vehicle fleets for Model Years 2023-2026 that require lower average emissions per mile.
This vehicle emission standard has become increasingly stringent overtime; for example, in December 2021, the Biden Administration announced revised GHG emissions standards for light-duty vehicle fleets for Model Years 2023-2026 that require lower average emissions per mile.
For more information, see “We are subject to federal laws related to the Renewable Fuel Standard” and “We are subject to federal, state and local laws and regulations that govern the product quality specifications of refined petroleum products we purchase, store, transport, and sell to our distribution customers” in "Item 1A. Risk Factors” in this Annual Report on Form 10-K.
For more information, see “We are subject to federal laws related to the Renewable Fuel Standard” and “We are subject to federal, state and local laws and regulations that govern the product quality specifications of refined petroleum products we purchase, store, transport, and sell to our distribution customers” in “Item 1A.
Operating Subsidiaries Our primary operations are conducted by the following consolidated subsidiaries: • Sunoco, LLC (“Sunoco LLC”), a Delaware limited liability company, primarily distributes motor fuel in more than 40 states and territories throughout the East Coast, Midwest, South Central and Southeast regions of the United States.
Operating Subsidiaries Our primary operations are conducted by the following consolidated subsidiaries: • Sunoco, LLC (“Sunoco LLC”), a Delaware limited liability company, primarily distributes motor fuel in more than 40 states throughout the United States.
The number of competitors varies depending on the geographical area. Competition also varies with gasoline and convenience store offerings. The principal competitive factors affecting our retail marketing operations include gasoline and diesel acquisition costs, site location, product price, selection and quality, site appearance and cleanliness, hours of operation, store safety, customer loyalty and brand recognition.
The principal competitive factors affecting our retail marketing operations include gasoline and diesel acquisition costs, site location, product price, selection and quality, site appearance and cleanliness, hours of operation, store safety, customer loyalty and brand recognition.
As of February 10, 2023 , Energy Transfer owned 100% of the membership interests in our General Partner, 28,463,967 of our common units, which constituted a 28.3% limited partner interest in us, and all of our incentive distribution rights ("IDRs"). 2 The following simplified diagram depicts our organizational structure as of February 10, 2023 .
As of February 9, 2024, Energy Transfer owned 100% of the membership interests in our General Partner, 28,463,967 of our common units, which constituted a 28.2% limited partner interest in us, and all of our incentive distribution rights (“IDRs”). 4 Table of Contents In dex to Financial Statements The following simplified diagram depicts our organizational structure as of February 9, 2024.
During 2022, we purchased motor fuel primarily from independent refiners and major oil companies and distributed it across more than 40 U.S. states and territories throughout the East Coast, Midwest, South Central and Southeast regions of the United States, as well as Hawaii and Puerto Rico as of December 31, 2022, to: • 76 company-owned and operated retail stores; • 504 independently operated commission agent locations where we sell motor fuel to retail customers under commission agent arrangements with such operators; • 6,897 retail stores operated by independent operators, which we refer to as “dealers” or “distributors,” pursuant to long-term distribution agreements; and • Approximately 1,800 other commercial customers, including unbranded retail stores, other fuel distributors, school districts and municipalities and other industrial customers.
We purchase motor fuel primarily from independent refiners and major oil companies and distribute it across more than 40 U.S. states and territories throughout the United States, including Hawaii and Puerto Rico, to: • 75 company-operated retail stores; • 476 independently operated commission agent locations where we sell motor fuel to retail customers under commission agent arrangements with such operators; • 6,828 retail stores operated by independent operators, which we refer to as “dealers” or “distributors,” pursuant to long-term distribution agreements; and • approximately 1,600 other commercial customers, including unbranded retail stores, other fuel distributors, school districts, municipalities and other industrial customers.
Sunoco LLC also processes transmix and distributes refined product through its terminals in Alabama, Arkansas, Florida, Indiana, Illinois, Maryland, New Jersey, New York, Texas, and Virginia. • Sunoco Retail LLC (“Sunoco Retail”), a Pennsylvania limited liability company, owns and operates retail stores that sell motor fuel and merchandise primarily in New Jersey and distributes motor fuel in Puerto Rico.
Sunoco LLC also processes transmix and distributes refined product through its terminals in over 15 states. • Sunoco Retail LLC (“Sunoco Retail”), a Pennsylvania limited liability company, owns and operates retail stores that sell motor fuel and merchandise primarily in New Jersey.
Energy Transfer, through its wholly-owned operating subsidiaries, is engaged primarily in natural gas and natural gas liquids transportation, storage and fractionation services and refined product and crude oil operations including transportation, terminalling services and storage. Our Business and Operations Our business is comprised of two reportable segments, Fuel Distribution and Marketing and All Other.
Energy Transfer, through its wholly owned operating subsidiaries, is primarily engaged in: • natural gas midstream, intrastate and interstate transportation and storage operations; and • crude oil, natural gas liquids (“NGL”) and refined products transportation, terminalling and acquisition and marketing activities as well as NGL storage and fractionation services. 6 Table of Contents In dex to Financial Statements Our Business and Operations Our business is comprised of two reportable segments: Fuel Distribution and Marketing and All Other.
In addition to distributing motor fuels, we also distribute other petroleum products such as propane and lubricating oil, and we receive lease income from real estate that we lease or sublease.
We also are one of the largest distributors of Chevron, Texaco, ExxonMobil and Valero branded motor fuel in the United States. In addition to distributing motor fuels, we also distribute other petroleum products such as propane and lubricating oil, and we receive lease income from real estate that we lease or sublease.
However, these requirements are likely to be subject to legal challenge. Additionally, President Biden has announced that climate change will be a focus of his administration.
It is likely, however, that the final rule and its requirements will be subject to legal challenges. Additionally, President Biden has announced that climate change will be a focus of his administration.
Subsequently, various federal agencies have taken, or have announced plans to take, further actions relating to climate change, some of which may impact our operations. 8 At the international level, the United States and 195 other countries reached an agreement (the “Paris Agreement”) during the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change, a long-term, international framework convention designed to address climate change over the next several decades.
At the international level, the United States and 195 other countries reached an agreement (the “Paris Agreement”) during the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change, a long-term, international framework convention designed to address climate change over the next several decades.
Real Estate and Lease Arrangements As of December 31, 2022, our real estate and lease arrangements are as follows: Owned Leased Dealer and commission agent sites 604 274 Company-operated retail stores 7 49 Warehouses, offices and other 29 26 Total 640 349 Competition In the Fuel Distribution and Marketing business, we compete primarily with other independent motor fuel distributors.
Real Estate and Lease Arrangements As of December 31, 2023, our real estate and lease arrangements were as follows: Owned Leased Dealer and commission agent sites 635 268 Company-operated retail stores 6 50 Warehouses, offices and other 55 22 Total 696 340 Competition In the Fuel Distribution and Marketing segment, we compete primarily with other independent motor fuel distributors.
We are the exclusive wholesale supplier of the Sunoco-branded and EcoMaxx-branded motor fuels, supplying an extensive distribution network of approximately 5,563 Sunoco-branded company and third-party operated locations throughout the East Coast, Midwest, South Central and Southeast regions of the United States and Puerto Rico.
We are the exclusive wholesale supplier of the Sunoco and EcoMaxx-branded motor fuels, supplying an extensive distribution network of approximately 5,534 company and third-party operated locations throughout the United States and Puerto Rico. We believe we are one of the largest independent motor fuel distributors, by gallons, in the United States.
The various sub-alliances of GFANZ generally require participants to set short-term, sector-specific targets to transition their financing, investing, and/or underwriting activities to net zero emissions by 2050.
The various sub-alliances of GFANZ generally require participants to set short-term, sector-specific targets to transition their financing, investing, and/or underwriting activities to net zero emissions by 2050. There is also a risk that financial institutions will be required to adopt policies that have the effect of reducing the funding provided to the fossil fuel sector.
Employee Safety We are subject to the requirements of the Occupational Safety and Health Act (“OSHA”) and comparable state statutes that regulate the protection of the health and safety of workers.
Risk Factors” in this Annual Report on Form 10-K. 13 Table of Contents In dex to Financial Statements Employee Safety We are subject to the requirements of the Occupational Safety and Health Act (“OSHA”) and comparable state statutes that regulate the protection of the health and safety of workers.
Such federal legislation may impose a carbon emissions tax or establish a cap-and-trade program or regulation by the EPA. Even in the absence of new federal legislation, GHG emissions have begun to be regulated by the EPA pursuant to the Clean Air Act.
Even in the absence of new federal legislation, GHG emissions have begun to be regulated by the EPA pursuant to the Clean Air Act. For example, in April 2010, the EPA set a new emissions standard for motor vehicles to reduce GHG emissions.
These laws may require the installation of vapor recovery systems to control emissions of volatile organic compounds to the air during the motor fueling process. Under the Clean Air Act and comparable state and local laws, permits are typically required to emit regulated air pollutants into the atmosphere.
These laws and implementing regulations may require the installation of vapor recovery systems to control emissions of volatile organic compounds to the air during the motor fueling process or otherwise in the course of our operations.
As of December 31, 2022, we distribute motor fuels across more than 40 states and territories throughout the East Coast, Midwest, South Central and Southeast regions of the United States from Maine to Florida and from Florida to New Mexico, as well as Hawaii and Puerto Rico.
As of December 31, 2023, we also operated 75 retail stores located in Hawaii and New Jersey. As of December 31, 2023, we distribute motor fuels across more than 40 states and territories throughout the United States, including Hawaii and Puerto Rico.
(“Aloha”), a Hawaii corporation, owns and operates retail stores on the Hawaiian Islands and leases owned sites to commission agents who sell motor fuels to the motoring public on Aloha's behalf for a commission. 3 Available Information Our principal executive offices are located at 8111 Westchester Drive, Suite 400, Dallas, Texas 75225. Our telephone number is (214) 981-0700.
(“Aloha”), a Hawaii corporation, owns and operates retail stores on the Hawaiian Islands and leases owned sites to commission agents who sell motor fuels to the motoring public on Aloha's behalf for a commission. 5 Table of Contents In dex to Financial Statements • Peerless Oil & Chemicals, Inc.
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As of December 31, 2022, we also operated 76 retail stores located in Hawaii and New Jersey.
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(“Peerless”), a Delaware corporation, is a terminal operator that distributes fuel products to over 100 locations primarily within Puerto Rico. Recent Developments On January 22, 2024, we entered into a definitive agreement with NuStar Energy L.P. (“NuStar”) to acquire NuStar in an all-equity transaction valued at approximately $7.3 billion, including assumed debt.
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We believe we are one of the largest independent motor fuel distributors, by gallons, in the United States. We also are one of the largest distributors of Chevron, Texaco, ExxonMobil and Valero branded motor fuel in the United States.
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Under the terms of the agreement, NuStar common unitholders will receive 0.400 Sunoco common units for each NuStar common unit. NuStar has approximately 9,500 miles of pipeline and 63 terminal and storage facilities that store and distribute crude oil, refined products, renewable fuels, ammonia and specialty liquids.
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We may also be subject to third-party claims alleging property damage and/or personal injury in connection with releases of or exposure to hazardous substances at, from or in the vicinity of, our current properties or off-site waste disposal sites.
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The transaction is expected to close in the second quarter of 2024, subject to customary closing conditions. On January 11, 2024, we entered into a definitive agreement with 7-Eleven, Inc. to sell 204 convenience stores located in West Texas, New Mexico, and Oklahoma for approximately $1.0 billion, including customary adjustments for fuel and merchandise inventory.
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Additionally, in November 2021, the EPA proposed a rule that would establish new standards of performance for methane and volatile organic compound emissions for both new and existing sources in the oil and gas sector, including transmission and storage facilities.
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As part of the sale, SUN will also amend its existing take-or-pay fuel supply agreement with 7-Eleven, Inc. to incorporate additional fuel gross profit. The transaction is expected to close promptly upon receipt of regulatory approvals and satisfaction of customary closing conditions.
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Operators of affected facilities would have to comply with specific standards of performance to include leak detection using optical gas imaging and subsequent repair requirement, and reduction of emissions by 95% through capture and control systems. The EPA issued a supplemental proposal in November 2022 containing additional requirements not included in the November 2021 proposed rule.
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On January 11, 2024, we announced that we will acquire liquid fuels terminals in Amsterdam, Netherlands and Bantry Bay, Ireland from Zenith Energy for €170 million including working capital. The transaction is expected to close in the first quarter of 2024, subject to customary closing conditions.
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There is also a risk that financial institutions will be required to adopt policies that have the effect of reducing the funding provided to the fossil fuel sector.
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On September 20, 2023, the Partnership completed a private offering of $500 million in aggregate principal amount of 7.000% senior notes due 2028. We used the proceeds to repay a portion of the outstanding borrowings under our Credit Facility (as defined herein).
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The definition of WOTUS has been subject to repeated change in recent years, and the Biden Administration has finalized a rulemaking to return to a pre-2015 definition, which incorporates updates based on Supreme Court decisions and agency guidance. However, this definition may still be subject to uncertainty based on pending Supreme Court case Sackett v.
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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. Available Information Our principal executive offices are located at 8111 Westchester Drive, Suite 400, Dallas, Texas 75225.
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EPA , a decision on which is expected in 2023, as well as pending legal challenges to the final rule.
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Our telephone number is (214) 981-0700. Our Internet address is www.sunocolp.com.
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The map below depicts the major assets of our business and excludes corporate and field offices and certain assets that are less significant to SUN.
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Nolan Joint Venture Through our investment in the J.C. Nolan Terminal, a joint venture with Energy Transfer, we provide diesel fuel storage in Midland, Texas. Additionally, through our investment in J.C. Nolan Pipeline, we transport diesel fuel from a tank farm in Hebert, Texas to Midland, Texas, with a throughput capacity of approximately 36 MBbls/d.
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The number of competitors varies depending on the geographical area. Competition also varies 9 Table of Contents In dex to Financial Statements with gasoline and convenience store offerings.
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For example, in October 2023, the EPA proposed changes to its new source performance standards for new, modified and reconstructed storage vessels containing volatile organic liquids, a term which includes certain of our products.
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The EPA’s proposal would broaden the definition of modification for storage tanks (which would result in significantly broader application of this rule to existing tanks), introduce more stringent emission control requirements for certain tanks, impose additional annual monitoring requirements for certain tanks, and require control of degassing events, amongst other matters.
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Costs to comply with new rules under the Clean Air Act can be substantial. In addition, under the Clean Air Act and comparable state and local laws, permits are typically required to emit regulated air pollutants into the atmosphere.
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Such federal legislation may impose a carbon emissions tax or establish a cap-and-trade program or regulation by the EPA. For example, in 2022 President Biden signed the IRA 2022 into law, which appropriated significant federal funding for renewable energy initiatives and imposed the first-ever federal fee on methane emissions from certain oil and gas facilities.
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Separately, in December 2023, the EPA finalized more stringent methane emission standards for certain sources in the oil and gas sector, including first-ever standards for 11 Table of Contents In dex to Financial Statements existing sources. Under the final rules, states have two years to prepare and submit their plans to impose methane emission controls on existing sources.
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The presumptive standards under the final rule are generally the same for both new and existing sources, including enhanced leak detection survey requirements using optical gas imaging and other advanced monitoring to encourage the deployment of innovative technologies to detect and reduce methane emissions, reduction of emissions by 95% through capture and control systems, zero-emission requirements for certain devices, and the establishment of a “super emitter” response program that would allow third parties to make reports to the EPA of large methane emissions events, triggering certain investigation and repair requirements.
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Subsequently, various federal agencies have taken, or have announced plans to take, further actions relating to climate change, some of which may impact our operations.
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At the 2023 United Nations Climate Change Conference (“COP28”) in December 2023, the parties signed onto an agreement to transition away from fossil fuels in energy systems and increase renewable energy capacity, though no timeline for doing so was set.
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While non-binding, the agreements coming out of COP28 could result in increased pressure among financial institutions and various stakeholders to reduce or otherwise impose more stringent limitations on funding for and increase potential opposition to the production and use of fossil fuels. The full impact of these actions is uncertain at this time.
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Similarly, in October 2023 the Governor of California signed the Climate Corporate Data Accountability Act (“CCDAA”) and Climate-Related Financial Risk Act (“CRFRA”) into law.
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The CCDAA requires both public and private U.S. companies that are “doing business in California” and that have a total annual revenue of $1 billion to publicly disclose and verify, on an annual basis, Scope 1, 2, and 3 GHG emissions.
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Both laws are vague and potentially overbroad with respect to their applicability, appearing to require only minimal contacts with California.
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The CRFRA requires the disclosure of a climate-related financial risk report in line 12 Table of Contents In dex to Financial Statements with certain stakeholder frameworks every other year for public and private companies that are “doing business in California” and have total annual revenue of $500 million. Reporting under both laws would begin in 2026.
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Currently, the ultimate impact of these laws on our business is uncertain—the Governor of California has directed further consideration of the implementation deadlines for each of the laws, and there is potential for legal challenges to be filed with respect to the scope of the laws—but, absent clarification or revisions to the laws, alongside the SEC proposed rule, finalization and implementation may result in additional costs to comply with these disclosure requirements as well as increased costs of and restrictions on access to capital.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur stakeholders could be impacted by risks related to our partnership agreement, including: ◦ the requirement that we distribute all of our available cash; ◦ the limited liability and duties of our General Partner and restrictions on the remedies available for actions taken; ◦ the potential need to issue common units in connection with a resetting of the target distribution levels related to our incentive distribution rights; ◦ our common unitholders’ limited voting rights and lack of rights to elect our General Partner or its directors; ◦ limitations on our common unitholders’ ability to remove our General Partner without its consent; ◦ potential transfer of the General Partner interest or the control of our General Partner to a third party; ◦ the potential requirement for unitholders to sell their common units at an undesirable time or price; ◦ our ability to issue additional units without unitholder approval; ◦ potential sales of substantial amounts of our common units in the public or private markets; ◦ restrictions on the voting rights of unitholders owning 20% or more of our outstanding common units; ◦ the dependence of our distributions primarily on our cash flow and not solely on profitability; ◦ our unitholders’ potential liability to repay distributions; and ◦ the lack of certain corporate governance requirements by the New York Stock Exchange ("NYSE") for a publicly traded partnership like us. 12 Tax Risks to Common Unitholders Our unitholders could be impacted by tax risks, including: ◦ our potential to be taxed as a corporation or otherwise become subject to a material amount of entity-level taxation; ◦ the potential for our unitholders to be required to pay taxes on their share of our income even if they do not receive any cash distributions from us; and ◦ unique tax issues faced by tax-exempt entities from owning common units.
Biggest changeOur stakeholders could be impacted by risks related to our partnership agreement, including: • the requirement that we distribute all of our available cash; • the limited liability and duties of our General Partner and restrictions on the remedies available for actions taken; • the potential need to issue common units in connection with a resetting of the target distribution levels related to our IDRs; • our common unitholders’ limited voting rights and lack of rights to elect our General Partner or its directors; • limitations on our common unitholders’ ability to remove our General Partner without its consent; • potential transfer of the General Partner interest or the control of our General Partner to a third party; • the potential requirement for unitholders to sell their common units at an undesirable time or price; • our ability to issue additional units without unitholder approval; • potential sales of substantial amounts of our common units in the public or private markets; • restrictions on the voting rights of unitholders owning 20% or more of our outstanding common units; • the dependence of our distributions primarily on our cash flow and not solely on profitability; • our unitholders’ potential liability to repay distributions; and • the lack of certain corporate governance requirements by the New York Stock Exchange ("NYSE") for a publicly traded partnership like us.
Subject to certain limitations, EPA now has significant discretion to set renewable fuel targets under the RFS, which could result in increased compliance obligations on refiners and importers and transportation fuels.
Subject to certain limitations, the EPA now has significant discretion to set renewable fuel targets under the RFS, which could result in increased compliance obligations on refiners and importers and transportation fuels.
Our results of operations and financial condition could be impacted by many risks that are beyond our control, including the following: ◦ cash distributions are not guaranteed and may fluctuate with our performance and other external factors; ◦ general economic, financial, and political conditions; ◦ changes in the prices of motor fuel; ◦ demand for motor fuel, including consumer preference for alternative motor fuels or improvements in fuel efficiency; ◦ seasonal trends; ◦ dangers inherent in the storage and transportation of motor fuel; ◦ operational and business risks associated with our fuel storage terminals; ◦ events or developments associated with our branded suppliers; ◦ extreme weather events that may be more severe or frequent than historically experienced and that may be attributable to changes in climate due to adverse effects of an industrialized economy; ◦ competition and fragmentation within the wholesale motor fuel distribution industry; ◦ competition within the convenience store industry, including the impact of new entrants; ◦ possible increased costs related to land use and facilities and equipment leases; ◦ possible future litigation; ◦ potential loss of key members of our senior management team; ◦ failure to attract and retain qualified employees; ◦ failure to insure against risks incident to our business; ◦ terrorist attacks and threatened or actual war; ◦ cybersecurity attacks, data breaches and other disruptions affecting us, or our service providers; ◦ disruption of our information technology systems; ◦ failure to protect sensitive customer, employee or vendor data, or to comply with applicable regulations relating to data security and privacy; ◦ failure to obtain trade credit terms to adequately fund our ongoing operations; ◦ our dependence on cash flow generated by our subsidiaries; and ◦ potential impairment of goodwill and intangible assets.
Our results of operations and financial condition could be impacted by many risks that are beyond our control, including the following: • cash distributions are not guaranteed and may fluctuate with our performance and other external factors; • general economic, financial, and political conditions; • changes in the prices of motor fuel; • demand for motor fuel, including consumer preference for alternative motor fuels or improvements in fuel efficiency; • seasonal trends; • dangers inherent in the storage and transportation of motor fuel; • operational and business risks associated with our fuel storage terminals; • events or developments associated with our branded suppliers; • extreme weather events that may be more severe or frequent than historically experienced and that may be attributable to changes in climate due to adverse effects of an industrialized economy; • competition and fragmentation within the wholesale motor fuel distribution industry; • competition within the convenience store industry, including the impact of new entrants; • possible increased costs related to land use and facilities and equipment leases; • possible future litigation; • potential loss of key members of our senior management team; • failure to attract and retain qualified employees; • failure to insure against risks incident to our business; • terrorist attacks and threatened or actual war; • cybersecurity attacks, data breaches and other disruptions affecting us, or our service providers; • disruption of our information systems; • failure to protect sensitive customer, employee or vendor data, or to comply with applicable regulations relating to data security and privacy; • failure to obtain trade credit terms to adequately fund our ongoing operations; • our dependence on cash flow generated by our subsidiaries; and • potential impairment of goodwill and intangible assets.
In addition, our General Partner is allowed to take into account the interests of parties other than us or our unitholders, such as Energy Transfer, in resolving conflicts of interest. • Certain officers and directors of our General Partner are officers or directors of affiliates of our General Partner, and also devote significant time to the business of these entities and are compensated accordingly. • Affiliates of our General Partner, including Energy Transfer, are not limited in their ability to compete with us and may offer business opportunities or sell assets to parties other than us. • Our partnership agreement provides that our General Partner may, but is not required to, in connection with its resolution of a conflict of interest, seek “special approval” of such resolution by appointing a conflicts committee of the General Partner’s board of directors composed of one or more independent directors to consider such conflicts of interest and to either, itself, take action or recommend action to the board of directors, and any resolution of the conflict of interest by the conflicts committee shall be conclusively deemed to be approved by our unitholders. • Except in limited circumstances, our General Partner has the power and authority to conduct our business without unitholder approval. • Our General Partner determines the amount and timing of asset purchases and sales, borrowings, repayment of indebtedness and issuances of additional partnership securities and the level of reserves, each of which can affect the amount of cash that is distributed to our unitholders. 26 • Our General Partner determines the amount and timing of any capital expenditure and whether a capital expenditure is classified as a maintenance capital expenditure or an expansion capital expenditure.
In addition, our General Partner is allowed to take into account the interests of parties other than us or our unitholders, such as Energy Transfer, in resolving conflicts of interest. • Certain officers and directors of our General Partner are officers or directors of affiliates of our General Partner, and also devote significant time to the business of these entities and are compensated accordingly. • Affiliates of our General Partner, including Energy Transfer, are not limited in their ability to compete with us and may offer business opportunities or sell assets to parties other than us. • Our partnership agreement provides that our General Partner may, but is not required to, in connection with its resolution of a conflict of interest, seek “special approval” of such resolution by appointing a conflicts committee of the General Partner’s board of directors composed of one or more independent directors to consider such conflicts of interest and to either, itself, take action or recommend action to the board of directors, and any resolution of the conflict of interest by the conflicts committee shall be conclusively deemed to be approved by our unitholders. • Except in limited circumstances, our General Partner has the power and authority to conduct our business without unitholder approval. • Our General Partner determines the amount and timing of asset purchases and sales, borrowings, repayment of indebtedness and issuances of additional partnership securities and the level of reserves, each of which can affect the amount of cash that is distributed to our unitholders. • Our General Partner determines the amount and timing of any capital expenditure and whether a capital expenditure is classified as a maintenance capital expenditure or an expansion capital expenditure.
Examples of such decisions include: ◦ whether to exercise limited call rights; ◦ how to exercise voting rights with respect to any units it owns; ◦ whether to exercise registration rights; and ◦ whether to consent to any merger or consolidation, or amendment to our partnership agreement. • Our partnership agreement provides that our General Partner will not have any liability to us or our unitholders for decisions made in its capacity as General Partner so long as it acted in good faith as defined in the partnership agreement, meaning it believed that the decisions were not adverse to the interests of our partnership. • Our partnership agreement provides that our General Partner and the officers and directors of our General Partner will not be liable for monetary damages to us for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our General Partner or those persons acted in bad faith or, in the case of a criminal matter, acted with knowledge that such person’s conduct was criminal. • Our partnership agreement provides that our General Partner will not be in breach of its obligations under the partnership agreement or its duties to us or our limited partners with respect to any transaction involving an affiliate if: ◦ the transaction with an affiliate or the resolution of a conflict of interest is: • approved by the conflicts committee of the board of directors of our General Partner, although our General Partner is not obligated to seek such approval; or • approved by the vote of a majority of the outstanding common units, excluding any common units owned by our General Partner and its affiliates; or 28 • the board of directors of our General Partner acted in good faith in taking any action or failing to act.
Examples of such decisions include: ◦ whether to exercise limited call rights; ◦ how to exercise voting rights with respect to any units it owns; ◦ whether to exercise registration rights; and ◦ whether to consent to any merger or consolidation, or amendment to our partnership agreement. • Our partnership agreement provides that our General Partner will not have any liability to us or our unitholders for decisions made in its capacity as General Partner so long as it acted in good faith as defined in the partnership agreement, meaning it believed that the decisions were not adverse to the interests of our partnership. • Our partnership agreement provides that our General Partner and the officers and directors of our General Partner will not be liable for monetary damages to us for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our General Partner or those persons acted in bad faith or, in the case of a criminal matter, acted with knowledge that such person’s conduct was criminal. • Our partnership agreement provides that our General Partner will not be in breach of its obligations under the partnership agreement or its duties to us or our limited partners with respect to any transaction involving an affiliate if: ◦ the transaction with an affiliate or the resolution of a conflict of interest is: • approved by the conflicts committee of the board of directors of our General Partner, although our General Partner is not obligated to seek such approval; or • approved by the vote of a majority of the outstanding common units, excluding any common units owned by our General Partner and its affiliates; or • the board of directors of our General Partner acted in good faith in taking any action or failing to act.
The difficulties of integrating past and future acquisitions with our business include, among other things: • operating a larger combined organization in new geographic areas and new lines of business; • hiring, training or retaining qualified personnel to manage and operate our growing business and assets; • integrating management teams and employees into existing operations and establishing effective communication and information exchange with such management teams and employees; • diversion of management’s attention from our existing business; • assimilation of acquired assets and operations, including additional regulatory programs; • loss of customers or key employees; • maintaining an effective system of internal controls in compliance with the Sarbanes-Oxley Act of 2002 as well as other regulatory compliance and corporate governance matters; and 19 • integrating new technology systems for financial reporting.
The difficulties of integrating past and future acquisitions with our business include, among other things: • operating a larger combined organization in new geographic areas and new lines of business; • hiring, training or retaining qualified personnel to manage and operate our growing business and assets; • integrating management teams and employees into existing operations and establishing effective communication and information exchange with such management teams and employees; • diversion of management’s attention from our existing business; • assimilation of acquired assets and operations, including additional regulatory programs; • loss of customers or key employees; • maintaining an effective system of internal controls in compliance with the Sarbanes-Oxley Act of 2002 as well as other regulatory compliance and corporate governance matters; and • integrating new technology systems for financial reporting.
Our partnership agreement requires that any claims, suits, actions or proceedings: • arising out of or relating in any way to our partnership agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of our partnership agreement or the duties, obligations or liabilities among our limited partners or of our limited partners to us, or the rights or powers of, or restrictions on, our limited partners or us); • brought in a derivative manner on our behalf; • asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of us or our General Partner, or owed by our General Partner, to us or the limited partners; • asserting a claim arising pursuant to any provision of the Delaware Act; or 30 • asserting a claim governed by the internal affairs doctrine, will be exclusively brought in the Court of Chancery of the State of Delaware (or, if such court does not have subject matter jurisdiction thereof, any other court located in the State of Delaware with subject matter jurisdiction).
Our partnership agreement requires that any claims, suits, actions or proceedings: • arising out of or relating in any way to our partnership agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of our partnership agreement or the duties, obligations or liabilities among our limited partners or of our limited partners to us, or the rights or powers of, or restrictions on, our limited partners or us); • brought in a derivative manner on our behalf; • asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of us or our General Partner, or owed by our General Partner, to us or the limited partners; • asserting a claim arising pursuant to any provision of the Delaware Act; or • asserting a claim governed by the internal affairs doctrine, will be exclusively brought in the Court of Chancery of the State of Delaware (or, if such court does not have subject matter jurisdiction thereof, any other court located in the State of Delaware with subject matter jurisdiction).
If at any time our General Partner and its affiliates own more than 80% of the common units, our General Partner will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price equal to the greater of (1) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (2) the highest per-unit 29 price paid by our General Partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed.
If at any time our General Partner and its affiliates own more than 80% of the common units, our General Partner will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price equal to the greater of (1) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by our General Partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed.
Our business, results of operations, cash flows, financial condition and future growth could be impacted by the following: 11 ◦ failure to make acquisitions on economically acceptable terms, including as a result of recent increases in cost of capital resulting from Federal Reserve policies and changes in financial institutions’ policies or practices concerning businesses linked to fossil fuels, or to successfully integrate acquired assets; ◦ any acceleration of the domestic and/or international transition to a low carbon economy as a result of the IRA 2022 or otherwise; and ◦ failure to manage risks associated with acquisitions.
Our business, results of operations, cash flows, financial condition and future growth could be impacted by the following: • failure to make acquisitions on economically acceptable terms, including as a result of recent increases in cost of capital resulting from Federal Reserve policies and changes in financial institutions’ policies or practices concerning businesses linked to fossil fuels, or to successfully integrate acquired assets; • any acceleration of the domestic and/or international transition to a low carbon economy as a result of the IRA 2022 or otherwise; and • failure to manage risks associated with acquisitions.
Our fuel storage terminals are subject to operational and business risks, the most significant of which include the following: • our inability to renew a ground lease for certain of our fuel storage terminals on similar terms or at all; • our dependence on third parties to supply our fuel storage terminals; • outages at our fuel storage terminals or interrupted operations due to weather-related or other natural causes; • the threat that the nation’s terminal infrastructure may be a future target of terrorist organizations; • the volatility in the prices of the products stored at our fuel storage terminals and the resulting fluctuations in demand for our storage services; • the effects of a sustained recession or other adverse economic conditions; • the possibility of federal and/or state regulations that may discourage our customers from storing gasoline, diesel fuel, ethanol and jet fuel at our fuel storage terminals or reduce the demand by consumers for petroleum products; • competition from other fuel storage terminals that are able to supply our customers with comparable storage capacity at lower prices; and • climate change legislation or regulations that restrict emissions of greenhouse gases ("GHGs") could result in increased operating and capital costs and reduced demand for our storage services.
Our fuel storage terminals are subject to operational and business risks, the most significant of which include the following: • our inability to renew a ground lease for certain of our fuel storage terminals on similar terms or at all; • our dependence on third parties to supply our fuel storage terminals; • outages at our fuel storage terminals or interrupted operations due to weather-related or other natural causes; • the threat that the nation’s terminal infrastructure may be a future target of terrorist organizations; • the volatility in the prices of the products stored at our fuel storage terminals and the resulting fluctuations in demand for our storage services; • the effects of a sustained recession or other adverse economic conditions; • the possibility of federal and/or state regulations that may discourage our customers from storing gasoline, diesel fuel, ethanol and jet fuel at our fuel storage terminals or reduce the demand by consumers for petroleum products; • competition from other fuel storage terminals that are able to supply our customers with comparable storage capacity at lower prices; and • climate change legislation or regulations that restrict emissions of GHGs could result in increased operating and capital costs and reduced demand for our storage services.
Although we have a comprehensive environmental, health, and safety program, we may not have identified all environmental liabilities at all of our current and former locations; material environmental conditions not known to us may exist; existing and future laws, ordinances or regulations may impose material environmental liability or compliance costs on us; or we may be required to make material environmental expenditures for remediation of contamination that has not been discovered at existing locations or locations that we may acquire.
Although we believe that we have a comprehensive environmental, health, and safety program, we may not have identified all environmental liabilities at all of our current and former locations; material environmental conditions not known to us may exist; existing and future laws, ordinances or regulations may impose material environmental liability or compliance costs on us; or we may be required to make material environmental expenditures for remediation of contamination that has not been discovered at existing locations or locations that we may acquire.
We also 17 engage third parties, such as service providers and vendors, who provide a broad array of software, technologies, tools, and other products, services and functions (e.g., human resources, finance, data transmission, communications, risk, compliance, among others) that enable us to conduct, monitor and/or protect our business, operations, systems and data assets.
We also engage third parties, such as service providers and vendors, who provide a broad array of software, technologies, tools, and other products, services and functions (e.g., human resources, finance, data transmission, communications, risk, compliance, among others) that enable us to conduct, monitor and/or protect our business, operations, systems and data assets.
However, any efforts to control and/or reduce GHG emissions by the United States or other countries, or concerted conservation 22 efforts that result in reduced consumption, could adversely impact demand for our products and, in turn, our financial position and results of operations. Increasingly, fossil fuel companies are also exposed to litigation risks from climate change.
However, any efforts to control and/or reduce GHG emissions by the United States or other countries, or concerted conservation efforts that result in reduced consumption, could adversely impact demand for our products and, in turn, our financial position and results of operations. Increasingly, fossil fuel companies are also exposed to litigation risks from climate change.
The occurrence of any of the above situations, among others, may affect operations at our fuel storage terminals and may adversely affect our business, financial condition, results of operations, cash flows and ability to make distributions to our unitholders. 15 Negative events or developments associated with our branded suppliers could have an adverse impact on our revenues.
The occurrence of any of the above situations, among others, may affect operations at our fuel storage terminals and may adversely affect our business, financial condition, results of operations, cash flows and ability to make distributions to our unitholders. Negative events or developments associated with our branded suppliers could have an adverse impact on our revenues.
For example, our credit agreement and the indentures governing our senior notes restrict our ability to, among other things: 25 • incur certain additional indebtedness; • incur, permit, or assume certain liens to exist on our properties or assets; • make certain investments or enter into certain restrictive material contracts; • repurchase units; and • merge or dispose of all or substantially all of our assets.
For example, our credit agreement and the indentures governing our senior notes restrict our ability to, among other things: • incur certain additional indebtedness; • incur, permit, or assume certain liens to exist on our properties or assets; • make certain investments or enter into certain restrictive material contracts; • repurchase units; and • merge or dispose of all or substantially all of our assets.
Additionally, at COP26 in Glasgow in November 2021, the United States and the European Union jointly announced the launch of a Global Methane Pledge, an initiative committing to a collective goal of reducing global methane emissions by at least 30 percent from 2020 levels by 2030, including “all feasible reductions” in the energy sector.
Additionally, at COP26 in Glasgow in November 2021, the United States and the European Union jointly announced the launch of a Global Methane Pledge, an initiative committing to a collective goal of reducing global methane emissions by at least 30% from 2020 levels by 2030, including “all feasible reductions” in the energy sector.
As such, we rely primarily upon external financing sources, including borrowings under our revolving credit facility and the issuance of debt and equity securities, to fund our acquisitions and expansion capital requirements. To the extent we are unable to finance growth externally, our cash distribution policy may significantly impair our ability to grow.
As such, we rely primarily upon external financing sources, including borrowings under our Credit Facility and the issuance of debt and equity securities, to fund our acquisitions and expansion capital requirements. To the extent we are unable to finance growth externally, our cash distribution policy may significantly impair our ability to grow.
Although no firm commitment or timeline to phase out or phase down all fossil fuels was made at COP27, there can be no guarantees that countries will not seek to implement such a phase out in the future. The full impact of these actions is uncertain at this time.
Although no firm commitment or timeline to phase out or phase down all fossil fuels was made at COP27 or COP28, there can be no guarantees that countries will not seek to implement such a phase out in the future. The full impact of these actions is uncertain at this time.
If additional capital resources are unavailable to us, our business, financial condition, results of operations and ability to make distributions could be materially adversely affected. 13 Our business could be negatively impacted by the inflationary pressures which may decrease our operating margins and increase working capital investments required to operate our business.
If additional capital resources are unavailable to us, our business, financial condition, results of operations and ability to make distributions could be materially adversely affected. Our business could be negatively impacted by the inflationary pressures which may decrease our operating margins and increase working capital investments required to operate our business.
Cybersecurity attacks, data breaches and other disruptions affecting us, or our service providers, could materially and adversely affect our business, operations, reputation, and financial results. The security and integrity of our information technology infrastructure and physical assets is critical to our business and our ability to perform day-to-day operations and deliver services.
Cybersecurity attacks, data breaches and other disruptions affecting us, or our service providers, could materially and adversely affect our business, operations, reputation, and financial results. The security and integrity of our information technology (“IT”) infrastructure and physical assets is critical to our business and our ability to perform day-to-day operations and deliver services.
Our inability to renew leases or otherwise maintain the right to utilize such facilities and 16 equipment on acceptable terms, or the increased costs to maintain such rights, could have a material adverse effect on our financial condition, results of operations and cash flows. Future litigation could adversely affect our financial condition and results of operations.
Our inability to renew leases or otherwise maintain the right to utilize such facilities and equipment on acceptable terms, or the increased costs to maintain such rights, could have a material adverse effect on our financial condition, results of operations and cash flows. Future litigation could adversely affect our financial condition and results of operations.
In addition, changes in current state law may subject us to additional entity-level taxation by individual states. Several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of 31 taxation. For example, we are currently subject to the entity-level Texas franchise tax.
In addition, changes in current state law may subject us to additional entity-level taxation by individual states. Several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. For example, we are currently subject to the entity-level Texas franchise tax.
As we do not compute 34 our cumulative net income for such purposes due to the complexity of the calculation and lack of clarity in how it would apply to us, we intend to treat all of our distributions as being in excess of our cumulative net income for such purposes and subject to such 10% withholding tax.
As we do not compute our cumulative net income for such purposes due to the complexity of the calculation and lack of clarity in how it would apply to us, we intend to treat all of our distributions as being in excess of our cumulative net income for such purposes and subject to such 10% withholding tax.
Our unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the actual tax liability that results from that income. 32 Tax gain or loss on the disposition of our common units could be more or less than expected.
Our unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the actual tax liability that results from that income. Tax gain or loss on the disposition of our common units could be more or less than expected.
Moreover, during the period of the loan, any of our income, gain, loss or deduction with respect to those common units may not be reportable by the unitholder and any cash 33 distributions received by the unitholder as to those common units could be fully taxable as ordinary income.
Moreover, during the period of the loan, any of our income, gain, loss or deduction with respect to those common units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those common units could be fully taxable as ordinary income.
In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their 23 investment and voting decisions.
In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions.
Our partnership agreement provides that our 27 General Partner will determine in good faith the expenses that are allocable to us. Reimbursement of expenses and payment of fees to our General Partner and its affiliates will reduce the amount of cash available to pay distributions to our unitholders.
Our partnership agreement provides that our General Partner will determine in good faith the expenses that are allocable to us. Reimbursement of expenses and payment of fees to our General Partner and its affiliates will reduce the amount of cash available to pay distributions to our unitholders.
Tax Risks to Common Unitholders Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states.
Detail of Tax Risks to Common Unitholders Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states.
While we have invested significant amounts in the protection of our IT systems and maintain what we believe are adequate security controls over individually identifiable customer, employee and vendor data provided to us, a breakdown or a breach in our systems that results in the unauthorized release of individually identifiable customer or other sensitive data could nonetheless occur and have a material adverse effect on our reputation, operating results and financial condition.
While we have invested significant amounts in the protection of our information systems and maintain what we believe are adequate security controls over individually identifiable customer, employee and vendor data provided to us, a breakdown or a breach in our systems that results in the unauthorized release of individually identifiable customer or other sensitive data could nonetheless occur and have a material adverse effect on our reputation, operating results and financial condition.
It is possible, however, that Energy Transfer could exercise this reset election at a time when it is experiencing, or expects to experience, declines in the cash distributions it receives related to its incentive distribution rights and may, therefore, desire to be issued common units rather than retain the right to receive incentive distributions based on the initial target distribution levels.
It is possible, however, that Energy Transfer could exercise this reset election at a time when it is experiencing, or expects to experience, declines in the cash distributions it receives related to its IDRs and may, therefore, desire to be issued common units rather than retain the right to receive incentive distributions based on the initial target distribution levels.
Any acquisitions involve potential risks, including, among others: • the validity of our assumptions about revenues, capital expenditures and operating costs of the acquired business or assets, as well as assumptions about achieving synergies with our existing business; • the validity of our assessment of environmental and other liabilities, including legacy liabilities; • the costs associated with additional debt or equity capital, which may result in a significant increase in our interest expense and financial leverage resulting from any additional debt incurred to finance the acquisition, or the issuance of additional common units on which we will make distributions, either of which could offset the expected accretion to our unitholders from such acquisition and could be exacerbated by volatility in the equity or debt capital markets; • a failure to realize anticipated benefits, such as increased available cash per unit, enhanced competitive position or new customer relationships; • a decrease in our liquidity by using a significant portion of our available cash or borrowing capacity to finance the acquisition; • the incurrence of other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges; and • the risk that our existing financial controls, information systems, management resources and human resources will need to grow to support future growth and we may not be able to react timely.
Any acquisitions involve potential risks, including, among others: • the validity of our assumptions about revenues, capital expenditures and operating costs of the acquired business or assets, as well as assumptions about achieving synergies with our existing business; 23 Table of Contents In dex to Financial Statements • the validity of our assessment of environmental and other liabilities, including legacy liabilities; • the costs associated with additional debt or equity capital, which may result in a significant increase in our interest expense and financial leverage resulting from any additional debt incurred to finance the acquisition, or the issuance of additional common units on which we will make distributions, either of which could offset the expected accretion to our unitholders from such acquisition and could be exacerbated by volatility in the equity or debt capital markets; • a failure to realize anticipated benefits, such as increased available cash per unit, enhanced competitive position or new customer relationships; • a decrease in our liquidity by using a significant portion of our available cash or borrowing capacity to finance the acquisition; • the incurrence of other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges; and • the risk that our existing financial controls, information systems, management resources and human resources will need to grow to support future growth and we may not be able to react timely.
We have rental agreements for approximately 35% of the partnership, commission agent or dealer operated retail service stations where we currently control the real estate. We also have rental agreements for certain logistics facilities. As such, we are subject to the possibility of increased costs under rental agreements with landowners, primarily through rental increases and renewals of expired agreements.
We have rental agreements for approximately 33% of the partnership, commission agent or dealer operated retail service stations where we currently control the real estate. We also have rental agreements for certain logistics facilities. As such, we are subject to the possibility of increased costs under rental agreements with landowners, primarily through rental increases and renewals of expired agreements.
Also, a material failure on our part to comply with regulations relating to our obligation to protect such sensitive data or to the privacy rights of our customers, employees and others could subject us to fines or other regulatory sanctions and potentially to lawsuits. Cyber attacks are rapidly evolving and becoming increasingly sophisticated.
Also, a material failure on our part to comply with regulations relating to our obligation to protect such sensitive data or to the privacy rights of our customers, employees and others could subject us to fines or other regulatory sanctions and potentially to lawsuits. Cybersecurity attacks are rapidly evolving and becoming increasingly sophisticated.
These determinations can affect the amount of cash that is distributed to our unitholders. • Our General Partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make incentive distributions on the incentive distribution rights. • Our partnership agreement permits us to distribute up to $25 million as operating surplus, even if it is generated from asset sales, non-working capital borrowings or other sources that would otherwise constitute capital surplus.
These determinations can affect the amount of cash that is distributed to our unitholders. • Our General Partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make incentive distributions on the IDRs. • Our partnership agreement permits us to distribute up to $25 million as operating surplus, even if it is generated from asset sales, non-working capital borrowings or other sources that would otherwise constitute capital surplus.
A successful cyber attack resulting in the loss of sensitive customer, employee or vendor data could adversely affect our reputation, results of operations, financial condition and liquidity, and could result in litigation against us or the imposition of penalties.
A successful cybersecurity attack resulting in the loss of sensitive customer, employee or vendor data could adversely affect our reputation, results of operations, financial condition and liquidity, and could result in litigation against us or the imposition of penalties.
In addition, the actual amount of cash we will have available for distribution will depend on other factors such as: • the level and timing of capital expenditures we make; • the cost of acquisitions, if any; • our debt service requirements and other liabilities; • fluctuations in our general working capital needs; • reimbursements made to our General Partner and its affiliates for all direct and indirect expenses they incur on our behalf pursuant to the partnership agreement; • our ability to borrow funds at favorable interest rates and access capital markets, including as a result of recent increases in cost of capital resulting from Federal Reserve policies; • restrictions contained in debt agreements to which we are a party; • the level of costs related to litigation and regulatory compliance matters; and • the amount of cash reserves established by our General Partner in its discretion for the proper conduct of our business.
In addition, the actual amount of cash we will have available for distribution will depend on other factors such as: • the level and timing of capital expenditures we make; • the cost of acquisitions, if any; 16 Table of Contents In dex to Financial Statements • our debt service requirements and other liabilities; • fluctuations in our general working capital needs; • reimbursements made to our General Partner and its affiliates for all direct and indirect expenses they incur on our behalf pursuant to the partnership agreement; • our ability to borrow funds at favorable interest rates and access capital markets, including as a result of recent increases in cost of capital resulting from Federal Reserve policies; • restrictions contained in debt agreements to which we are a party; • the level of costs related to litigation and regulatory compliance matters; and • the amount of cash reserves established by our General Partner in its discretion for the proper conduct of our business.
In addition, our General Partner will decide whether to retain separate counsel or others to perform services for us. • Energy Transfer may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to Energy Transfer’s incentive distribution rights without the approval of the conflicts committee of the board of directors of our General Partner or our unitholders.
In addition, our General Partner will decide whether to retain separate counsel or others to perform services for us. • Energy Transfer may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to Energy Transfer’s IDRs without the approval of the conflicts committee of the board of directors of our General Partner or our unitholders.
Unfavorable ESG ratings and recent activism directed at shifting funding away from companies with fossil fuel-related assets could lead to increased negative investor sentiment toward us and our industry and to the diversion of investment to other industries, which could have a negative impact on our stock price and our access to and costs of capital.
Unfavorable ESG ratings and recent activism directed at shifting funding away from companies with fossil fuel-related assets could lead to increased negative investor sentiment toward us and our industry and to the diversion of investment to other industries, which could have a negative impact on our common unit price and our access to and costs of capital.
Increasing attention to climate change, societal expectations on companies to address climate change and other ESG matters, investor and societal expectations regarding voluntary ESG disclosures, and consumer demand for alternative forms of energy may result in increased costs, reduced demand for our products, reduced profits, increased investigations and litigation, and negative impacts on our stock price and access to capital markets.
Increasing attention to climate change, societal expectations on companies to address climate change and other ESG matters, investor and societal expectations regarding voluntary ESG disclosures, and consumer demand for alternative forms of energy may result in increased costs, reduced demand for our products, reduced profits, increased investigations and litigation, and negative impacts on our common unit price and access to capital markets.
To protect against unauthorized access or attacks, we have implemented infrastructure protection technologies and disaster recovery plans, but there can be no assurance that a technology systems breach or systems failure will not have a material adverse effect on our financial condition or results of operations.
To protect against unauthorized access or attacks, we have implemented infrastructure protection technologies and disaster recovery plans, but there can be no assurance that a technology systems breach or systems failure will not have a material adverse effect on our financial condition or results of operations. See “Item 1C.
As a result, our results from operations may vary widely from period to period, affecting our cash flow. The dangers inherent in the storage and transportation of motor fuel could cause disruptions in our operations and could expose us to potentially significant losses, costs or liabilities. We store motor fuel in underground and aboveground storage tanks.
As a result, our results from operations may vary widely from period to period, affecting our cash flow. The dangers inherent in the storage and transportation of motor fuel could cause disruptions in our operations and could expose us to potentially significant losses, costs or liabilities. We store motor fuel in underground and above ground storage tanks.
The level of our future indebtedness could have important consequences to us, including: • making it more difficult for us to satisfy our obligations with respect to our senior notes and our credit agreements governing our revolving credit facility; • limiting our ability to borrow additional amounts to fund working capital, capital expenditures, acquisitions, debt service requirements, the execution of our growth strategy and other activities; • requiring us to dedicate a substantial portion of our cash flow from operations to pay interest on our debt, which would reduce our cash flow available to make distributions to our unitholders and to fund working capital, capital expenditures, acquisitions, execution of our growth strategy and other activities; • making us more vulnerable to adverse changes in general economic conditions, our industry and government regulations and in our business by limiting our flexibility in planning for, and making it more difficult for us to react quickly to, changing conditions; and • placing us at a competitive disadvantage compared with our competitors that have less debt.
The level of our future indebtedness could have important consequences to us, including: • making it more difficult for us to satisfy our obligations with respect to our senior notes and our credit agreements governing our Credit Facility; 29 Table of Contents In dex to Financial Statements • limiting our ability to borrow additional amounts to fund working capital, capital expenditures, acquisitions, debt service requirements, the execution of our growth strategy and other activities; • requiring us to dedicate a substantial portion of our cash flow from operations to pay interest on our debt, which would reduce our cash flow available to make distributions to our unitholders and to fund working capital, capital expenditures, acquisitions, execution of our growth strategy and other activities; • making us more vulnerable to adverse changes in general economic conditions, our industry and government regulations and in our business by limiting our flexibility in planning for, and making it more difficult for us to react quickly to, changing conditions; and • placing us at a competitive disadvantage compared with our competitors that have less debt.
If Energy Transfer elects to reset the target distribution levels, it will be entitled to receive a number of common units equal the number of common units which would have entitled their holder to an average aggregate quarterly cash distribution in the prior two quarters equal to the average of the distributions to Energy Transfer on the incentive distribution rights in the prior two quarters.
If Energy Transfer elects to reset the target distribution levels, it will be entitled to receive a number of common units equal the number of common units which would have entitled their holder to an average aggregate quarterly cash distribution in the prior two quarters equal to the average of the distributions to Energy Transfer on the IDRs in the prior two quarters.
This cash may be used to fund distributions on the incentive distribution rights. • Our General Partner determines which costs incurred by it and its affiliates are reimbursable by us. • Our partnership agreement does not restrict our General Partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with its affiliates on our behalf.
This cash may be used to fund distributions on the IDRs. • Our General Partner determines which costs incurred by it and its affiliates are reimbursable by us. • Our partnership agreement does not restrict our General Partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with its affiliates on our behalf.
Breaches of our information technology infrastructure or physical assets, or other disruptions, could result in damage to our assets, safety incidents, damage to the environment, potential liability or the loss of contracts, and have a material adverse effect on our operations, financial position and results of operations.
Breaches of our IT infrastructure or physical assets, or other disruptions, could result in damage to our assets, safety incidents, damage to the environment, potential liability or the loss of contracts, and have a material adverse effect on our operations, financial position and results of operations.
In the event that we do not receive distributions from our subsidiaries, we may be unable to meet our financial obligations or make distributions to our unitholders. An impairment of goodwill and intangible assets could reduce our earnings. As of December 31, 2022, our consolidated balance sheet reflected $1.60 billion of goodwill and $588 million of intangible assets.
In the event that we do not receive distributions from our subsidiaries, we may be unable to meet our financial obligations or make distributions to our unitholders. An impairment of goodwill and intangible assets could reduce our earnings. As of December 31, 2023, our consolidated balance sheet reflected $1.60 billion of goodwill and $544 million of intangible assets.
Our business, results of operations, cash flows, financial condition and future growth could be impacted by the following: ◦ significant expenditures or liabilities resulting from federal, state and local laws and regulations pertaining to environmental protection, operational safety, or the Renewable Fuel Standard; ◦ changes in demand for motor fuel resulting from federal and/or state regulations that may discourage the use or storage of petroleum products; ◦ significant expenditures or penalties associated with federal, state and local laws and regulations that govern the product quality specifications of refined petroleum products we purchase; ◦ changes in federal, state or local laws and regulations pertaining to the facilities and operations of third parties that supply fuel to our storage terminals; ◦ impacts to our business as a result of the energy transition and legislative, regulatory, and financial risks relating to climate change; and ◦ regulatory provisions of the Dodd-Frank Act and the rules adopted thereunder.
Our business, results of operations, cash flows, financial condition and future growth could be impacted by the following: • significant expenditures or liabilities resulting from federal, state and local laws and regulations pertaining to environmental protection, operational safety, or the Renewable Fuel Standard (“RFS”); • changes in demand for motor fuel resulting from federal and/or state regulations that may discourage the use or storage of petroleum products; • significant expenditures or penalties associated with federal, state and local laws and regulations that govern the product quality specifications of refined petroleum products we purchase; • changes in federal, state or local laws and regulations pertaining to the facilities and operations of third parties that supply fuel to or transport for our storage terminals; • impacts to our business as a result of the energy transition and legislative, regulatory, and financial risks relating to climate change; and • regulatory provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the rules adopted thereunder.
Also, institutional lenders may decide not to provide funding for fossil fuel companies based on climate change related concerns, which could affect our access to capital. We are subject to federal laws related to the Renewable Fuel Standard.
Also, institutional lenders may decide not to provide funding for fossil fuel companies based on climate change related concerns, which could affect our access to capital. We are subject to federal laws related to the RFS.
Increases in interest rates could reduce the amount of cash we have available for distributions as well as the relative value of those distributions to yield-oriented investors, which could cause a decline in the market value of our common units. Approximately $900 million of our outstanding indebtedness as of December 31, 2022 bears interest at variable interest rates.
Increases in interest rates could reduce the amount of cash we have available for distributions as well as the relative value of those distributions to yield-oriented investors, which could cause a decline in the market value of our common units. Approximately $411 million of our outstanding indebtedness as of December 31, 2023 bears interest at variable interest rates.
Certain environmental laws, including the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), impose strict, and under certain circumstances, joint and several, liability on the current and former owners and operators of properties for the costs of investigation and removal or remediation of contamination and also impose liability for any related damages to natural resources without regard to fault.
Certain environmental laws, including CERCLA, impose strict, and under certain circumstances, joint and several, liability on the current and former owners and operators of properties for the costs of investigation and removal or remediation of contamination and also impose liability for any related damages to natural resources without regard to fault.
These hazards and risks include, but are not limited to, traffic accidents, fires, explosions, spills, discharges, and other releases, any of which could result in distribution difficulties and disruptions, environmental pollution, governmentally-imposed fines or clean-up obligations, personal injury or wrongful death claims, and other damage to our properties and the properties of others.
These hazards and risks include, but are not limited to, traffic accidents, fires, explosions, spills, discharges, and other releases, any of which could result in distribution difficulties and disruptions, environmental pollution, governmentally-imposed fines 18 Table of Contents In dex to Financial Statements or clean-up obligations, personal injury or wrongful death claims, and other damage to our properties and the properties of others.
The risk factors set forth below are not all the risks we face and other factors that we face in the ordinary course of our business, that are currently considered immaterial or that are currently unknown to us may impact our future operations. Risk Factor Summary Risks Related to Our Business Results of Operations and Financial Condition.
The risk factors set forth below are not all the risks we face and other factors that we face in the ordinary course of our business, that are currently considered immaterial or that are currently unknown to us may impact our future operations. 14 Table of Contents In dex to Financial Statements Risk Factor Summary Risks Related to Our Business Results of Operations and Financial Condition.
The IRA 2022 imposes a methane emissions charge on sources required to report their GHG emissions to the EPA, which would start in calendar year 2024 at $900 per ton of methane, increase to $1,200 in 2025, and be set at $1,500 for 2026 and each year after.
The IRA 2022 imposes a methane emissions charge on sources required to report their GHG emissions to the EPA, which has started in calendar year 2024 at $900 per ton of methane, will increase to $1,200 in 2025, and be set at $1,500 for 2026 and each year after.
Additionally, the price of RINS is not fixed and is subject to change due to various considerations, including regulatory actions. In December 2022, the EPA released a proposed rule under the RFS for renewable fuel volumes for the years 2023-2025 that further increases targets for the production of renewable fuels.
Additionally, the price of RINs is not fixed and is subject to change due to various considerations, including regulatory actions. In June 2023, the EPA released a final rule under the RFS for renewable fuel volumes for the years 2023-2025 that further increases targets for the production of renewable fuels.
Our information technology and infrastructure, physical assets and data, may be vulnerable to unauthorized access, computer viruses, malicious attacks and other events (e.g., distributed denial of service attacks, ransomware attacks) that are beyond our control.
Our IT and IT infrastructure, physical assets and data, may be vulnerable to unauthorized access, computer viruses, malicious attacks and other events (e.g., distributed denial of service attacks or ransomware attacks) that are beyond our control.
The methane emissions charge would start in calendar year 2024 at $900 per ton of methane, increase to $1,200 in 2025, and be set at $1,500 for 2026 and each year after. Calculation of the fee is based on certain thresholds established in the IRA 2022.
The methane emissions charge has started in calendar year 2024 at $900 per ton of methane, will increase to $1,200 in 2025, and be set at $1,500 for 2026 and each year after. Calculation of the fee is based on certain thresholds established in the IRA 2022.
A successful cyberattack or other security incident could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen.
A successful cybersecurity attack or other security incident could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen.
In addition, because the amount realized includes a unitholder’s share of our nonrecourse liabilities, if a unitholder sells its common units, the unitholder may incur a tax liability in excess of the amount of cash it receives from the sale. Tax-exempt entities face unique tax issues from owning common units that may result in adverse tax consequences to them.
In addition, because the amount realized includes a unitholder’s share of our nonrecourse liabilities, if a unitholder sells its common units, the unitholder may incur a tax liability in excess of the amount of cash it receives from the sale. 37 Table of Contents In dex to Financial Statements Tax-exempt entities face unique tax issues from owning common units that may result in adverse tax consequences to them.
We and certain of our service providers have from time to time, been subject to cyberattacks and security incidents. The frequency and magnitude of cyberattacks is expected to increase and attackers are becoming more sophisticated.
We and certain of our service providers have, from time to time, been subject to cybersecurity attacks and other security incidents. The frequency and magnitude of cybersecurity attacks is expected to increase and attackers are becoming more sophisticated.
As of December 31, 2022, Energy Transfer and its affiliates held approximately 33.9% of our outstanding common units, which constitutes a 28.3% limited partner interest in us. Our General Partner interest or the control of our General Partner may be transferred to a third party without unitholder consent.
As of December 31, 2023, Energy Transfer and its affiliates held approximately 33.7% of our outstanding common units, which constitutes a 28.2% limited partner interest in us. Our General Partner interest or the control of our General Partner may be transferred to a third party without unitholder consent.
Participant instructions for this exercise were released in January 2023, and initial responses from the banks are due on July 31, 2023, with the exercise expected to be concluded at the end of 2023.
Participant instructions for this exercise were released in January 2023, and initial responses from the banks were due on July 31, 2023, with the exercise concluded at the end of 2023.
We may be subject to third-party claims alleging property damage and/or personal injury in connection with releases of or exposure to hazardous substances at, from, or in the vicinity of our current or former properties or off-site waste disposal sites.
We may be subject to third-party claims alleging property damage and/or personal injury in connection with releases of or exposure to hazardous substances at, from, or in the vicinity of our current or former 25 Table of Contents In dex to Financial Statements properties or off-site waste disposal sites.
For example, at times, certain independent refiners have initiated discussions with the EPA to change the way the Renewable Fuel Standard (“RFS”) is administered in an attempt to shift the burden of compliance from refiners and importers to blenders and distributors.
For example, at times, certain independent refiners have initiated discussions with the EPA to change the way the RFS is administered in an attempt to shift the burden of compliance from refiners and importers to blenders and distributors.
Sales of refined motor fuels account for approximately 98% of our total revenues and 72% of our profit for the year ended December 31, 2022. A significant decrease in demand for motor fuel in the areas we serve could significantly reduce our revenues and our ability to make distributions to our unitholders.
Sales of refined motor fuels accounted for approximately 98% of our total revenues and 69% of our profit for the year ended December 31, 2023. A significant decrease in demand for motor fuel in the areas we serve could significantly reduce our revenues and our ability to make distributions to our unitholders.
As a result, any new regulations or modifications to existing regulations could significantly increase the cost of derivative contracts, materially alter the terms of derivative contracts, reduce the availability and/or liquidity of derivatives to protect against risks we encounter, reduce our ability to monetize or restructure our existing derivative contracts, and increase our exposure to less creditworthy counterparties.
As a result, any new regulations or modifications to existing regulations could 28 Table of Contents In dex to Financial Statements significantly increase the cost of derivative contracts, materially alter the terms of derivative contracts, reduce the availability and/or liquidity of derivatives to protect against risks we encounter, reduce our ability to monetize or restructure our existing derivative contracts, and increase our exposure to less creditworthy counterparties.
An actual or perceived downgrade in our liquidity or operations (including any credit rating downgrade by a rating agency) could cause our suppliers to seek credit support in the form of additional collateral, limit the extension of trade credit, or otherwise materially modify their payment terms.
Our business is impacted by the availability of trade credit to fund fuel purchases. An actual or perceived downgrade in our liquidity or operations (including any credit rating downgrade by a rating agency) could cause our suppliers to seek credit support in the form of additional collateral, limit the extension of trade credit, or otherwise materially modify their payment terms.
Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and rules adopted by the Commodity Futures Trading Commission (the “CFTC”), the SEC and other prudential regulators establish federal regulation of the physical and financial derivatives, including over-the-counter derivatives market and entities, such as us, participating in that market.
Provisions of the Dodd-Frank Act and rules adopted by the Commodity Futures Trading Commission (the “CFTC”), the SEC and other prudential regulators establish federal regulation of the physical and financial derivatives, including over-the-counter derivatives market and entities, such as us, participating in that market.
President Biden has recommitted the United States to the Paris agreement and, in April 2021, announced a goal of reducing the United States’ emissions by 50-52% below 2005 levels by 2030.
President Biden has recommitted the United States to the Paris 26 Table of Contents In dex to Financial Statements agreement and, in April 2021, announced a goal of reducing the United States’ emissions by 50-52% below 2005 levels by 2030.
We anticipate that Energy Transfer would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per common unit without such conversion.
We anticipate that Energy Transfer would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently 33 Table of Contents In dex to Financial Statements accretive to cash distributions per common unit without such conversion.
Our business, results of operations, cash flows and financial condition, as well as our ability to make distributions and the market value of our common units, could be impacted by the following: ◦ our future debt levels; ◦ increases in interest rates, including the impact to the relative value of our distributions to yield-oriented investors; and ◦ restrictions and financial covenants associated with our debt agreements.
Our business, results of operations, cash flows and financial condition, as well as our ability to make distributions and the market value of our common units, could be impacted by the following: • our future debt levels; • increases in interest rates, including the impact to the relative value of our distributions to yield-oriented investors; and • restrictions and financial covenants associated with our debt agreements. 15 Table of Contents In dex to Financial Statements Risks Related to Our Structure Our General Partner.
Any decrease in demand could consequently reduce demand for our services and could have a negative effect on our business. Increased attention to environmental, social and governance (“ESG”) matters and conservation measures may adversely impact our business.
Any decrease in demand could consequently reduce demand for our services and could have a negative effect on our business. 27 Table of Contents In dex to Financial Statements Increased attention to environmental, social and governance (“ESG”) matters and conservation measures may adversely impact our business.
Despite the fact that we are organized as a limited partnership under Delaware law, we will be treated as a corporation for U.S. federal income tax purposes unless we satisfy a “qualifying income” requirement. Based upon our current operations, we believe we satisfy the qualifying income requirement.
Despite the fact that we are organized as a limited partnership under Delaware law, we will be treated as a corporation for U.S. federal income tax purposes unless we satisfy a “qualifying income” requirement.
The IRS may challenge these valuation methods and the resulting allocations of income, gain, loss and deduction. A successful IRS challenge to these methods or allocations could adversely affect the amount, character, and timing of taxable income or loss being allocated to our unitholders.
The IRS may challenge these valuation methods and the resulting allocations of income, gain, loss and deduction. 38 Table of Contents In dex to Financial Statements A successful IRS challenge to these methods or allocations could adversely affect the amount, character, and timing of taxable income or loss being allocated to our unitholders.
Energy Transfer may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to its incentive distribution rights, without the approval of the conflicts committee of our General Partner’s board of directors or the holders of our common units.
Energy Transfer may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to its IDRs, without the approval of the conflicts committee of our General Partner’s board of directors or the holders of our common units. This could result in lower distributions to holders of our common units.
A significant decrease in demand for motor fuel, including increased consumer preference for alternative motor fuels or improvements in fuel efficiency, in the areas we serve would reduce our ability to make distributions to our unitholders.
A significant decrease in demand for motor fuel, including increased consumer preference for alternative motor fuels or improvements in fuel efficiency or a material shift toward electric or other alternative-power vehicles, in the areas we serve would reduce our ability to make distributions to our unitholders.
These events can result from malfeasance by external parties, such as hackers, or due to human error by our or our service providers’ employees and contractors (e.g., due to social engineering or phishing attacks). In addition, the COVID-19 pandemic has presented additional operational and cybersecurity risks to our information technology infrastructure and physical assets due to our providers’ work-from-home arrangements.
These events can result from malfeasance by external parties, such as hackers, or due to human error by our or our service providers’ employees and contractors (e.g., due to social engineering or phishing attacks). In addition, our providers’ work-from-home arrangements may present additional operational and cybersecurity risks to our IT infrastructure and physical assets.
Because certain of our operating costs and expenses are fixed and do not vary with the volumes of motor fuel we distribute, our costs and expenses might not decrease ratably or at all should we experience such a reduction.
Because certain of our operating costs and expenses are fixed and do not vary with the volumes of motor fuel we distribute, our costs and expenses might not decrease ratably or at all should we experience such a reduction. As a result, we may experience declines in our profit margin if our fuel distribution volumes decrease.
The occurrence of any of these events could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders. The convenience store industry is highly competitive and impacted by new entrants. Failure to effectively compete could result in lower sales and lower margins.
The occurrence of any of these events could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders. 19 Table of Contents In dex to Financial Statements The convenience store industry is highly competitive and impacted by new entrants.
Our business and our reputation could be adversely affected by the failure to protect sensitive customer, employee or vendor data, whether as a result of cyber security attacks or otherwise, or to comply with applicable regulations relating to data security and privacy.
Cybersecurity” for additional information on our cybersecurity risk management, strategy and governance. Our business and our reputation could be adversely affected by the failure to protect sensitive customer, employee or vendor data, whether as a result of cybersecurity attacks or otherwise, or to comply with applicable regulations relating to data security and privacy.
The sale or disposition of a substantial portion of these units in the public or private markets could reduce the market price of our outstanding common units. Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our outstanding common units.
As of December 31, 2023, Energy Transfer owned 28,463,967 of our common units. The sale or disposition of a substantial portion of these units in the public or private markets could reduce the market price of our outstanding common units. Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our outstanding common units.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings Although we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we do not believe that we are party to any litigation that will have a material adverse impact to our financial condition or results of operations. Item 4.
Biggest changeItem 3. Legal Proceedings Although we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we do not believe that we are party to any litigation that will have a material adverse impact to our financial condition or results of operations.
Removed
Mine Safety Disclosures Not applicable. 35 Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeEnergy Transfer currently owns all of our IDRs. 36 Marginal percentage interest in distributions Total quarterly distribution per common unit target amount Common Unitholders IDR Holder Minimum Quarterly Distribution $0.4375 100 % — First Target Distribution Above $0.4375 up to $0.503125 100 % — Second Target Distribution Above $0.503125 up to $0.546875 85 % 15 % Third Target Distribution Above $0.546875 up to $0.656250 75 % 25 % Thereafter Above $0.656250 50 % 50 % Class C Units We have outstanding an aggregate of 16,410,780 Class C units, all of which are held by wholly-owned subsidiaries of the Partnership.
Biggest changeEnergy Transfer currently owns all of our IDRs. 42 Table of Contents In dex to Financial Statements Marginal percentage interest in distributions Total quarterly distribution per common unit target amount Common Unitholders IDR Holder Minimum Quarterly Distribution $0.4375 100 % — First Target Distribution Above $0.4375 up to $0.503125 100 % — Second Target Distribution Above $0.503125 up to $0.546875 85 % 15 % Third Target Distribution Above $0.546875 up to $0.656250 75 % 25 % Thereafter Above $0.656250 50 % 50 % Class C Units We have outstanding an aggregate of 16,410,780 Class C Units, all of which are held by wholly owned subsidiaries of the Partnership.
Our common units, which represent limited partner interests in us, are listed on the New York Stock Exchange under the symbol “SUN.” Our common units have been traded on the NYSE since September 20, 2012.
Our common units, which represent limited partner interests in us, are listed on the NYSE under the symbol “SUN.” Our common units have been traded on the NYSE since September 20, 2012.
Holders At the close of business on February 10, 2023, we had twenty-two holders of record of our common units and two holders of record of our Class C units. The number of record holders does not include holders of units in “street names” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depositories.
Holders At the close of business on February 9, 2024, we had 21 holders of record of our common units and two holders of record of our Class C Units. The number of record holders does not include holders of units in “street names” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depositories.
As of February 10, 2023, Energy Transfer directly owned approximately 33.9% of our outstanding common units, which constituted a 28.3% limited partner ownership interest in us. Our General Partner is 100% owned by Energy Transfer and owns a non-economic general partner interest in us. Energy Transfer also owns all of our IDRs.
As of February 9, 2024, Energy Transfer directly owned approximately 33.7% of our outstanding common units, which constituted a 28.2% limited partner ownership interest in us. Our General Partner is 100% owned by Energy Transfer and owns a non-economic general partner interest in us. Energy Transfer also owns all of our IDRs.
Item 5. Market for Registrant's Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities Our Partnership Interest As of February 10, 2023, we had outstanding 84,058,659 common units, 16,410,780 Class C units representing limited partner interests in the Partnership (“Class C Units”), a non-economic general partner interest and incentive distribution rights.
Item 5. Market for Registrant's Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities Our Partnership Interest As of February 9, 2024, we had outstanding 84,428,109 common units, 16,410,780 Class C units representing limited partner interests in the Partnership (“Class C Units”), a non-economic general partner interest and IDRs.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeKey operating metrics set forth below are presented for the years ended December 31, 2022 and 2021, and have been derived from our historical consolidated financial statements. 39 Year Ended December 31, 2022 2021 Fuel Distribution and Marketing All Other Total Fuel Distribution and Marketing All Other Total (dollars and gallons in millions, except profit per gallon) Revenues: Motor fuel sales $ 24,508 $ 708 $ 25,216 $ 16,569 $ 583 $ 17,152 Non motor fuel sales 140 230 370 82 224 306 Lease income 132 11 143 127 11 138 Total revenues $ 24,780 $ 949 $ 25,729 $ 16,778 $ 818 $ 17,596 Cost of Sales: Motor fuel sales $ 23,585 $ 634 $ 24,219 $ 15,578 $ 535 $ 16,113 Non motor fuel sales 27 104 131 18 115 133 Lease — — — — — — Total cost of sales $ 23,612 $ 738 $ 24,350 $ 15,596 $ 650 $ 16,246 Net income and comprehensive income $ 475 $ 524 Adjusted EBITDA (1) $ 807 $ 112 $ 919 $ 672 $ 82 $ 754 Operating data: Motor fuel gallons sold 7,720 7,545 Motor fuel profit cents per gallon (2) 12.8 ¢ 11.2 ¢ _______________________________ (1) We define Adjusted EBITDA, which is a non-GAAP financial measure, as described above under “Key Measures Used to Evaluate and Assess Our Business.” (2) Excludes the impact of inventory adjustments consistent with the definition of Adjusted EBITDA.
Biggest changeKey operating metrics set forth below are presented for the years ended December 31, 2023 and 2022, and have been derived from our historical consolidated financial statements. 45 Table of Contents In dex to Financial Statements Year Ended December 31, 2023 2022 Fuel Distribution and Marketing All Other Total Fuel Distribution and Marketing All Other Total Revenues: Motor fuel sales $ 21,908 $ 617 $ 22,525 $ 24,508 $ 708 $ 25,216 Non-motor fuel sales 148 244 392 140 230 370 Lease income 139 12 151 132 11 143 Total revenues $ 22,195 $ 873 $ 23,068 $ 24,780 $ 949 $ 25,729 Cost of Sales: Motor fuel sales $ 21,007 $ 572 $ 21,579 $ 23,585 $ 634 $ 24,219 Non-motor fuel sales 27 97 124 27 104 131 Lease — — — — — — Total cost of sales $ 21,034 $ 669 $ 21,703 $ 23,612 $ 738 $ 24,350 Net income and comprehensive income $ 394 $ 475 Adjusted EBITDA (1) $ 853 $ 111 $ 964 $ 807 $ 112 $ 919 Operating data: Motor fuel gallons sold 8,342 7,720 Motor fuel profit cents per gallon (2) 12.7 ¢ 12.8 ¢ _______________________________ (1) We define Adjusted EBITDA, which is a non-GAAP financial measure, as described above under “Key Measures Used to Evaluate and Assess Our Business.” (2) Excludes the impact of inventory adjustments consistent with the definition of Adjusted EBITDA.
Adjusted EBITDA, as used throughout this document, is defined as earnings before net interest expense, income taxes, depreciation, amortization and accretion expense, allocated non-cash unit-based compensation expense, unrealized gains and losses on commodity derivatives and inventory adjustments, and certain other operating expenses reflected in net income that we do not believe are indicative of ongoing core operations, such as gain or loss on disposal of assets and non-cash impairment charges.
Adjusted EBITDA, as used throughout this document, is defined as earnings before net interest expense, income taxes, depreciation, amortization and accretion expense, allocated non-cash unit-based compensation expense, 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, such as gain or loss on disposal of assets and non-cash impairment charges.
Some of these limitations include: • it does not reflect interest expense or the cash requirements necessary to service interest or principal payments on our revolving credit facility; • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect cash requirements for such replacements; and • as not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
Some of these limitations include: • it does not reflect interest expense or the cash requirements necessary to service interest or principal payments on our Credit Facility; • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect cash requirements for such replacements; and • as not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under our revolving credit facility and the issuance of additional long-term debt or partnership units as appropriate given market conditions. We expect that these sources of funds will be adequate to provide for our short-term and long-term liquidity needs.
We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under our Credit Facility and the issuance of additional long-term debt or partnership units as appropriate given market conditions. We expect that these sources of funds will be adequate to provide for our short-term and long-term liquidity needs.
Although these amounts are excluded from Adjusted EBITDA related to unconsolidated affiliate, such exclusion should not be understood to imply that we have control over the operations and resulting revenues and expenses of such affiliate. We do not control our unconsolidated affiliate; therefore, we do not control the earnings or cash flows of such affiliate.
Although these amounts are excluded from Adjusted EBITDA related to unconsolidated affiliates, such exclusion should not be understood to imply that we have control over the operations and resulting revenues and expenses of such affiliate. We do not control our unconsolidated affiliates; therefore, we do not control the earnings or cash flows of such affiliates.
The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Non-cash items include 42 recurring non-cash expenses, such as depreciation, depletion and amortization expense and non-cash unit-based compensation expense. Cash flows from operating activities also differ from earnings as a result of non-cash charges that may not be recurring, such as impairment charges.
Non-cash items include recurring non-cash expenses, such as depreciation, depletion and amortization expense and non-cash unit-based compensation expense. Cash flows from operating activities also differ from earnings as a result of non-cash charges that may not be recurring, such as impairment charges.
The benefit of an uncertain tax position can only be recognized in the financial statements if management concludes that it is more likely than not that the position will be sustained with the tax authorities.
The benefit of an uncertain tax position can only be recognized in the consolidated financial statements if management concludes that it is more likely than not that the position will be sustained with the tax authorities.
Retail profit 38 per gallon is heavily impacted by volatile pricing and intense competition from retail stores, supermarkets, club stores and other retail formats, which varies based on the market. • Adjusted EBITDA .
Retail profit per gallon is heavily impacted by volatile pricing and intense competition from retail stores, supermarkets, club stores and other retail formats, which varies based on the market. • Adjusted EBITDA .
The use of Adjusted EBITDA or Adjusted EBITDA related to unconsolidated affiliate as an analytical tool should be limited accordingly. Key Operating Metrics and Results of Operations The following information is intended to provide investors with a reasonable basis for assessing our historical operations, but should not serve as the only criteria for predicting our future performance.
The use of Adjusted EBITDA or Adjusted EBITDA related to unconsolidated affiliates as an analytical tool should be limited accordingly. Key Operating Metrics and Results of Operations The following information is intended to provide investors with a reasonable basis for assessing our historical operations, but should not serve as the only criteria for predicting our future performance.
Overview As used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, the terms “Partnership,” “SUN,” “we,” “us,” or “our” should be understood to refer to Sunoco LP and our consolidated subsidiaries, unless the context clearly indicates otherwise.
Overview As used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, the terms “Partnership,” “SUN,” “we,” “us” or “our” should be understood to refer to Sunoco LP and our consolidated subsidiaries, unless the context clearly indicates otherwise.
For a position that is likely to be sustained, the benefit recognized in the financial statements is measured at the largest amount that is greater than 50 percent likely of being realized. In determining the future tax consequences of events that have been recognized in our financial statements or tax returns, judgment is required.
For a position that is likely to be sustained, the benefit recognized in the consolidated financial statements is measured at the largest amount that is greater than 50% likely of being realized. In determining the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns, judgment is required.
Investing Activities Cash flows from investing activities primarily consist of capital expenditures, cash contributions to unconsolidated affiliate, cash amounts paid for acquisitions, and cash proceeds from sale or disposal of assets. Changes in capital expenditures between periods primarily result from increases or decreases in our growth capital expenditures to fund our expansion projects. Cash Flows Used in Investing Activities.
Investing Activities Cash flows from investing activities primarily consist of capital expenditures, cash contributions to unconsolidated affiliates, cash amounts paid for acquisitions and cash proceeds from sale or disposal of assets. Changes in capital expenditures between periods primarily result from increases or decreases in our growth capital expenditures to fund our expansion projects. Cash Flows Used in Investing Activities.
For a discussion and analysis of our financial condition and results of operations for the years ended December 31, 2021 and 2020, please see “Item 7.
For a discussion and analysis of our financial condition and results of operations for the years ended December 31, 2022 and 2021, please see “Item 7.
The Partnership determines the fair value of our reporting units using a weighted combination of the discounted cash flow method and the guideline company method. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions.
The Partnership determines the fair value of our reporting units using the discounted cash flow method, the guideline company method, or a weighted combination of these methods. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in conjunction with our audited consolidated financial statements and notes to audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 18, 2022.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in conjunction with our audited consolidated financial statements and notes to audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 17, 2023.
Our daily working capital requirements fluctuate within each month, primarily in response to the timing of payments for motor fuels, motor fuels tax and rent. Cash Flows Provided by Operations. Net cash provided by operations was $561 million and $543 million, for 2022, and 2021, respectively.
Our daily working capital requirements fluctuate within each month, primarily in response to the timing of payments for motor fuels, motor fuels tax and rent. Cash Flows Provided by Operations. Net cash provided by operations was $600 million and $561 million, for 2023, and 2022, respectively.
Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. We believe the following policies will be the most critical in understanding the judgments that are involved in preparation of our consolidated financial statements. Impairments of Goodwill, Intangible Assets and Long-Lived assets .
Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. We believe the following policies will be the most critical in understanding the judgments that are involved in preparation of our consolidated financial statements.
Under the guideline company method, the Partnership determines the estimated fair value of each of our reporting units by applying valuation multiples of comparable publicly-traded companies to each reporting unit’s projected EBITDA and then averaging that estimate with similar historical calculations using a three year average.
Under the guideline company method, the Partnership determines the estimated fair value of each of our reporting units by applying valuation multiples of comparable publicly-traded companies to each reporting unit’s projected EBITDA and then averaging that estimate with similar historical calculations using a 50 Table of Contents In dex to Financial Statements three year average.
Fuel distribution contracts with our customers generally provide that we distribute motor fuel at a fixed, volume-based profit margin or at an agreed upon level of price support. As a result, profit is directly tied to the volume of motor fuel that we distribute.
Fuel distribution contracts with our customers generally provide that we distribute motor fuel at a fixed, volume- 44 Table of Contents In dex to Financial Statements based profit margin or at an agreed upon level of price support. As a result, profit is directly tied to the volume of motor fuel that we distribute.
Description of Indebtedness Our outstanding consolidated indebtedness was as follows: December 31, 2022 December 31, 2021 (in millions) Credit Facility $ 900 $ 581 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 94 100 Total debt 3,594 3,281 Less: current maturities — 6 Less: debt issuance costs 23 26 Long-term debt, net of current maturities $ 3,571 $ 3,249 Revolving Credit Agreement As of December 31, 2022, the balance on the Credit Facility was $900 million, and $7 million in standby letters of credit were outstanding.
Description of Indebtedness Our outstanding consolidated indebtedness was as follows: December 31, 2023 December 31, 2022 Credit Facility $ 411 $ 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 3,605 3,594 Less: current maturities — — Less: debt issuance costs 25 23 Long-term debt, net of current maturities $ 3,580 $ 3,571 Credit Facility As of December 31, 2023, the balance on the Credit Facility was $411 million, and $5 million in standby letters of credit were outstanding.
We purchase motor fuel primarily from independent refiners and major oil companies and distribute it across more than 40 states and territories throughout the East Coast, Midwest, South Central and Southeast regions of the United States, as well as Hawaii and Puerto Rico, to: • 76 company-owned and operated retail stores; • 504 independently operated commission agent locations where we sell motor fuel to retail customers under commission agent arrangement with such operators; • 6,897 retail stores operated by independent operators, which we refer to as “dealers” or “distributors,” pursuant to long-term distribution agreements; and • Approximately 1,800 other commercial customers, including unbranded retail stores, other fuel distributors, school districts, municipalities and other industrial customers.
We purchase motor fuel primarily from independent refiners and major oil companies and distribute it across more than 40 states and territories throughout the United States, including Hawaii and Puerto Rico, to: • 75 company-operated retail stores; • 476 independently operated commission agent locations where we sell motor fuel to retail customers under commission agent arrangement with such operators; • 6,828 retail stores operated by independent operators, which we refer to as “dealers” or “distributors,” pursuant to long-term distribution agreements; and • approximately 1,600 other commercial customers, including unbranded retail stores, other fuel distributors, school districts, municipalities and other industrial customers.
Year Ended December 31, 2022 2021 (in millions) Net cash provided by (used in) Operating activities $ 561 $ 543 Investing activities (464) (387) Financing activities (40) (228) Net increase (decrease) in cash and cash equivalents $ 57 $ (72) Operating Activities Changes in cash flows from operating activities between periods primarily result from changes in earnings, excluding the impacts of non-cash items and changes in operating assets and liabilities (net of effects of acquisitions).
Year Ended December 31, 2023 2022 Net cash provided by (used in) Operating activities $ 600 $ 561 Investing activities (288) (464) Financing activities (365) (40) Net increase (decrease) in cash and cash equivalents $ (53) $ 57 Operating Activities Changes in cash flows from operating activities between periods primarily result from changes in earnings, excluding the impacts of non-cash items and changes in operating assets and liabilities (net of effects of acquisitions).
Cash Flows Used in Financing Activities. Net cash used in financing activities was $40 million and $228 million for 2022 and 2021, respectively.
Cash Flows Used in Financing Activities. Net cash used in financing activities was $365 million and $40 million for 2023 and 2022, respectively.
The change in unrealized gains and losses between periods is impacted by the notional amounts and commodity price changes on our commodity derivatives. Additional information on commodity derivatives is included in “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” below. Inventory Adjustments. Inventory adjustments represent changes in lower of cost or market reserves on the Partnership’s inventory.
The unrealized gains and losses on our commodity derivatives represent the changes in fair value of our commodity derivatives. The change in unrealized gains and losses between periods was impacted by the notional amounts and commodity price changes on our commodity derivatives. Additional information on commodity derivatives is included in “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” below.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The increase in cash flows provided by operations was primarily due to a $133 million net increase in cash basis net income compared to the prior year; partially offset by a decrease in net cash flow from operating assets and liabilities of $115 million compared to the prior year.
The increase in cash flows provided by operations was primarily due to a $26 million net increase in cash basis net income compared to the prior year; partially offset by a decrease in net cash flow from operating assets and liabilities of $13 million compared to the prior year.
We believe Adjusted EBITDA is useful to investors in evaluating our operating performance because: • Adjusted EBITDA is used as a performance measure under our revolving credit facility; • securities analysts and other interested parties use Adjusted EBITDA as a measure of financial performance; and • our management uses Adjusted EBITDA for internal planning purposes, including aspects of our consolidated operating budget and capital expenditures; Adjusted EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net income (loss) as a measure of operating performance.
We believe Adjusted EBITDA is useful to investors in evaluating our operating performance because: • Adjusted EBITDA is used as a performance measure under our Credit Facility; • securities analysts and other interested parties use Adjusted EBITDA as a measure of financial performance; and • our management uses Adjusted EBITDA for internal planning purposes, including aspects of our consolidated operating budget and capital expenditures.
These items are discussed in more detail below. Adjusted EBITDA . Total Adjusted EBITDA for 2022 was $919 million, an increase of $165 million from 2021.
These items are discussed in more detail below. Adjusted EBITDA . Total Adjusted EBITDA for 2023 was $964 million, an increase of $45 million from 2022.
On January 25, 2023, we declared a quarterly distribution totaling $69 million, or $0.8255 per common unit based on the results for the three months ended December 31, 2022, excluding distributions to Class C unitholders.
On January 25, 2024, we declared a quarterly distribution of $0.8420 per common unit based on the results for the three months ended December 31, 2023, excluding distributions to Class C unitholders.
We believe we are one of the largest independent motor fuel distributors, by gallons, in the United States. We also are one of the largest distributors of Chevron, Texaco, ExxonMobil and Valero branded motor fuel in the United States. In addition to distributing motor fuel, we also distribute other petroleum products such as propane and lubricating oil.
We also are one of the largest 43 Table of Contents In dex to Financial Statements distributors of Chevron, Texaco, ExxonMobil and Valero branded motor fuel in the United States. In addition to distributing motor fuel, we also distribute other petroleum products such as propane and lubricating oil.
These increases are discussed in more detail below; and • a decrease in motor fuel profit of $42 million (including unrealized valuation adjustments), which was primarily due to a favorable inventory adjustments in the prior year (see below for explanation of inventory adjustments), partially offset by an increase in both profit per gallon sold and volume; partially offset by • an increase in non motor fuel profit, lease income and a reduction of tax expense of $75 million in the aggregate.
These increases are discussed in more detail below; and • a decrease in motor fuel profit of $51 million (including unrealized valuation adjustments), which was primarily due to unfavorable inventory adjustments in the current year (see below for explanation of inventory adjustments), partially offset by an increase in volume; partially offset by • an increase in non-motor fuel profit and lease income of $37 million in the aggregate.
Gains on disposals of assets reflect the difference between the net book value of disposed assets and the proceeds received upon disposal of those assets. For 2022 and 2021, proceeds of disposal from property and equipment were $32 million and $34 million, respectively. 41 Loss on Extinguishment of Debt .
Gain on Disposal of Assets . Gains on disposals of assets reflect the difference between the net book value of disposed assets and the proceeds received upon disposal of those assets. For 2023 and 2022, proceeds from disposal of property and equipment were $31 million and $32 million, respectively. Unrealized (Gain) Loss on Commodity Derivatives.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations for the years ended December 31, 2022 and 2021 should be read in conjunction with our audited consolidated financial statements and notes to audited consolidated financial statements included elsewhere in this report.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Tabular dollar and unit amounts, except per unit data, are in millions) The following discussion and analysis of our financial condition and results of operations for the years ended December 31, 2023 and 2022 should be read in conjunction with our audited consolidated financial statements and notes to audited consolidated financial statements included elsewhere in this report.
There can be no guarantee that financing will be available on acceptable terms or at all. Debt financing, if available, could impose additional cash payment obligations and additional covenants and operating restrictions. In addition, any of the items discussed in detail under “Item 1A. Risk Factors” included in this Annual Report on Form 10-K may also significantly impact our liquidity.
There can be no guarantee that financing will be available on acceptable terms or at all. Debt financing, if available, could impose additional cash payment obligations and additional covenants and operating restrictions. In addition, any of the items discussed in detail under “Item 1A.
As of December 31, 2022, we had $82 million of cash and cash equivalents on hand and borrowing capacity of $0.6 billion under the Credit Facility.
As of December 31, 2023, we had $29 million of cash and cash equivalents on hand and borrowing capacity of $1.084 billion under the Credit Facility.
The unused availability on the Credit Facility at December 31, 2021 was $593 million. The weighted average interest rate on the total amount outstanding at December 31, 2021 was 6.17%. The Partnership was in compliance with all financial covenants at December 31, 2022.
The unused availability on the Credit Facility at December 31, 2023 was $1.1 billion. The weighted average interest rate on the total amount outstanding at December 31, 2023 was 7.54%. The Partnership was in compliance with all financial covenants at December 31, 2023.
We are a Delaware master limited partnership primarily engaged in the distribution of motor fuels to independent dealers, distributors, and other customers and the distribution of motor fuels to end customers at retail sites operated by commission agents. In addition, we receive lease income through the leasing or subleasing of real estate used in the retail distribution of motor fuels.
We are a Delaware master limited partnership primarily engaged in the distribution of motor fuels to independent dealers, distributors and other customers as well as the distribution of motor fuels to end-use customers at retail sites operated by commission agents.
Adjusted EBITDA has limitations as an analytical tool, and one should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.
Adjusted EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net income as a measure of operating performance. Adjusted EBITDA has limitations as an analytical tool, and one should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.
Capital expenditures were $186 million and $174 million for 2022 and 2021, respectively. Proceeds from disposal of property and equipment were $32 million and $34 million in 2022 and 2021, respectively. Distributions from unconsolidated affiliate in excess of cumulative earnings were $8 million in 2022 and $9 million in 2021.
Proceeds from disposal of property and equipment were $31 million and $32 million in 2023 and 2022, respectively. Distributions from unconsolidated affiliates in excess of cumulative earnings were $9 million in 2023 and $8 million in 2022.
Adjusted EBITDA related to unconsolidated affiliate excludes the same items with respect to the unconsolidated affiliate as those excluded from the calculation of Adjusted EBITDA, such as interest, taxes, depreciation, depletion, amortization and other non-cash items.
Adjusted EBITDA reflects amounts for unconsolidated affiliates based on the same recognition and measurement methods used to record equity in earnings of unconsolidated affiliates. Adjusted EBITDA related to unconsolidated affiliates excludes the same items with respect to the unconsolidated affiliates as those excluded from the calculation of Adjusted EBITDA, such as interest, taxes, depreciation, depletion, amortization and other non-cash items.
The following table presents a reconciliation of Adjusted EBITDA to net income for the years ended December 31, 2022 and 2021: 40 Year Ended December 31, 2022 2021 Change (in millions) Net income and comprehensive income $ 475 $ 524 $ (49) Depreciation, amortization and accretion 193 177 16 Interest expense, net 182 163 19 Non-cash unit-based compensation expense 14 16 (2) Gain on disposal of assets (13) (14) 1 Loss on extinguishment of debt — 36 (36) Unrealized (gain) loss on commodity derivatives 21 (14) 35 Inventory adjustments (5) (190) 185 Equity in earnings of unconsolidated affiliate (4) (4) — Adjusted EBITDA related to unconsolidated affiliate 10 9 1 Other non-cash adjustments 20 21 (1) Income tax expense 26 30 (4) Adjusted EBITDA $ 919 $ 754 $ 165 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following discussion of results compares the operations for the years ended December 31, 2022 and 2021.
The following table presents a reconciliation of net income to Adjusted EBITDA for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 Change Net income and comprehensive income $ 394 $ 475 $ (81) Depreciation, amortization and accretion 187 193 (6) Interest expense, net 217 182 35 Non-cash unit-based compensation expense 17 14 3 Gain on disposal of assets (7) (13) 6 Unrealized (gain) loss on commodity derivatives (21) 21 (42) Inventory adjustments 114 (5) 119 Equity in earnings of unconsolidated affiliates (5) (4) (1) Adjusted EBITDA related to unconsolidated affiliates 10 10 — Other non-cash adjustments 22 20 2 Income tax expense 36 26 10 Adjusted EBITDA $ 964 $ 919 $ 45 Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The following discussion of results compares the operations for the years ended December 31, 2023 and 2022. 46 Table of Contents In dex to Financial Statements Net Income and Comprehensive Income .
In addition, the Partnership estimates a reasonable control premium representing the incremental value that accrues to the majority owner from the opportunity to dictate the strategic and operational actions of the business. Income Taxes.
In addition, the Partnership estimates a reasonable control premium representing the incremental value that accrues to the majority owner from the opportunity to dictate the strategic and operational actions of the business. One key assumption in these fair value calculations is management’s estimate of future cash flows and EBITDA.
Net Income and Comprehensive Income . Total net income and comprehensive income for 2022 was $475 million, a decrease of $49 million from 2021. The decrease is primarily attributable to the following changes: • an increase in operating costs, interest expense and depreciation, amortization and accretion of $118 million in the aggregate.
Total net income and comprehensive income for 2023 was $394 million, a decrease of $81 million from 2022. The decrease was primarily attributable to the following changes: • an increase in interest expense, general and administrative expenses and other operating expense of $59 million in the aggregate.
These amounts are unrealized valuation adjustments applied to fuel volumes remaining in inventory at the end of the period. For 2022 and 2021, an increase in fuel prices reduced lower of cost or market reserve requirements for the period by $5 million and $190 million, respectively, creating a favorable impact to net income. Income Tax Expense .
Inventory Adjustments. Inventory adjustments 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. For 2023, a decline in fuel prices caused lower of cost or market reserve requirements to increase by $114 million, which reduced net income.
Year Ended December 31, 2021 During the year ended December 31, 2021 we: • issued $800 million of 4.500% senior notes due 2030; • paid $800 million to repurchase the 5.500% senior notes due 2026; • paid $436 million to repurchase the 4.875% senior notes due 2023; • borrowed $1.9 billion and repaid $1.3 billion under the Credit Facility to fund daily operations; and • paid $357 million in distributions to our unitholders, of which $165 million was paid to Energy Transfer.
Year Ended December 31, 2023 During the year ended December 31, 2023 we: • issued $500 million of 7.000% senior notes due 2028; 48 Table of Contents In dex to Financial Statements • borrowed $3.3 billion and repaid $3.8 billion under the Credit Facility to fund daily operations; and • paid $371 million in distributions to our unitholders, of which $171 million was paid to Energy Transfer.
Market and Industry Trends and Outlook We expect that certain trends and economic or industry-wide factors will continue to affect our business, both in the short-term and long-term. Inflation has a minimal impact on our results of operations, because we are generally able to pass along energy cost increases in the form of increased sales prices to our customers.
Inflation has a minimal impact on our results of operations, because we are generally able to pass along energy cost increases in the form of increased sales prices to our customers.
We currently expect to spend approximately $60 million in maintenance capital and at least $150 million in growth capital for the full year 2023.
Growth capital relates primarily to dealer and distributor supply contracts and terminals. We currently expect to spend approximately $70 million in maintenance capital and at least $200 million in growth capital for the full year 2024.
The Partnership is party to a Second Amended and Restated Credit Agreement among the Partnership, as borrower, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent, collateral agent, swingline lender and a line of credit issuer (the "Credit Facility").
Risk Factors” included in this Annual Report on Form 10-K may also significantly impact our liquidity. 47 Table of Contents In dex to Financial Statements The Partnership is party to a Second Amended and Restated Credit Agreement among the Partnership, as borrower, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent, collateral agent, swingline lender and a line of credit issuer (the "Credit Facility").
Our retail stores operate under several brands, including our proprietary brands APlus and Aloha Island Mart, and offer a broad selection of food, beverages, snacks, grocery and non-food merchandise, motor fuels and other services. Acquisitions On November 30, 2022, we completed the acquisition of Peerless Oil & Chemicals, Inc. ("Peerless") for $76 million, net of cash acquired.
Our retail stores operate under several brands, including our proprietary brands APlus and Aloha Island Mart, and offer a broad selection of food, beverages, snacks, grocery and non-food merchandise, motor fuels and other services. Acquisitions On January 22, 2024, we entered into a definitive agreement with NuStar Energy L.P.
Net cash used in investing activities was $464 million and $387 million, for 2022 and 2021, respectively. Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Net cash used in investing activities included $318 million and $256 million of cash paid for acquisitions in 2022 and 2021, respectively.
Net cash used in investing activities was $288 million and $464 million, for 2023 and 2022, respectively. Net cash used in investing activities included $111 million and $318 million of cash paid for acquisitions in 2023 and 2022, respectively. Capital expenditures were $215 million and $186 million for 2023 and 2022, respectively.
The distribution will be paid on February 21, 2023 to all unitholders of record on February 7, 2023. 43 Capital Expenditures Included in our capital expenditures for 2022 was $54 million in maintenance capital and $132 million in growth capital. Growth capital relates primarily to dealer and distributor supply contracts and terminals.
The distribution will be approximately $71 million in the aggregate for common units and approximately $19 million with respect to IDRs, and will be paid on February 20, 2024 to all unitholders of record on February 7, 2024. Capital Expenditures Included in our capital expenditures for 2023 was $70 million in maintenance capital and $145 million in growth capital.
Depreciation, amortization and accretion was $193 million in 2022, an increase of $16 million from 2021. This increase is primarily due to the acquisitions of refined product terminals and the transmix processing and terminal facility. Interest Expense . Interest expense was $182 million in 2022, an increase of $19 million from 2021.
The increase was primarily due to higher costs as a result of the recent acquisitions of refined product terminals and the transmix processing and terminal facility. Interest Expense . Interest expense was $217 million in 2023, an increase of $35 million from 2022. This increase was primarily attributable to higher interest rates on floating rate debt for the respective periods.
Income tax expense for 2022 was $26 million, a decrease of $4 million from income tax expense of $30 million in 2021. The decrease is primarily attributable to a favorable state rate change in the current period.
For 2022, an increase in fuel prices caused lower of cost or market reserve requirements to decrease by $5 million, which increased net income. Income Tax Expense . Income tax expense for 2023 was $36 million, an increase of $10 million from 2022. The increase was primarily attributable to a favorable state rate change in the prior period.
Contractual Obligations We periodically enter into derivatives, such as futures and options, to manage our fuel price risk on inventory in the distribution system. Fuel hedging positions are not significant to our operations. On a consolidated basis, the Partnership had a position of $1.6 million barrels with an aggregated unrealized loss of $12.3 million at December 31, 2022.
Fuel hedging positions are not significant to our operations. On a consolidated basis, the Partnership had a position of 1.1 million barrels with an aggregated unrealized loss of $8.6 million at December 31, 2023. Off-Balance Sheet Arrangements We do not maintain any off-balance sheet arrangements for the purpose of credit enhancement, hedging transactions or other financial or investment purposes.
As of December 31, 2022, Energy Transfer owned 100% of the membership interests in our General Partner, all of our incentive distribution rights and approximately 33.9% of our common units, which constituted a 28.3% limited partner interest in us. 37 We are the exclusive wholesale supplier of the Sunoco-branded and EcoMaxx-branded motor fuels, supplying an extensive distribution network of approximately 5,563 Sunoco-branded company and third-party operated locations throughout the East Coast, Midwest, South Central and Southeast regions of the United States and Puerto Rico.
We are the exclusive wholesale supplier of the Sunoco and EcoMaxx-branded motor fuels, supplying an extensive distribution network of approximately 5,534 company and third-party operated locations throughout the United States and Puerto Rico. We believe we are one of the largest independent motor fuel distributors, by gallons, in the United States.
Off-Balance Sheet Arrangements We do not maintain any off-balance sheet arrangements for the purpose of credit enhancement, hedging transactions or other financial or investment purposes. Critical Accounting Estimates We prepare our consolidated financial statements in conformity with GAAP.
Critical Accounting Estimates We prepare our consolidated financial statements in conformity with GAAP.
The increase is primarily attributable to the following changes: • an increase in the profit on motor fuel sales of $178 million, primarily due to a 14.2% increase in profit per gallon sold and a 2.3% increase in gallons sold; and • an increase in non motor fuel profit of $70 million, primarily due to an increase in storage tanks and terminals profit in 2022.
The increase was primarily attributable to the following changes: • an increase in the profit on motor fuel sales of $34 million, primarily due to an 8.1% increase in gallons sold; and • an increase in non-motor fuel profit of $37 million, primarily due to increased throughput and storage margin from the Gladieux and Zenith acquisitions and increased rental income; partially offset by • an increase in operating costs of $26 million, including other operating expense, general and administrative expense and lease expense.
Removed
As of December 31, 2022, we also operated 76 retail stores located in Hawaii and New Jersey. We are managed by Sunoco GP LLC, our General Partner, which is owned by Energy Transfer LP (“Energy Transfer”).
Added
In addition, we receive lease income through the leasing or subleasing of real estate used in the retail distribution of motor fuels. As of December 31, 2023, we also operated 75 retail stores located in Hawaii and New Jersey.
Removed
Peerless is an established terminal operator that distributes fuel products to over 100 locations within Puerto Rico and throughout the Caribbean. On April 1, 2022, we completed the acquisition of a transmix processing and terminal facility in Huntington, Indiana from Gladieux Capital Partners, LLC for $252 million, net of cash acquired.
Added
(“NuStar”) to acquire NuStar in an all-equity transaction valued at approximately $7.3 billion, including assumed debt. Under the terms of the agreement, NuStar common unitholders will receive 0.400 Sunoco common units for each NuStar common unit.
Removed
However, an increase in cost of capital as a result of Federal Reserve policy to combat inflationary pressures has impacted financing costs and could impact our ability to expand. We base our expectations on information currently available to us and assumptions made by us.
Added
NuStar has approximately 9,500 miles of pipeline and 63 terminal and storage facilities that store and distribute crude oil, refined products, renewable fuels, ammonia and specialty liquids. The transaction is expected to close in the second quarter of 2024, subject to customary closing conditions.
Removed
Adjusted EBITDA reflects amounts for the unconsolidated affiliate based on the same recognition and measurement methods used to record equity in earnings of unconsolidated affiliate.
Added
On January 11, 2024, we entered into a definitive agreement with 7-Eleven, Inc. to sell 204 convenience stores located in West Texas, New Mexico, and Oklahoma for approximately $1.0 billion, including customary adjustments for fuel and merchandise inventory.
Removed
This increase was primarily a result of the 2021 fourth quarter acquisition of refined product terminals. In addition, increased credit card transactions and merchandise gross profit contributed $18 million to the overall increase; partially offset by • an increase in operating costs of $84 million. These expenses include other operating expense, general and administrative expense and lease expense.
Added
As part of the sale, SUN will also amend its existing take-or-pay fuel supply agreement with 7-Eleven, Inc. to incorporate additional fuel gross profit. The transaction is expected to close promptly upon receipt of regulatory approvals and satisfaction of customary closing conditions.
Removed
The increase was primarily due to higher costs as a result of the recent acquisitions of refined product terminals and the transmix processing and terminal facility, higher employee costs, credit card processing fees, advertising costs, legal costs, insurance costs and maintenance costs. Depreciation, Amortization and Accretion .
Added
On January 11, 2024, we announced that we will acquire liquid fuels terminals in Amsterdam, Netherlands and Bantry Bay, Ireland from Zenith Energy for €170 million including working capital. The transaction is expected to close in the first quarter of 2024, subject to customary closing conditions.
Removed
This increase is primarily attributable to an increase in average total long-term debt and increase in the weighted average interest rate on long-term debt for the respective periods. Non-Cash Unit-Based Compensation Expense . Non-cash unit-based compensation expense was $14 million in 2022, a slight decrease of $2 million from 2021. Gain on Disposal of Assets .
Added
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. Market and Industry Trends and Outlook We expect that certain trends and economic or industry-wide factors will continue to affect our business, both in the short-term and long-term.
Removed
Loss on extinguishment of debt of $36 million in 2021 was related to the repurchase of the Partnership’s outstanding 2026 senior notes. Unrealized Gain (Loss) on Commodity Derivatives. The unrealized gains and losses on our commodity derivatives represent the changes in fair value of our commodity derivatives.
Added
We have recently completed and recently announced multiple strategic transactions, which we expect will continue to diversify the Partnership’s business, add scale and expand cash for reinvestment and distribution growth. We base our expectations on information currently available to us and assumptions made by us.
Removed
At December 31, 2022, we had goodwill recorded in conjunction with past business acquisitions and “push down” accounting totaling $1.6 billion. Under GAAP, goodwill is not amortized. Instead, goodwill is subject to annual reviews on the first day of the fourth fiscal quarter for impairment at a reporting unit level.
Added
Recent Financing Transaction On September 20, 2023, we and Sunoco Finance Corp. completed a private offering of $500 million in aggregate principal amount of 7.000% senior notes due 2028. The Partnership used the proceeds from the private offering to repay a portion of the outstanding borrowings under the Credit Facility.
Removed
The reporting unit or units used to evaluate and measure goodwill for impairment are determined primarily from the manner in 44 which the business is managed or operated. A reporting unit is an operating segment or a component that is one level below an operating segment.
Added
Pending NuStar Acquisition In connection with our acquisition of NuStar, we expect to assume NuStar’s debt and issue additional debt, aggregating approximately $4.2 billion, subsequent to which the Partnership expects to remain in compliance with all existing financial covenants. 49 Table of Contents In dex to Financial Statements Contractual Obligations We periodically enter into derivatives, such as futures and options, to manage our fuel price risk on inventory in the distribution system.
Removed
We have assessed the reporting unit definitions and determined that we have three reporting units that are appropriate for testing goodwill impairment.
Added
Fair Value Estimates in Business Combination Accounting and Impairment of Long-Lived Assets, Goodwill, Intangible Assets and Investments in Unconsolidated Affiliates . Business combination accounting and quantitative impairment testing are required from time to time due to the occurrence of events, changes in circumstances, or annual testing requirements.
Removed
During the fourth quarter of 2022 and 2021, management used qualitative factors to determine whether it was more likely than not (likelihood of more than 50%) that the fair value of a reporting unit exceeded its carrying amount for the reporting units. No impairments were identified for the reporting units as a result of these tests.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeHowever, we may use futures, forwards and other derivative instruments (collectively, "positions") to hedge a variety of price risks relating to deviations in that inventory from a target base operating level established by management.
Biggest changeWhile in storage, volatility in the market price of stored motor fuel could adversely impact the price at which we can later sell the motor fuel. However, we may use futures, forwards and other derivative instruments (collectively, "positions") to hedge a variety of price risks relating to deviations in that inventory from a target base operating level established by management.
A hypothetical change of 100 basis points would result in a maximum potential change to interest expense of $9 million annually. Our primary exposure relates to: • interest rate risk on short-term borrowings; and • the impact of interest rate movements on our ability to obtain adequate financing to fund future acquisitions.
A hypothetical change of 100 basis points would result in a maximum potential change to interest expense of $4 million annually. Our primary exposure relates to: • interest rate risk on short-term borrowings; and • the impact of interest rate movements on our ability to obtain adequate financing to fund future acquisitions.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk We are subject to market risk from exposure to changes in interest rates based on our financing, investing and cash management activities. We had outstanding variable interest rate borrowings on the Credit Facility of $900 million as of December 31, 2022.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk We are subject to market risk from exposure to changes in interest rates based on our financing, investing and cash management activities. We had outstanding variable interest rate borrowings on the Credit Facility of $411 million as of December 31, 2023.
We may also engage in controlled trading in accordance with specific parameters set forth in a written risk management policy. On a consolidated basis, the Partnership had a position of 1.6 million barrels with an aggregated unrealized loss of $12.3 million at December 31, 2022. Item 8.
We may also engage in controlled trading in accordance with specific parameters set forth in a written risk management policy. On a consolidated basis, the Partnership had a position of 1.1 million barrels with an aggregated unrealized gain of $8.6 million at December 31, 2023.
We had no interest rate swaps in effect during the years ended December 31, 2022 and 2021. Commodity Price Risk Our subsidiaries hold working inventories of refined petroleum products, renewable fuels, and gasoline blendstocks and transmix in storage. As of December 31, 2022, we held approximately $739 million of such inventory.
We had no interest rate swaps in effect during the years ended December 31, 2023 and 2022. 51 Table of Contents In dex to Financial Statements Commodity Price Risk Our subsidiaries hold working inventories of refined petroleum products, renewable fuels, gasoline blendstocks and transmix in storage. As of December 31, 2023, we held approximately $812 million of such inventory.
Removed
While in storage, volatility in 45 the market price of stored motor fuel could adversely impact the price at which we can later sell the motor fuel.
Removed
Financial Statements and Supplementary Data See Index to Consolidated Financial Statements at Page F-1. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.

Other SUN 10-K year-over-year comparisons