# Sunoco LP: Form 10-Q for the period ended Jun 30, 2022

- Company: [Sunoco LP](/companies/sun.md) (CIK 1552275)
- Form: 10-Q
- Filed: 2022-08-04
- Accepted by EDGAR: Aug 4, 2022, 10:47 ET
- Period: 2022-06-30
- Accession: 0001552275-22-000057
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1552275/000155227522000057/sun-20220630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1552275/000155227522000057/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-04-01 to 2022-06-30 | $7.82bn | us-gaap:Revenues |
| Revenue | 6 months, 2022-01-01 to 2022-06-30 | $13.22bn | us-gaap:Revenues |
| Cost of revenue | 3 months, 2022-04-01 to 2022-06-30 | $7.47bn | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2022-01-01 to 2022-06-30 | $12.44bn | us-gaap:CostOfRevenue |
| Operating income | 3 months, 2022-04-01 to 2022-06-30 | $173.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2022-01-01 to 2022-06-30 | $432.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-04-01 to 2022-06-30 | $45.0m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2022-01-01 to 2022-06-30 | $86.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-04-01 to 2022-06-30 | $8.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2022-01-01 to 2022-06-30 | $11.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-04-01 to 2022-06-30 | $121.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-01-01 to 2022-06-30 | $337.0m | us-gaap:NetIncomeLoss |
| Operating cash flow | 6 months, 2022-01-01 to 2022-06-30 | $337.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-04-01 to 2022-06-30 | $29.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Capital expenditure | 6 months, 2022-01-01 to 2022-06-30 | $55.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Current assets | at 2022-06-30 | $2.18bn | us-gaap:AssetsCurrent |
| Total assets | at 2022-06-30 | $6.92bn | us-gaap:Assets |
| Current liabilities | at 2022-06-30 | $1.50bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-06-30 | $5.94bn | us-gaap:Liabilities |

## Management's discussion and analysis

As filed, 38,690 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included elsewhere in this report. Additional discussion and analysis related to the Partnership is contained in our Annual Report on Form 10-K including the audited financial statements for the fiscal year ended December 31, 2021 included therein.*

*Adjusted EBITDA is a non-GAAP financial measure of performance that has limitations and should not be considered as a substitute for net income or other GAAP measures. Please see “Key Measures Used to Evaluate and Assess Our Business” below for a discussion of our use of Adjusted EBITDA in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and a reconciliation to net income for the periods presented.*

### Cautionary Statement Regarding Forward-Looking Statements

Some of the information in this Quarterly Report on Form 10-Q , may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this Quarterly Report on Form 10-Q, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. Statements using words such as “believe,” “plan,” “expect,” “anticipate,” “intend,” “forecast,” assume,” “estimate,” “continue,” “position,” “predict,” “project,” “goal,” “strategy,” “budget,” “potential,” “will” and other similar words or phrases are used to help identify forward-looking statements, although not all forward-looking statements contain such identifying words. Descriptions of our objectives, goals, targets, plans, strategies, costs, anticipated capital expenditures, expected cost savings and benefits are also forward-looking statements. These forward-looking statements are based on our current plans and expectations and involve a number of risks and uncertainties that could cause actual results and events to vary materially from the results and events anticipated or implied by such forward-looking statements, including:

- our ability to make, complete and integrate acquisitions from affiliates or third-parties;
- business strategy and operations of Energy Transfer LP ("Energy Transfer") and its conflicts of interest with us;
- changes in the price of and demand for the motor fuel that we distribute and our ability to appropriately hedge any motor fuel we hold in inventory;
- our dependence on limited principal suppliers;
- competition in the wholesale motor fuel distribution and retail store industry;
- changing customer preferences for alternate fuel sources or improvement in fuel efficiency;
- volatility of fuel prices or a prolonged period of low fuel prices and the effects of actions by, or disputes among or between, oil producing countries with respect to matters related to the price or production of oil;
- impacts of world health events, including the coronavirus ("COVID-19") pandemic, escalating global trade tensions and the conflict between Russia and Ukraine and resulting expansion of sanctions and trade restrictions;
- the possibility of cyber and malware attacks;
- changes in our credit rating, as assigned by rating agencies;
- a deterioration in the credit and/or capital markets;
- general economic conditions, including sustained periods of inflation and associated central bank monetary policies;
- environmental, tax and other federal, state and local laws and regulations;
- the fact that we are not fully insured against all risks incident to our business;
- dangers inherent in the storage and transportation of motor fuel;
- our ability to manage growth and/or control costs;
- our reliance on senior management, supplier trade credit and information technology; and
- our partnership structure, which may create conflicts of interest between us and Sunoco GP LLC, our general partner (our “General Partner”), and its affiliates, and limits the fiduciary duties of our General Partner and its affiliates.

All forward-looking statements, express or implied, are expressly qualified in their entirety by the foregoing cautionary statements.

Many of the foregoing risks and uncertainties are, and could be, heightened by the COVID-19 pandemic and any further worsening of the global business and economic environment. New factors that could impact forward-looking statements emerge from time to time, and it is not possible for us to predict all such factors. Should one or more of the risks or uncertainties described or referenced in this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K for the year ended December 31, 2021 occur, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements.

You should not put undue reliance on any forward-looking statements. When considering forward-looking statements, please review the risks described or referenced under the heading “Item 1A. Risk Factors” herein, including the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2021. The list of factors that could affect future performance and the accuracy of forward-looking statements is illustrative but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The forward-looking statements included in this report are based on, and include, our estimates as of the filing of this report. We anticipate that subsequent events and market developments will cause our estimates to change. However, we specifically disclaim any obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q, except as required by law, even if new information becomes available in the future.

### 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.

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 rental income through the leasing or subleasing of real estate used in the retail distribution of motor fuels. As of June 30, 2022, we operated 77 retail stores located in Hawaii and New Jersey.

We are managed by Sunoco GP LLC, our General Partner, which is owned by Energy Transfer. As of June 30, 2022, Energy Transfer owned 100% of the limited liability company interests in our General Partner, all of our incentive distribution rights and approximately 34.0% of our common units, which constitutes a 28.4% limited partner interest in us.

We believe we are one of the largest independent motor fuel distributors by gallons in the United States and 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 purchase motor fuel primarily from independent refiners and major oil companies and distribute it across approximately 40 states throughout the East Coast, Midwest, South Central and Southeast regions of the United States, as well as Hawaii to:

- 77 company-owned and operated retail stores;
- 517 independently operated commission agent locations where we sell motor fuel to retail customers under commission arrangements with such operators;
- 6,781 retail stores operated by independent operators, which we refer to as “dealers” or “distributors,” pursuant to long-term distribution agreements; and
- 2,442 other commercial customers, including unbranded retail stores, other fuel distributors, school districts, municipalities and other industrial customers.

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.

### Key Measures Used to Evaluate and Assess Our Business

Management uses a variety of financial measurements to analyze business performance, including the following key measures:

- *Motor fuel gallons sold*. One of the primary drivers of our business is the total volume of motor fuel sold through our channels. 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. Total motor fuel profit dollars earned from the product of profit per gallon and motor fuel gallons sold are used by management to evaluate business performance.
- *Profit per gallon*. profit per gallon is calculated as the profit on motor fuel (excluding non-cash inventory adjustments as described under "Adjusted EBITDA" below) divided by the number of gallons sold, and is typically expressed as cents per gallon. Our profit per gallon varies amongst our third-party relationships and is impacted by the availability of certain

discounts and rebates from suppliers. 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*. 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. Inventory adjustments that are excluded from the calculation of Adjusted EBITDA represent changes in lower of cost or market reserves on the Partnership's inventory. These amounts are unrealized valuation adjustments applied to fuel volumes remaining in inventory at the end of the period.

Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation of Adjusted EBITDA to net income, which is the most directly comparable financial measure calculated and presented in accordance with GAAP, read “Key Operating Metrics and Results of Operations” below.

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. 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. 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 or senior notes;
- 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.

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. 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. 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. 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.

### Three Months Ended June 30, 2022 compared to Three Months Ended June 30, 2021

The following table sets forth, for the periods indicated, information concerning key measures we rely on to gauge our operating performance:

*(dollars and gallons in millions, except gross profit per gallon)*

| Revenues: | Three Months Ended June 30, 2022 Fuel Distribution and Marketing | All Other | Total |  | 2021 Fuel Distribution and Marketing | All Other | Total |  |
| --- | ---: | ---: | ---: | --- | ---: | ---: | ---: | --- |
| Motor fuel sales | $7,481 | $197 | $7,678 |  | $4,139 | $153 | $4,292 |  |
| Non motor fuel sales | 41 | 61 | 102 |  | 16 | 50 | 66 |  |
| Lease income | 32 | 3 | 35 |  | 32 | 2 | 34 |  |
| Total revenues | $7,554 | $261 | $7,815 |  | $4,187 | $205 | $4,392 |  |
| **Cost of Sales:** |  |  |  |  |  |  |  |  |
| Motor fuel sales | $7,248 | $185 | $7,433 |  | $3,874 | $141 | $4,015 |  |
| Non motor fuel sales | 10 | 27 | 37 |  | 2 | 22 | 24 |  |
| Lease | — | — | — |  | — | — | — |  |
| Total cost of sales | $7,258 | $212 | $7,470 |  | $3,876 | $163 | $4,039 |  |
| Net income and comprehensive income |  |  | $121 |  |  |  | $166 |  |
| Adjusted EBITDA (1) | $200 | $14 | $214 |  | $191 | $10 | $201 |  |
| **Operating Data:** |  |  |  |  |  |  |  |  |
| Total motor fuel gallons sold |  |  | 1,985 |  |  |  | 1,933 |  |
| Motor fuel gross profit cents per gallon (2) |  |  | 12.3 | ¢ |  |  | 11.3 | ¢ |

(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.

The Partnership’s results of operations are discussed on a consolidated basis below. Those results are primarily driven by the fuel distribution and marketing segment, which is the Partnership’s only significant segment. To the extent that results of operations are significantly impacted by discrete items or activities within the all other segment, such impacts are specifically attributed to the all other segment in the discussion and analysis below.

In the discussion below, the analysis of the Partnership’s primary revenue generating activities are discussed in the analysis of Adjusted EBITDA, and other significant items impacting net income are analyzed separately.

The following table presents a reconciliation of Adjusted EBITDA to net income for the three months ended June 30, 2022 and 2021:

*(in millions)*

| Segment Adjusted EBITDA | Three Months Ended June 30, 2022 | 2021 | Change |
| --- | ---: | ---: | ---: |
| Fuel distribution and marketing | $200 | $191 | $9 |
| All other | 14 | 10 | 4 |
| Consolidated Adjusted EBITDA | 214 | 201 | 13 |
| Depreciation, amortization and accretion | (49) | (43) | (6) |
| Interest expense, net | (45) | (43) | (2) |
| Non-cash unit-based compensation expense | (3) | (3) | — |
| Gain on disposal of assets | 5 | 8 | (3) |
| Unrealized gain on commodity derivatives | 11 | 2 | 9 |
| Inventory adjustments | 1 | 59 | (58) |
| Equity in earnings of unconsolidated affiliate | 1 | 1 | — |
| Adjusted EBITDA related to unconsolidated affiliate | (3) | (2) | (1) |
| Other non-cash adjustments | (3) | (6) | 3 |
| Income tax expense | (8) | (8) | — |
| **Net income and comprehensive income** | $121 | $166 | $(45) |

The following discussion of results compares the operations for the three months ended June 30, 2022 and 2021.

***Adjusted EBITDA.*** Adjusted EBITDA for the three months ended June 30, 2022 was $214 million, an increase of $13 million from the three months ended June 30, 2021. The increase is primarily attributable to the following changes:

- an increase in the gross profit on motor fuel sales of $15 million, primarily due to a 9.6% increase in profit per gallon sold and a 2.7% increase in gallons sold;
- an increase in non motor fuel gross profit of $24 million, primarily due to an increase in storage tanks and terminals gross profit for the three months ended June 30, 2022. 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 $6 million to the overall increase; and
- an increase of $1 million in Adjusted EBITDA related to unconsolidated affiliate, which was attributable to the joint venture on the J.C. Nolan diesel fuel pipeline to West Texas; partially offset by
- an increase in operating costs of $27 million. These expenses include other operating expense, general and administrative expense and lease expense. The increase was primarily due to higher costs as a result of recent acquisitions of refined product terminals and the transmix processing and terminal facility, higher employee costs and credit card processing fees.

***Depreciation, Amortization and Accretion***. Depreciation, amortization and accretion was $49 million for the three months ended June 30, 2022 and $43 million for the three months ended June 30, 2021. This increase is primarily due to the recent acquisitions of refined product terminals and the transmix processing and terminal facility.

***Interest Expense***. Interest expense for the three months ended June 30, 2022 was $45 million, an increase of $2 million from the three months ended June 30, 2021. 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.

***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 the three months ended June 30, 2022 and 2021, proceeds from disposals of property and equipment were $7 million and $8 million, respectively.

***Unrealized Gain on Commodity Derivatives.*** The unrealized gains on our commodity derivatives represent the changes in fair value of our commodity derivatives. 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 3. Quantitative and Qualitative Disclosures about Market Risk” below.

***Inventory Adjustments.*** Inventory adjustments represent changes in lower of cost or market reserves using the last-in-first-out ("LIFO") method 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 the three months ended June 30, 2022, an increase in fuel prices reduced lower of cost or market reserve requirements for the period by $1 million, creating a favorable impact to net income. For the three months ended June 30, 2021, an increase in fuel prices reduced lower of cost or market reserve requirements for the period by $59 million, creating a favorable impact to net income.

### Six Months Ended June 30, 2022 compared to Six Months Ended June 30, 2021

The following table sets forth, for the periods indicated, information concerning key measures we rely on to gauge our operating performance:

*(dollars and gallons in millions, except gross profit per gallon)*

| Revenues: | Six Months Ended June 30, 2022 Fuel Distribution and Marketing | All Other | Total |  | 2021 Fuel Distribution and Marketing | All Other | Total |  |
| --- | ---: | ---: | ---: | --- | ---: | ---: | ---: | --- |
| Motor fuel sales | $12,608 | $347 | $12,955 |  | $7,391 | $264 | $7,655 |  |
| Non motor fuel sales | 82 | 110 | 192 |  | 30 | 109 | 139 |  |
| Lease income | 64 | 6 | 70 |  | 65 | 4 | 69 |  |
| Total revenues | $12,754 | $463 | $13,217 |  | $7,486 | $377 | $7,863 |  |
| **Cost of sales:** |  |  |  |  |  |  |  |  |
| Motor fuel sales | $12,046 | $325 | $12,371 |  | $6,853 | $244 | $7,097 |  |
| Non motor fuel sales | 22 | 49 | 71 |  | 4 | 58 | 62 |  |
| Lease | — | — | — |  | — | — | — |  |
| Total cost of sales | $12,068 | $374 | $12,442 |  | $6,857 | $302 | $7,159 |  |
| Net income and comprehensive income |  |  | $337 |  |  |  | $320 |  |
| Adjusted EBITDA (1) | $374,000,000 | $31,000,000 | $405,000,000 |  | $344 | $14 | $358 |  |
| **Operating Data:** |  |  |  |  |  |  |  |  |
| Total motor fuel gallons sold |  |  | 3,755 |  |  |  | 3,689 |  |
| Motor fuel gross profit cents per gallon (2) |  |  | 12.3 | ¢ |  |  | 10.8 | ¢ |

(1) We define Adjusted EBITDA, 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.

The Partnership’s results of operations are discussed on a consolidated basis below. Those results are primarily driven by the fuel distribution and marketing segment, which is the Partnership’s only significant segment. To the extent that results of operations are significantly impacted by discrete items or activities within the all other segment, such impacts are specifically attributed to the all other segment in the discussion and analysis below.

In the discussion below, the analysis of the Partnership’s primary revenue generating activities are discussed in the analysis of Adjusted EBITDA, and other significant items impacting net income are analyzed separately.

The following table presents a reconciliation of Adjusted EBITDA to net income for the six months ended June 30, 2022 and 2021:

*(in millions)*

| Segment Adjusted EBITDA: | Six Months Ended June 30, 2022 | 2021 | Change |
| --- | ---: | ---: | ---: |
| Fuel distribution and marketing | $374 | $344 | $30 |
| All other | 31 | 14 | 17 |
| Consolidated Adjusted EBITDA | 405 | 358 | 47 |
| Depreciation, amortization and accretion | (96) | (90) | (6) |
| Interest expense, net | (86) | (84) | (2) |
| Non-cash unit-based compensation expense | (8) | (7) | (1) |
| Gain on disposal of assets | 5 | 8 | (3) |
| Loss on extinguishment of debt | — | (7) | 7 |
| Unrealized gain on commodity derivatives | 20 | 7 | 13 |
| Inventory adjustments | 121 | 159 | (38) |
| Equity in earnings of unconsolidated affiliate | 2 | 2 | — |
| Adjusted EBITDA related to unconsolidated affiliate | (5) | (4) | (1) |
| Other non-cash adjustments | (10) | (11) | 1 |
| Income tax expense | (11) | (11) | — |
| **Net income and comprehensive income** | $337 | $320 | $17 |

The following discussion of results compares the operations for the six months ended June 30, 2022 and 2021.

***Adjusted EBITDA.*** Adjusted EBITDA for the six months ended June 30, 2022 was $405 million, an increase of $47 million from the six months ended June 30, 2021. The increase is primarily attributable to the following changes:

- an increase in the gross profit on motor fuel sales of $51 million, primarily due to a 14.1% increase in gross profit per gallon sold and a 1.8% increase in gallons sold;
- an increase in non motor fuel gross profit of $45 million, primarily due to an increase in storage tanks and terminals gross profit for the six months ended June 30, 2022. 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 $11 million to the overall increase; and
- an increase of $1 million in Adjusted EBITDA related to unconsolidated affiliate, which was attributable to the joint venture on the J.C. Nolan diesel fuel pipeline to West Texas; partially offset by
- an increase in operating costs of $50 million. These expenses include other operating expense, general and administrative expense and lease expense. 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, environmental costs, maintenance costs and, acquisition costs.

***Depreciation, Amortization and Accretion***. Depreciation, amortization and accretion was $96 million for the six months ended June 30, 2022 and $90 million for the six months ended June 30, 2021. This increase is primarily due to the recent acquisitions of refined product terminals and the transmix processing and terminal facility.

***Interest Expense***. Interest expense for the six months ended June 30, 2022 was $86 million, an increase of $2 million from the six months ended June 30, 2021. 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.

***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 the six months ended June 30, 2022 and 2021, proceeds from disposals of property and equipment were $11 million and $14 million, respectively.

***Unrealized Gain on Commodity Derivatives.*** The unrealized gains on our commodity derivatives represent the changes in fair value of our commodity derivatives. 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 3. 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. These amounts are unrealized valuation adjustments applied to fuel volumes remaining in inventory at the end of the period. For the six months ended June 30, 2022, an increase in fuel prices reduced lower of cost or market reserve requirements for the period by $121 million, creating a favorable impact to net income. For the six months ended June 30, 2021, an increase in fuel prices reduced lower of cost or market reserve requirements for the period by $159 million, creating a favorable impact to net income.

### Liquidity and Capital Resources

### Liquidity

Our principal liquidity requirements are to finance current operations, to fund capital expenditures, including acquisitions from time to time, to service our debt and to make distributions. 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.

Our ability to meet our debt service obligations and other capital requirements, including capital expenditures and acquisitions, will depend on our future operating performance which, in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control. As a normal part of our business, depending on market conditions, we will from time to time consider opportunities to repay, redeem, repurchase or refinance our indebtedness. Changes in our operating plans, lower than anticipated sales, increased expenses, acquisitions or other events may cause us to seek additional debt or equity financing in future periods. 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 risks described or referenced under the heading “Item 1A. Risk Factors” herein, including the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2021 may also significantly impact our liquidity.

As of June 30, 2022, we had $168 million of cash and cash equivalents on hand and borrowing capacity of $0.6 billion under the Partnership's Second Amended and Restated Credit Agreement with Bank of America, N.A., as Administrative Agent, Collateral Agent, Swingline Lender and a line of credit issuer (the "Credit Facility"). The Credit Facility amended and restated the former revolving credit facility entered into on July 27, 2018 (the "2018 Revolver"). The Partnership was in compliance with all financial covenants at June 30, 2022. Based on our current estimates, we expect to utilize capacity under the 2018 Revolver, along with cash from operations, to fund our announced growth capital expenditures and working capital needs for 2022; however, we may issue debt or equity securities prior to that time as we deem prudent to provide liquidity for new capital projects or other partnership purposes.

### Cash Flows

Our cash flows may change in the future due to a number of factors, some of which we cannot control. These factors include regulatory changes, the price of products and services, the demand for such products and services, margin requirements resulting from significant changes in commodity prices, operational risks, the successful integration of our acquisitions and other factors.

*(in millions)*

| Net cash provided by (used in) | For the Six Months Ended June 30, 2022 | 2021 |
| --- | ---: | ---: |
| Operating activities | $337 | $275 |
| Investing activities | (305) | (31) |
| Financing activities | 111 | (254) |
| **Net increase (decrease) in cash and cash equivalents** | $143 | $(10) |

21

### 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). Non-cash items include recurring non-cash expenses, such as depreciation, amortization and accretion 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. 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.

***Six months ended June 30, 2022 compared to six months ended June 30, 2021.*** Net cash provided by operations was $337 million and $275 million for the six months of 2022 and 2021, respectively. The increase in cash flows provided by operations was due to a $99 million increase in cash basis net income compared to the six months ended June 30, 2021; partially offset by a decrease in net cash flow from operating assets and liabilities of $37 million compared to the six months ended June 30, 2021.

### 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 construction and expansion projects.

***Six months ended June 30, 2022 compared to six months ended June 30, 2021.*** Net cash used in investing activities was $305 million and $31 million for the first six months of 2022 and 2021, respectively. The six months ended June 30, 2022 included the payment of a $264 million cash deposit for a transmix processing and terminal facility acquisition completed in April 2022. Capital expenditures were $55 million and $48 million for the first six months of 2022 and 2021, respectively. Distributions from unconsolidated affiliate in excess of cumulative earnings were $3 million and $3 million for the six months ended June 30, 2022 and 2021, respectively. Proceeds from disposal of property and equipment were $11 million and $14 million for the first six months of 2022 and 2021, respectively.

### Financing Activities

Changes in cash flows from financing activities between periods primarily result from changes in the levels of borrowings and equity issuances, which are primarily used to fund our acquisitions and growth capital expenditures. Distributions increase between the periods based on increases in the number of common units outstanding or increases in the distribution rate.

***Six months ended June 30, 2022 compared to six months ended June 30, 2021.*** Net cash provided by financing activities was $111 million and net cash used in financing activities was $254 million for the first six months of 2022 and 2021, respectively. During the six months ended June 30, 2022, we:

- borrowed $2.3 billion and repaid $2.0 billion under the Credit Facility and 2018 Revolver, respectively, to fund daily operations; and
- paid $176 million in distributions to our unitholders, of which $82 million was paid to Energy Transfer.

During the six months ended June 30, 2021, we:

- borrowed $851 million and repaid $490 million under the 2018 Revolver to fund daily operations and to repurchase the senior notes discussed below;
- paid $436 million to repurchase the 4.875% senior notes due 2023; and
- paid $176 million in distributions to our unitholders, of which $82 million was paid to Energy Transfer.

We intend to pay cash distributions to the holders of our common units and Class C units representing limited partner interests in the Partnership (“Class C Units”) on a quarterly basis, to the extent we have sufficient cash from our operations after establishment of cash reserves and payment of fees and expenses, including payments to our General Partner and its affiliates. Class C unitholders receive distributions at a fixed rate equal to $0.8682 per quarter for each Class C Unit outstanding. There is no guarantee that we will pay a distribution on our units. On July 26, 2022, we declared a quarterly distribution totaling $69 million, or $0.8255 per common unit based on the results for the three months ended June 30, 2022, excluding distributions to Class C unitholders. The declared distribution will be paid on August 19, 2022 to unitholders of record on August 8, 2022.

### Capital Expenditures

Included in our capital expenditures for the first six months of 2022 was $10 million in maintenance capital and $45 million in growth capital. Growth capital relates primarily to the construction of the Partnership's Brownsville, Texas terminal and dealer and distributor supply contracts.

We currently expect to spend approximately $50 million in maintenance capital and at least $150 million in growth capital for the full year 2022.

### Description of Indebtedness

As of the dates set forth below, our outstanding consolidated indebtedness was as follows:

*(in millions)*

|  | June 30, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Sale leaseback financing obligation | $85 | $91 |
| Credit Facility | 869 | 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 |
| Finance leases | 9 | 9 |
| Total debt | 3,563 | 3,281 |
| Less: current maturities | — | 6 |
| Less: debt issuance costs | 25 | 26 |
| Long-term debt, net | $3,538 | $3,249 |

### Revolving Credit Agreement

The Partnership is party to the Credit Facility. As of June 30, 2022, the balance on the Credit Facility was $869 million, and $6 million in standby letters of credit were outstanding. The unused availability on the Credit Facility at June 30, 2022 was $0.6 billion. The weighted average interest rate on the total amount outstanding at June 30, 2022 was 3.48%. The Partnership was in compliance with all financial covenants at June 30, 2022.

### Contractual Obligations and Commitments

***Contractual Obligations***. We have contractual obligations that are required to be settled in cash. As of June 30, 2022, we had $869 million borrowed on the Credit Facility compared to $581 million borrowed on the 2018 Revolver at December 31, 2021. Further, as of June 30, 2022, we had $2.6 billion outstanding under our Senior Notes. See Note 6 in the Notes to Consolidated Financial Statements in "Item 1. Financial Statements" for more information on our debt transactions.

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 0.5 million barrels with an aggregated unrealized gain of $8.9 million outstanding at June 30, 2022.

***Properties***. Most of our leases are net leases requiring us to pay taxes, insurance and maintenance costs. We believe that no individual leased site is material to us.

### Critical Accounting Estimates

The Partnership's critical accounting estimates are described in our Annual Report on Form 10-K for the year ended December 31, 2021. No significant changes have occurred subsequent to the Form 10-K filing.

## Market risk

As filed, 2,630 characters.

### 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 $869 million of outstanding borrowings on the Credit Facility as of June 30, 2022. The annualized effect of a one percentage point change in floating interest rates on our variable rate debt obligations outstanding at June 30, 2022 would be an $8.7 million change to interest expense. 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.

While we cannot predict or manage our ability to refinance existing debt or the impact interest rate movements will have on our existing debt, management evaluates our financial position on an ongoing basis. From time to time, we may enter into interest rate swaps to reduce the impact of changes in interest rates on our floating rate debt. We had no interest rate swaps in effect during the first six months of 2022 or 2021.

### Commodity Price Risk

Our subsidiaries hold working inventories of refined petroleum products, renewable fuels, gasoline blendstocks and transmix in storage. As of June 30, 2022, we held approximately $614 million of such inventory. While 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. Derivative instruments utilized consist primarily of exchange-traded futures contracts traded on the New York Mercantile Exchange, Chicago Mercantile Exchange and Intercontinental Exchange as well as over-the-counter transactions (including swap agreements) entered into with established financial institutions and other credit-approved energy companies. Our policy is generally to purchase only products for which there is a market and to structure sales contracts so that price fluctuations do not materially affect profit. While these derivative instruments represent economic hedges, they are not designated as hedges for accounting purposes. 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 0.5 million barrels with an aggregate unrealized gain of $8.9 million outstanding at June 30, 2022.

## Controls and procedures

As filed, 1,526 characters.

### Evaluation of Disclosure Controls and Procedures

As required by paragraph (b) of Rule 13a-15 under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded, as of the end of the period covered by this report, that our disclosure controls and procedures were effective at the reasonable assurance level for which they were designed in that the information required to be disclosed by the Partnership in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission ("SEC") rules and forms and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting (as defined in Rule 13(a)-15(f) or Rule 15d-15(f) of the Exchange Act) during the three months ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 229 characters.

There have been no material changes from the risk factors described in "Part I - Item 1A. Risk Factors" in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 18, 2022.

Filed Aug 4, 2022.
Source: SEC EDGAR, the filing index for accession 0001552275-22-000057. Last ingested by Listed: Nov 5, 2026, 13:03 ET. No prices; not investment advice.