SUNOCO LP 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 endedDecember 31, 2020 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 (loss) 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 ofEnergy Transfer LP ("ET") 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; •changes in our credit rating, as assigned by rating agencies; •a deterioration in the credit and/or capital markets; •general economic conditions; •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 andSunoco GP LLC , our general partner (our "General Partner"), and its affiliates, and limits the fiduciary duties of ourGeneral 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 will 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 15 -------------------------------------------------------------------------------- referenced in this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K for the year endedDecember 31, 2020 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 endedDecember 31, 2020 . 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 toSunoco LP and our consolidated subsidiaries, unless the context clearly indicates otherwise. We are aDelaware 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 ofMarch 31, 2021 , we operated 78 retail stores located inHawaii andNew Jersey . We are managed bySunoco GP LLC , ourGeneral Partner , which is owned by ET. Prior toApril 1, 2021 ,Energy Transfer Operating, L.P. ("ETO") owned ourGeneral Partner . OnApril 1, 2021 , ETO merged into ET with ET surviving the merger. As ofMarch 31, 2021 , and immediately prior to such merger, ETO, a consolidated subsidiary of ET, owned 100% of the membership interests in ourGeneral Partner , all of our incentive distribution rights and approximately 34.2% of our common units, which constitutes a 28.5% limited partner interest in us. We believe we are one of the largest independent motor fuel distributors by gallons inthe United States and one of the largest distributors ofChevron , Exxon, and Valero branded motor fuel inthe 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 more than 30 states throughout theEast Coast , Midwest, South Central and Southeast regions ofthe United States , as well asHawaii to: •78 company-owned and operated retail stores; •540 independently operated commission agent locations where we sell motor fuel to retail customers under commission arrangements with such operators; •6,757 retail stores operated by independent operators, which we refer to as "dealers" or "distributors," pursuant to long-term distribution agreements; and •2,493 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 andAloha Island Mart , and offer a broad selection of food, beverages, snacks, grocery and non-food merchandise, motor fuels and other services. 16 --------------------------------------------------------------------------------
Recent Developments and Outlook
The COVID-19 pandemic has created significant volatility, uncertainty and economic disruption. As a provider of critical energy infrastructure, our business has been designated as a "critical business" and our employees as "critical infrastructure workers" pursuant to theDepartment of Homeland Security Guidance on Essential Critical Infrastructure Workforce (s). As an essential business providing motor fuels, the safety of our employees and the continued operation of our assets are our top priorities and we will continue to operate in accordance with federal and state health guidelines and safety protocols. We have implemented several new policies and provided employee training to help maintain the health and safety of our workforce. The future impact of the outbreak is highly uncertain and we cannot predict the impact on our volume demand, gross profit or collections from customers. There is no assurance that it will not have other material adverse impacts on the future results of the Partnership. OnJanuary 15, 2021 , we used proceeds from borrowings on our 2018 Revolver (described below) to repurchase the remaining$436 million outstanding principal amount of our 4.875% senior notes due 2023.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, gross profit is directly tied to the volume of motor fuel that we distribute. Total motor fuel gross profit dollars earned from the product of gross profit per gallon and motor fuel gallons sold are used by management to evaluate business performance. •Gross profit per gallon. Gross profit per gallon is calculated as the gross 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 gross profit per gallon varies amongst our third-party relationships and is impacted by the availability of certain discounts and rebates from suppliers. Retail gross 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" 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. 17 -------------------------------------------------------------------------------- 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. 18 -------------------------------------------------------------------------------- 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 EndedMarch 31, 2021 compared to Three Months EndedMarch 31, 2020 The following table sets forth, for the periods indicated, information concerning key measures we rely on to gauge our operating performance: Three Months Ended March 31, 2021 2020 Fuel Distribution Fuel Distribution and Marketing All Other Total and Marketing All Other Total (dollars and gallons in millions, except gross profit per gallon) Revenues: Motor fuel sales $ 3,252$ 111 $ 3,363 $ 3,039$ 127 $ 3,166 Non motor fuel sales 14 59 73 11 60 71 Lease income 33 2 35 30 5 35 Total revenues $ 3,299$ 172 $ 3,471 $ 3,080$ 192 $ 3,272 Gross profit (1): Motor fuel sales $ 273$ 8 $ 281 $ (6)$ 27 $ 21 Non motor fuel sales 11 24 35 11 41 52 Lease 33 2 35 30 5 35 Total gross profit $ 317$ 34 $ 351 $ 35$ 73 $ 108 Net income (loss) and comprehensive income (loss) $ 162$ (8) $ 154 $ (157)$ 29 $ (128) Adjusted EBITDA (2) $ 153$ 4 $ 157 $ 160$ 49 $ 209 Operating Data: Total motor fuel gallons sold 1,756
1,898
Motor fuel gross profit cents per gallon (3) 10.3 ¢ 13.1 ¢
________________________________
(1) Excludes depreciation, amortization and accretion. (2) We define Adjusted EBITDA, which is a non-GAAP financial measure, as described above under "Key Measures Used to Evaluate and Assess Our Business." (3) Excludes the impact of inventory adjustments consistent with the definition of Adjusted EBITDA. 19
-------------------------------------------------------------------------------- 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 (loss) for the three months endedMarch 31, 2021 and 2020: Three Months Ended March 31, 2021 2020 Change (in millions) Adjusted EBITDA Fuel distribution and marketing $ 153$ 160 $ (7) All other 4 49 (45) Total Adjusted EBITDA 157 209 (52) Depreciation, amortization and accretion (47) (45) (2) Interest expense, net (41) (44) 3 Non-cash unit-based compensation expense (4) (4) - Loss on disposal of assets - (2) 2 Loss on extinguishment of debt (7) - (7) Unrealized gain (loss) on commodity derivatives 5 (6) 11 Inventory adjustments 100 (227) 327 Equity in earnings of unconsolidated affiliate 1 1 - Adjusted EBITDA related to unconsolidated affiliate (2) (2) - Other non-cash adjustments (5) (5) - Income tax expense (3) (3) -
Net income (loss) and comprehensive income (loss) $ 154
The following discussion of results compares the operations for the three months endedMarch 31, 2021 and 2020. Adjusted EBITDA. Adjusted EBITDA for the three months endedMarch 31, 2021 was$157 million , a decrease of$52 million from the three months endedMarch 31, 2020 . The decrease is primarily attributable to the following changes: •a decrease in the gross profit on motor fuel sales of$78 million , primarily due to a 20.7% decrease in gross profit per gallon sold and a 7.5% decrease in gallons sold for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 ; •a decrease in non motor fuel sales and lease gross profit of$17 million , primarily due to reduced credit card transactions for the three months endedMarch 31, 2020 ; partially offset by •a decrease in operating costs of$43 million . These expenses include other operating expense, general and administrative expense and lease expense. The decrease was primarily due to lower expected credit losses, employee costs, professional fees, credit card processing fees, insurance and maintenance costs. Depreciation, Amortization and Accretion. Depreciation, amortization and accretion was$47 million for the three months endedMarch 31, 2021 and$45 million for the three months endedMarch 31, 2020 . Interest Expense. Interest expense for the three months endedMarch 31, 2021 was$41 million , a decrease of$3 million from the three months endedMarch 31, 2020 . This decrease is primarily attributable to a slight decrease in average total long-term debt and decrease 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$4 million for the three months endedMarch 31, 2021 and three months endedMarch 31, 2020 . 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. 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. 20 -------------------------------------------------------------------------------- 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 endedMarch 31, 2021 , an increase in fuel prices reduced lower of cost or market reserve requirements for the period by$100 million , creating a favorable impact to net income. For the three months endedMarch 31, 2020 , a decline in fuel prices increased lower of cost or market reserve requirements for the period by$227 million , creating an adverse impact to net loss. 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 endedDecember 31, 2020 may also significantly impact our liquidity. As ofMarch 31, 2021 , we had$95 million of cash and cash equivalents on hand and borrowing capacity of$1.1 billion under the Amended and Restated Credit Agreement among the Partnership, as borrower, the lenders from time to time party thereto andBank of America, N.A ., as administrative agent, collateral agent, swingline lender and a line of credit issuer (the "2018 Revolver"). The Partnership was in compliance with all financial covenants atMarch 31, 2021 . 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 2021; 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. For the Three Months EndedMarch 31, 2021 2020 (in millions)
Net cash provided by (used in)
Operating activities $ 152$ 38 Investing activities (9) (40) Financing activities (145) 12
Net increase (decrease) in cash and cash
equivalents $ (2)$ 10 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, 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 21 -------------------------------------------------------------------------------- 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. Three months endedMarch 31, 2021 compared to three months endedMarch 31, 2020 . Net cash provided by operations was$152 million and$38 million for the three months of 2021 and 2020, respectively. The increase in cash flows provided by operations was due to an increase in net cash flow from operating assets and liabilities of$155 million compared to the three months endedMarch 31, 2020 and a$41 million decrease in cash basis net income compared to the three months endedMarch 31, 2020 . 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. Three months endedMarch 31, 2021 compared to three months endedMarch 31, 2020 . Net cash used in investing activities was$9 million and$40 million for the first three months of 2021 and 2020, respectively. Capital expenditures were$18 million and$41 million for the first three months of 2021 and 2020, respectively. Contributions to unconsolidated affiliate were$0 million and$4 million for the three months endedMarch 31, 2021 and 2020, respectively. Proceeds from disposal of property and equipment were$6 million and$2 million for the first three months of 2021 and 2020, 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. Three months endedMarch 31, 2021 compared to three months endedMarch 31, 2020 . Net cash used in financing activities was$145 million and$12 million for the first three months of 2021 and 2020, respectively. During the three months endedMarch 31, 2021 , we: •borrowed$472 million and repaid$91 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$88 million in distributions to our unitholders, of which$41 million was paid to ETO. During the three months endedMarch 31, 2020 , we: •borrowed$453 million and repaid$350 million under the 2018 Revolver to fund daily operations; and •paid$88 million in distributions to our unitholders, of which$41 million was paid to ETO. We intend to pay cash distributions to the holders of our common units and Class C units representing limited partner interests in the Partnership ("ClassC 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 ourGeneral Partner and its affiliates. Class C unitholders receive distributions at a fixed rate equal to$0.8682 per quarter for each ClassC Unit outstanding. There is no guarantee that we will pay a distribution on our units. OnApril 22, 2021 , we declared a quarterly distribution totaling$69 million , or$0.8255 per common unit based on the results for the three months endedMarch 31, 2021 , excluding distributions to Class C unitholders. The declared distribution will be paid onMay 19, 2021 to unitholders of record onMay 11, 2021 . Capital Expenditures Included in our capital expenditures for the first three months of 2021 was$5 million in maintenance capital and$13 million in growth capital. Growth capital relates primarily to dealer supply contracts. We currently expect to spend approximately$45 million in maintenance capital and$150 million in growth capital for the full year 2021. 22 --------------------------------------------------------------------------------
Description of Indebtedness
Our outstanding consolidated indebtedness was as follows:
March 31, December 31,
2021 2020
(in millions)
Sale leaseback financing obligation $ 95 $ 97
2018 Revolver 381 -
4.875% Senior Notes Due 2023 (1) - 436
5.500% Senior Notes Due 2026 (2) 800 800
6.000% Senior Notes Due 2027 600 600
5.875% Senior Notes Due 2028 (2) 400 400
4.500% Senior Notes Due 2029 800 800
Finance leases 16 6
Total debt 3,092 3,139
Less: current maturities 7 6
Less: debt issuance costs 24 27
Long-term debt, net $ 3,061 $ 3,106
(1) On January 15, 2021 , we used proceeds from borrowings on our 2018 Revolver
(described below) to repurchase the remaining $436 million outstanding principal
amount of our 4.875% senior notes due 2023.
(2) In connection with the merger of ETO into ET on April 1, 2021 , as discussed
in Note 1 in the Notes to Consolidated Financial Statements in "Item 1.
Financial Statements", the guarantees of the Partnership's senior notes due 2026
and 2028 have been assumed by ET.
Revolving Credit Agreement
The Partnership is party to the 2018 Revolver. As of March 31, 2021 , the balance
on the 2018 Revolver was $381 million , and $8 million in standby letters of
credit were outstanding. The unused availability on the 2018 Revolver at
March 31, 2021 was $1.1 billion . The weighted average interest rate on the total
amount outstanding at March 31, 2021 was 1.86%. The Partnership was in
compliance with all financial covenants at March 31, 2021 .
Contractual Obligations and Commitments
Contractual Obligations. We have contractual obligations that are required to be
settled in cash. As of March 31, 2021 , we had $381 million borrowed on the 2018
Revolver compared to $0 million borrowed on the 2018 Revolver at December 31,
2020 . Further, as of March 31, 2021 , 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 0.9 million barrels with an aggregated unrealized
gain of $5.0 million outstanding at March 31, 2021 .
Properties. Most of our leases are net leases requiring us to pay taxes,
insurance and maintenance costs. We believe that no individual site is material
to us.
Estimates and Critical Accounting Policies
We prepare our consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America . The preparation
of these financial statements requires us to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses and
disclosure of contingent assets and liabilities as of the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Critical accounting policies are those we believe are both most important to the
portrayal of our financial condition and results of operations, and require our
most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effects of matters that are inherently uncertain.
Judgments and uncertainties affecting the application of those policies may
result in
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materially different amounts being reported under different conditions or using
different assumptions. Our significant accounting policies are described in Note
2 in the Notes to Consolidated Financial Statements in "Item 1. Financial
Statements" and in our Annual Report on Form 10-K for the year ended
December 31, 2020 .
Item 3. 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 $381 million
of outstanding borrowings on the 2018 Revolver as of March 31, 2021 . The
annualized effect of a one percentage point change in floating interest rates on
our variable rate debt obligations outstanding at March 31, 2021 would be a $4
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 three months of 2021 or 2020.
Commodity Price Risk
Sunoco LLC and Aloha hold working inventories of refined petroleum products,
renewable fuels, gasoline blendstocks and transmix in storage. As of March 31,
2021 , Sunoco LLC held approximately $372 million and Aloha held approximately
$28 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, Sunoco LLC uses 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 NYMEX, CME and ICE as well as
over-the-counter transactions (including swap agreements) entered into with
established financial institutions and other credit-approved energy companies.
Sunoco LLC's 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. Sunoco LLC also engages in controlled trading in
accordance with specific parameters set forth in a written risk management
policy. While these derivative instruments represent economic hedges, they are
not designated as hedges for accounting purposes.
On a consolidated basis, the Partnership had a position of 0.9 million barrels
with an aggregate unrealized gain of $5.0 million outstanding at March 31, 2021 .
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