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    SUN   US86765K1097

SUNOCO LP

(SUN)
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SUNOCO LP : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

05/07/2021 | 11:23am EDT
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, 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 of Energy 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
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 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
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referenced in this Quarterly Report on Form 10-Q or our Annual Report on Form
10-K for the year ended December 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 ended
December 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 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 March 31, 2021, we operated 78 retail stores located in Hawaii and
New Jersey.
We are managed by Sunoco GP LLC, our General Partner, which is owned by ET.
Prior to April 1, 2021, Energy Transfer Operating, L.P. ("ETO") owned our
General Partner. On April 1, 2021, ETO merged into ET with ET surviving the
merger. As of March 31, 2021, and immediately prior to such merger, ETO, a
consolidated subsidiary of ET, owned 100% of the membership interests in our
General 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 in the United States and one of the largest distributors of Chevron,
Exxon, 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 more than 30 states throughout the East
Coast, Midwest, South Central and Southeast regions of the United States, as
well as Hawaii 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 and Aloha Island Mart, and offer a broad selection of food, beverages,
snacks, grocery and non-food merchandise, motor fuels and other services.
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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 the Department 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.
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.
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.
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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.
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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 March 31, 2021 compared to Three Months Ended March 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.














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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 ended March 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

$ (128) $ 282



The following discussion of results compares the operations for the three months
ended March 31, 2021 and 2020.
Adjusted EBITDA. Adjusted EBITDA for the three months ended March 31, 2021 was
$157 million, a decrease of $52 million from the three months ended March 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 ended March 31, 2021 compared to the three
months ended March 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 ended
March 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 ended March 31, 2021 and $45
million for the three months ended March 31, 2020.
Interest Expense. Interest expense for the three months ended March 31, 2021 was
$41 million, a decrease of $3 million from the three months ended March 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 ended March 31, 2021 and three
months ended March 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.
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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 March 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 ended March 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 ended December 31, 2020 may also
significantly impact our liquidity.
As of March 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 and Bank 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 at March 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 Ended March 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
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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 ended March 31, 2021 compared to three months ended March 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 ended March 31, 2020
and a $41 million decrease in cash basis net income compared to the three months
ended March 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 ended March 31, 2021 compared to three months ended March 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 ended March 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 ended March 31, 2021 compared to three months ended March 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 ended
March 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 ended March 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 ("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 April 22, 2021, we declared a quarterly
distribution totaling $69 million, or $0.8255 per common unit based on the
results for the three months ended March 31, 2021, excluding distributions to
Class C unitholders. The declared distribution will be paid on May 19, 2021 to
unitholders of record on May 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.
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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.
                                       24

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